China Bears

[Mr Z]

no, but many are greedy and they don't have the regulation or procedures we do.

LOL... not a good look That can't be good for a developers future prospects!

There is a tower in St Kilda that looks like that should happen to it, not sure what happened but it is the dodgiest looking thing around.

http://www.flickr.com/photos/calignosus/3766283994/in/photostream

Yes that is around a meter or so of lean on it!

 

[skc]

no, but many are greedy and they don't have the regulation or procedures we do.

I believe the developer here is using a recent innovation in construction technique called "tilt up" construction. It reduces the requirement for cranes.

http://en.wikipedia.org/wiki/Tilt_up

 

[Mr Z]

In their defense the building itself held together despite the fall, so the construction was not THAT bad. Apparently it had something to do with the garage being constructed underneath it, maybe a good geotech was needed! Also it seems to be fairly isolated occurrences and it is not like first world nations are not without the odd construction disaster. + its China, they only lost two weeks work

Tilt up... LOL. You know they could probably do that, it is amazing how they can transport brick buildings.

 

[Glen48]

Flat pack housing what will they think of next..Those units the builder decide no to use piles as support I guess he thought they are hidden and no one would know.

 

[Mr Z]

You should see the Allen key that comes with it.

 

[choofer]

no, but many are greedy and they don't have the regulation or procedures we do.

That is a very strange way to erect a building, they musty have one massive crane to pull it up lol

 

[marioland]

I think it is just a matter of time until China's economy will become bearish. Kiyosaki predicted that China would trigger the GFC and that didn't happen but they're still due to hit a rough patch.

 

[Mr Z]

Kiyosaki didn't really see the first GFC coming did he? The crowd I was reading seemed to be light years ahead of him, I'd not be trusting his calls FWIW.

I'm sure China will stumble, no prize for forecasting that as it is par for the course in any countries economic development. When is the handy bit of info... Many are calling it a ponzi scheme with no sustainability, I'd question that idea but then some big names are short China, guys like Chanos. Dohman is a bear, although his arguments are not that well developed IMO. I'd like to read a really well developed bear case, most seem to be guessing quite a bit.

 

[Starcraftmazter]

If 60% are paid for in Cash and financing is restricted it is hard to argue that they are too expensive given western norms.

Funny you should mention that. The land values on the most rural towns, where such land is covered by frost almost year sell for the same amounts of money as the most expensive land in the richest and best suburbs in the USA. It is a by all means a bubble.

I would not comment on quality until I had seen them, US commentators seem to love running down Chinese capability. I'm sure they are rough and ready but I think falling apart is probably a stretch, the Chinese are not stupid.

They have a lot of collapsing bridges pretty much on a weekly basis. There is significant infrastructural overcapacity as well. A lot of infrastructure is needed to support a population of 1.2-1.4 Bn sure - but it can not simply be built randomly, far away from major population centres. And let's not even mention their ridiculous high speed rail systems which replace ordinary rail, are too expensive for ordinary people to use, and are built with shoddy quality.

I recommend you read these:
http://www.macrobusiness.com.au/2011/07/chinese-malinvestment-grows/
http://www.macrobusiness.com.au/2011/07/chinas-believe-it-or-not/

Very deep insights.

 

[tothemax6]

I've been posting on 'China' threads for a while now, and most people just ignore me, but given that this thread seems to be specifically about the issue I often raise, I suppose I'll throw in my .

China is unambiguously in a construction bubble.
Any Google searches for 'china empty cities' will show you evidence of the bubble. There are masses of buildings that are just being built 'for investment', that 'will be needed in the future, regardless of how many are made', and which remain empty. Indeed, investors prefer to keep the real estate empty - a used apartment lowers future resale price. Not only that, the real estate is wildly unaffordable to the average chinese. I've seen videos of a group of working chinese, including a married couple, all huddling in the one run down hovel on ground level, under the shadows of the empty condominiums that they couldn't possibly live in.

And the real estate bubble is just the beginning. For a long time now, to meet growth targets (or perhaps as a sinister throwback, 'quotas'), governments in china have been building and building and building, anything. All public works add points to GDP. And how are these public works financed? Heavy duty credit expansion from the banks - the hallmark of true bubble. It is no surprise that inflation is consistently above 6% even by government measures. In spite of this, the central bank still has interest rates held at below the rate of inflation.

Indeed, if China does not crash, it will truly be a magic country, which defies all established understanding of economics.

This is not to say that china will not do well in the long run (the US for instance, grew at a tremendous pace, regardless of the repeated financial panics and recessions throughout its history). But at some point in the near future, it will crash.

As a country which is riding a mining boom, which comes from the Chinese desire to throw iron ore and coal into its construction boom, investors here should be paying more attention to this, and perhaps be thinking about how to protect their wealth.
I'm currently thinking yen, gold, USD in that order, to protect from the inevitable drop in AUD.

 

[Mr Z]

Funny you should mention that. The land values on the most rural towns, where such land is covered by frost almost year sell for the same amounts of money as the most expensive land in the richest and best suburbs in the USA. It is a by all means a bubble.

Can you source that for me? The last land value I saw for Shanghai put it on par with an upper middle class Melbourne suburb. It seems unlikely that essentially waste rural land (frost all year?) is selling for the same as Malibu Beach, even after the US crash! The last price I saw on units in a new Chinese city was around the 100K AUD mark, a price we could not build for!

Regardless a construction bubble where demand has been choked back is a far more resolvable situation than exists in the US or Australia.

They have a lot of collapsing bridges pretty much on a weekly basis. There is significant infrastructural overcapacity as well. A lot of infrastructure is needed to support a population of 1.2-1.4 Bn sure - but it can not simply be built randomly, far away from major population centres. And let's not even mention their ridiculous high speed rail systems which replace ordinary rail, are too expensive for ordinary people to use, and are built with shoddy quality.

I recommend you read these:
http://www.macrobusiness.com.au/2011/07/chinese-malinvestment-grows/
http://www.macrobusiness.com.au/2011/07/chinas-believe-it-or-not/

Very deep insights.

I'm sorry but you just sound deeply bias, you seem to be attempting to degrade the Chinese and their decision making processes. While we may not get it one thing they are not is stupid. They have had all the lessons of US history to study and it will not surprise if there is some method in what the US commentators describe as madness.

There is certainly a lot of fixed investment going on, I'd rather that than their codependent partners (the US) 'no investment'. They will come off better after any economic train wreck because they will have a better base to build on. The train wreck part seems inevitable, my expectation has been that it will be a great depression event but that China will emerge with the upper hand, much like the US did over England. Chinese demographics don't support that idea that well, they suggest that we should be looking more toward India. India seems to be working smarter and not suffering from the aging population issue. Not so much production going on in India yet but they are getting well qualified. IMO this is the dark horse coming from behind, smart and aggressive if a little on the chaotic side.

 

[Mr Z]

I've been posting on 'China' threads for a while now, and most people just ignore me,

Doesn't surprise me as you specifically go out of your way to call people thugs. Not a great tactic if you want to be seen as credible.

Still looking for quality research on China, the stuff I have bought so far is questionable with bus size holes in their 'logical' deductions. Its either for or agin with a zeal I naturally distrust. The Chinese seem to pull out a lot of emotion in the investment community.

 

[notting]

Labour in the inner areas has become more expensive. A middle class has emerged in these areas that can just afford the units. They pay a fair bit of the capital up front which lessons the risk for banks. The plan is to replicate the 'glorious progress' in the outer areas where slave labour is cheaper.
They have built units in anticipation of new manufacturing etc in the outer areas. Trouble is the inner areas manufacturing slows down due to work moving to outer areas.
The rulers and their princlings don't give a hoot.
They made money on the inner boom and will make money replicating it on the outer boom, as the inner boom goes bust, it doesn't look much different on the grand scale. It's just being shuffled around whilst the rulers and princlings make the money selling units in thriving areas that go bust after it's all sold and they have fleeced their people.
Lovely.

 

[Starcraftmazter]

Can you source that for me? The last land value I saw for Shanghai put it on par with an upper middle class Melbourne suburb. It seems unlikely that essentially waste rural land (frost all year?) is selling for the same as Malibu Beach, even after the US crash! The last price I saw on units in a new Chinese city was around the 100K AUD mark, a price we could not build for!

This is one of said articles, however it is hard to find them as they are from months away:
http://www.macrobusiness.com.au/2011/06/chinas-property-bubble-spreading/

Regardless a construction bubble where demand has been choked back is a far more resolvable situation than exists in the US or Australia.

Well every bubble is different, it has a unique nature to it. But that doesn't make it any less of a bubble.

I'm sorry but you just sound deeply bias, you seem to be attempting to degrade the Chinese and their decision making processes. While we may not get it one thing they are not is stupid. They have had all the lessons of US history to study and it will not surprise if there is some method in what the US commentators describe as madness.

Biased how? All I am doing is providing analysis of the situation. Pardon me if I prefer to rely on that rather than hope.

Chinese have a very inefficient and ineffective economy. In an ideal economy decisions are made by the free market. In China, any semblance of a "free market" is deeply perverted by the government.

The blog I linked is not a US blog, the commentators there are Australian (most of the rest of which seem all too happy to get on their knees for China).

There is certainly a lot of fixed investment going on, I'd rather that than their codependent partners (the US) 'no investment'.

A lot is an understatement - most of their GDP growth is fixed investment. If you ask me, no investment is better than malinvestment. I don't see how much of anything being constructed in China contributes to their economy. They may as well be building statues and it would be all the same. This is a flawed measure of growth or economic strength.


And whist this may sound pessimistic, this is but the tip of the iceberg of all the problems which China has.

 

[Mr Z]

This is one of said articles, however it is hard to find them as they are from months away:
http://www.macrobusiness.com.au/2011/06/chinas-property-bubble-spreading/

Well every bubble is different, it has a unique nature to it. But that doesn't make it any less of a bubble.

Well yeah it kinda does, recovering from over supply where demand is not leveraged to the hilt is a lot less of a bubble than recovering from over supply and credit pumped demand. One of the articles you referenced suggested that this 'bubble' has residential property overvalued by 20 to 30%. That is not a bubble, that is an over valued market. IMO 20 to 30% over value would be a relatively normal up cycle in property that can be resolved without a crash. I would expect corrections in the order of 50% if this is a proper 'bubble' in all respects. Bubble is an over used term, especially when it comes to things like oil. It seems if we don't agree with it then it must be a bubble, I don't see it that simply.

Biased how? All I am doing is providing analysis of the situation. Pardon me if I prefer to rely on that rather than hope.

Yes and it appeared more emotional than deductive. Pardon me if I want to cut past emotion and look for fact.

Chinese have a very inefficient and ineffective economy. In an ideal economy decisions are made by the free market. In China, any semblance of a "free market" is deeply perverted by the government.

We don't have a free market anywhere in the world today, government are twisting the fates of all of the largest economies, they are all deeply perverted in one way or another. Our job is to understand the relative merits not the absolute position of any given player. I can tear down all of the major economies with fundamentally based critiques, failures are inevitable but confusing inevitable with imminent is a major mistake. Take the muni market in the US, it is destine to turn the US into a reasonable facsimile of the Eurozone, perhaps this will be next years disaster but for now its not the issue. One could argue that the US is a ponzi scheme built on ever increasing and unsustainable debt, but that has been the case for most of my life and you could have argued the that case for close to 50 years. They where always going to wreck but when and how was the key. China is also going to wreck but how far can they get? Is inevitable being confused with imminent?

The blog I linked is not a US blog, the commentators there are Australian (most of the rest of which seem all too happy to get on their knees for China).

I always wonder how many of the bloggers actually get to China, meet the people and dig into the real situation. This is one of the complaints of one of the writers I read, many China bears have never even been there to have a good look. However he is a bit of a bias bull

A lot is an understatement - most of their GDP growth is fixed investment. If you ask me, no investment is better than malinvestment. I don't see how much of anything being constructed in China contributes to their economy. They may as well be building statues and it would be all the same. This is a flawed measure of growth or economic strength.

According to some all of their GDP growth is inflation, who to believe! According to my numbers 50% of Chinese GDP is fixed investment and given that it has been a rapidly growing country from a low infrastructure base that doesn't look all that bad against a developed world norm that has tapered from 30% to 20% over the last four decades or so. Across the same period China has trended from 30% to 50% but then look at the growth that they have had to accommodate with infrastructure.

With all due respect, we have China over investing and the US under investing both heading for a wreck. After the wreck China will still have the investment, which if you are going to wreck anyway is a better way to go. At least China will have something for the pain, the US on the other hand?! That goes for the factory overbuild and all the other industrial follies that have been pointed out, in the end they will still own the capacity where as the US has been gutted. Much like the US's rise to prominence IMO, well so far... that kinda assumes that China makes it to the top. The demographics are the strongest argument against that IMO.

And whist this may sound pessimistic, this is but the tip of the iceberg of all the problems which China has.

Yes, possibly quite true but we are in a field of icebergs and this is about relative threat levels. Look at the USD rally, it is difficult to build a case for that if you solely look at the US! Yet there it is... IMO this will continue with the focus continually shifting to the worst looking horse in the glue factory... currently Europe, next year maybe a US muni wreck? Or will China's issues become front page? Maybe these issues finally coincide and Chinas weaknesses become a big problem, especially for us in Oz. Personally I am thinking that 2013 is a danger year but that idea is based more on subjective reasoning, I'd love to get a better handle on it.

 

[notting]

A bearish opinion
http://www.reuters.com/article/2011/06/13/us-roubini-idUSTRE75C1OF20110613

 

[Mr Z]

2013... there is that number!

 

[Glen48]

Could be worse if you live in USA:
Mac Slavo
October 15th, 2011
SHTFplan.com
Comments (315)



In the past, when Americans compared their standard of living to that of their Chinese counterparts our well being was hands down better off than those living under the Communist regime. A recent Gallup survey, however, shows some thing has changed over the last three years.



Gallup surveys in China and the U.S. reveal Chinese are struggling less than Americans to put food on their tables. Six percent of Chinese in 2011 say there have been times in the past 12 months when they did not have enough money to buy food that they or their family needed, down significantly from 16% in 2008. Over the same period, the percentage of Americans saying they did not have money for food in the previous 12 months more than doubled from 9% in 2008 to 19% in 2011.

…

Fewer Americans had access to basic life necessities in September. The nation’s Basic Access Index score fell to 81.4 last month ”” on par with the 81.5 measured in February and March 2009 amid the recession.

Americans’ access to basic necessities has never fully recovered after declining amid the 2008 to 2009 financial crisis and has declined further since February of this year.

…

These findings are based on more than 29,000 interviews conducted each month from January 2008 through September 2011 with American adults as a part of the Gallup-Healthways Well-Being Index.

…

While the recession officially ended more than two years ago, the effects on Americans continue to linger.

Unemployment remains high and more Americans than ever are living in poverty, which may lead to more people struggling to access basic life necessities such as healthcare, food, and shelter.

Although the vast majority of Americans still report that they are not having trouble accessing basic necessities, the trend is currently going in the wrong direction. Additionally Gallup’s global research finds Americans are now struggling more than Chinese to afford food, a reversal from 2008. If the worries about a double-dip recession come to fruition, even more Americans may start having problems meeting their basic needs.

Source: Gallup: Americans, Chinese

While economists, analysts and television pundits argue about the severity of the recession or a double dip in the recovery, it’s obvious that Main Street is experiencing depression-like economic symptoms. The key data points, the ones that really matter to the average person on the ground, show that more Americans than ever before are on food stamps, millions are losing their homes, purchasing power is dropping, and unemployment is out of control.

A lack of access to basic life necessities is also rearing its head in the form of rising crime. Cities across the country have reported large-scale garden vegetable thefts, and weekly news reports show that theft of metal – especially copper – is on the rise as people struggle to get by.

All of this comes at a time when leaders in Washington say that the country is experiencing economic growth, albeit sluggishly, and that more spending in the form of stimulus is needed to prevent further degradation. Based on recent comments by those holding top positions in the public and private sectors there is a serious possibility that the economic crisis will revert to something worse than what we have experienced since 2008 – something even worse than the Great Depression.

Given that Gallup’s survey suggests around 60 million Americans don’t have money to feed themselves or their families, we can only imagine what the coming food crisis in America will look like amid a significantly deteriorating economic situation.

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Author: Mac Slavo
Date: October 15th, 2011
Website: www.SHTFplan.com
Copyright Information: Copyright SHTFplan and Mac Slavo. This content may be freely reproduced in full or in part in digital form with full attribution to the author and a link to www.shtfplan.com. Please contact us for permission to reproduce this content in other media formats.

 

[Glen48]

James Quinn, Casey Research


In thirty short years, China's GDP from $216 billion to $6 trillion. Reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the US consumes 19% of the world’s energy, China consumes 20.3%.

china's GDP 2,800%, the US GDP grew from $2.3 trillion to $15 trillion – a mere 650% increase, of which 420% was due to inflation. The question is whether that growth is sustainable

Ihe stimulus package in November 2008 totaled $586 billion and was to be invested in key areas such as housing, rural infrastructure, transportation, health and education, environment, industry, disaster rebuilding, income building, tax cuts, and finance. In reality, the central government pumped an additional $1.5 trillion into the economy in an effort to maintain social stability through the subsidization of its industrial base. Chinese banks funneled cheap loans to state-owned enterprises in order to manufacture artificial profit margins to keep Chinese goods competitive and employment maximized. In the short term, the stimulus produced the desired effect.

Specifically, the Shanghai Index – which had topped out at 5,913 in October of 2007 and had fallen to a low of 1,678 by November 2008 – responded to the stimulus by rebounding to 3,300 in January 2010, as the chart below shows.

As with all monetary and fiscal stimuli, however, the initial high is always followed by a hangover. Today the Shanghai Index stands at 2,350, down 29% from when I penned my article. China is also experiencing accelerating inflation, a real estate bubble of epic proportions, a looming banking crisis due to the billions in bad loans made by Chinese banks as commanded by the Chinese government, and growing social unrest due to rising food and energy prices.



There are few opinions in the middle regarding the China story. People are either convinced China is a juggernaut that can’t be stopped and will become the dominant world power (a recent, global Pew Poll found that 47% of respondents think China is or will be the dominant global power), or they see a colossal bubble that will burst and cause worldwide mayhem. While some might think my world-view has a negative slant, I tend toward what I think is healthy skepticism that causes me to view things in a more realistic manner.

Based on the facts as I understand them, the Chinese government has created a commercial and residential real estate bubble in an effort to keep peasants employed and not rioting in the streets. In the case of the US subprime mortgage bubble, critical thinkers like Steve Eisman and Michael Burry figured out it was a bubble three years before it burst. Jim Chanos and Andy Xei have been warning about this Chinese bubble for over a year. They have been scorned by the same Wall Street shills who denied the US housing bubble. As Eisman and Burry proved (reaping billions), just because you are early doesn’t mean you are wrong.

Inflated Dreams

The table below paints a troublesome picture of rising inflation and gigantic over-investment in real estate. And this takes into account the fact that, much like the Bureau of Labor Statistics (BLS) here in the US massages data, the Chinese statistics are tortured by the Party to paint the best possible picture. Even still, the Chinese government’s own numbers show inflation escalating as economic growth is slowing.



And the trend is not improving: The latest data show year-over-year inflation surging by 6.4% in June and food prices skyrocketing by 14%. With annual disposable income of less than $2,500 in urban areas and just $600 in rural areas, food and energy account for a huge percentage of the average Chinese person’s daily living expenses. The Chinese authorities are terrified by the revolutions sweeping across the Middle East and are desperate to put out the inflationary fires.

To contain stubbornly high inflation, the Chinese central bank has raised the benchmark interest rate three times this year, including the latest rate hike of 25 basis points announced on July 6. In an attempt to rein in excess lending, it has also hiked the reserve requirement ratio six times, ordering banks to keep a record high of 21.5% of their deposits in reserve.

Even with inflation surging, the Manufacturing Output Index fell to 47.2 in July – the lowest in 28 months, and indicating contraction. China’s automobile industry, which overtook the US in 2010 with sales of 18 million autos, has experienced a dramatic slowdown, with growth of only 3% through June versus 32% growth last year. For all of 2011, the China Association of Automobile Manufacturers expects sales to decline versus 2010.

Real Estate Out of Reach

In response to the 2008 worldwide financial collapse, Chinese authorities unleashed $2.1 trillion of stimulus, or almost 33% of GDP. This compares to the US stimulus of $800 billion, or 5.5% of GDP, spent on worthless Keynesian pork. Unlike the US, where no jobs were created, China’s command-and-control structure funneled the stimulus into building cities, malls, roads, office buildings, and residential units. Millions of Chinese were employed in creating properties for which there was no demand. Moody’s approximates that China’s banks have funded at least RMB 8.5 trillion (US$1.3 trillion) of the RMB 10.7 trillion of outstanding local government debt, which was a significant portion of the 2008 national stimulus package. When the central authorities tell the banks to lend, the banks ask, “How much?” The result has been soaring real estate inflation and malinvestment.

Everyone has seen the pictures of the ghost cities (Chenggong) with no inhabitants; ghost malls (South China Mall, Dongguan Mall) with no shoppers; residential towers with no residents; and roads with no cars. Analyst Gillem Tolluch scene in China today:

China consumes more steel, iron ore and cement per capita than any industrial nation in history. It’s all going to railways that will never make money, roads that no one drives on and cities that no one lives in. It’s like walking into a forest of skyscrapers, but they’re all empty.

There are 218 million urban households in China, and the central government ordered local governments to build 36 million more units by 2015. They just have one small problem: Prices for apartments in Shanghai and other major metropolitan areas have soared by over 100% in the last five years.

The average size of a “cheap” apartment in second-tier Chinese cities is 60 square meters (650 sq ft) and fetches an average price of $1,230 per square meter, or $73,800. Mid-tier apartments in Shanghai or Beijing sell for $3,500 per square meter, or $210,000 for an average size apartment. “When prices are over 20 times more than annual household income, it’s not affordable,” says Andy Xie, an independent economist in Shanghai. Millions of working Chinese have been priced out of ever owning property and blame the corrupt local government cronies and connected speculators. Anger is simmering among the masses.

Confirming the overvaluation, a report by the Chinese Academy of Social Science points out that in the country’s metropolitan centers today, house prices per square meter generally amount to between 50% and 100% of average annual incomes. “To secure a flat of 90 square meters, an average working family in Beijing and Shanghai will have to work for more than 50 years to pay off their loans, compared to five to 10 years in the developed world,” according to the report. Report authors Lu Ding and Huang Yanjie conclude that, “ky-high housing prices have undermined housing affordability and caused great anxiety and resentment among the public, who are wary of the conspiracy among ‘speculators’ – developers and government officials in charge of real estate businesses.”

House of Cards

China has methodically and relentlessly grown their economy for the last thirty years. However, as the US and Europe discovered the hard way with their real estate busts, if one makes an abundance of cheap-money loans to speculators, prices will rise far above the true value of the asset bought with the debt. And in time, the bubble must burst. The pressure in this bubble is mounting. Andy Xie lays out the real situation on the ground in China:

No other government in the world would spend that kind of money. If you go to local Chinese cities, you will see what they spent that money on: Tens of millions on just trees, parks and government buildings.

All of the major ratings agencies are warning about an impending banking crisis in China. Fitch downgraded the country’s credit rating and warned there was a 60% chance the Chinese banking system will require a bailout in the next two years. Just like the US, China has too-big-to-fail banks, with five banks accounting for 50% of the lending in China. In a July 2011 report, Moody’s cautioned that the non-performing loans on the balance sheets of Chinese banks could rise to between 8% and 12%, versus the 1% proclaimed by Chinese officials. China’s regulators have belatedly applied the brakes, but it is too late. The house of cards looks susceptible to just the slightest of breezes.

Fraser Howie, the coming collapse:

If you are going to address the misallocation of capital in the banking system and credit system, that’s going to have huge knock-on effects on the profitability and viability of the banks. And if there were a major banking crisis, you would start to see money trying to get out of China. It’s almost far too complicated to contemplate.

 

[tothemax6]

Doesn't surprise me as you specifically go out of your way to call people thugs. Not a great tactic if you want to be seen as credible.

No not 'people', that was just you. Everyone else here is fine.
I probably should have checked that you were the OP for this thread before I touched it.

So: tothemax6 says once more, undoubted China construction bubble, crash coming, history will be my judge, signing out.