But where is the problem? Investors lost their money but money is flowing into the country and new investors will replace the old ones. The workers got paid (hopefully) and will go buy stuff with it. And the developer will spend the money on new Audis and Gucci clothes.

Obviously it's not the most efficient way to build an economy, but it grows the economy nonetheless. The keyis that there are not a bunch of “zombie” corporations in China straddled with debt and unable to grow. Developers just take cash from the new rich, and leave empty buildings.

I believe China's growth prospects hinge squarely on investor sentiment, which can be a tricky thing to predict. If investors believe China is the place to be, this cycle will continue just fine and money flows all over the country. But if China falls out of favor, then there won't be any more investors to replace the ones that were just swindled, and the developers dump their money in Swiss bank accounts while the economy collapses.

>>> what about the contruction companies? they built these monsters with cash? I find it VERY hard to believe.

See also Merryn Somerset Webb's analysis of China:
http://www.ft.com/cms/s/2/b5ed0ec0-72f4-11de-ad...

As far as the condos you speak of, what is the point of buying and holding them if there is no return. They're not being rented out (obviously), nor will they get any return at sale as the market is flooded with new condo projects. Astounding indeed.

Yes, the Chinese save a lot thanks to Westerners buying the cheap goods they produce. That gravy train broken down on the tracks now.

(There are plenty of cars and condos in the US bought and sold for cash btw.)