China's Economy

[sinner]

Just my

SHCOMP been going steady down for a long while now, not really playing the money pump game with the other indices.

If you look at the 5Y chart of ETFs like ASX:IZZ (FTSE China 25 Index) which are priced in AUD, you can see what I mean.

I reckon the price is starting to look like fair value pricing for good long term returns. Where's the "China Small Value" ETF when you need it?

 

[CanOz]

I was thinking we might have further to fall, the measured move on the Weekly FXI pattern is 16...not that these patterns always play out.

Here are the two ETFs...

At the moment I'm waiting for a PB on the daily to short FXI.

CanOz

 

[notting]

The main question is whether the market believes Beijing will remain in control as it tackles runaway credit growth. It wants to cut credit expansion, but so far this year it has grown at unprecedented rates. Debt is building.

The majority view is that China will ride the bumps and settle at a slower rate of growth as it adjusts to a consumption-led rather than investment-led economy.

Read more: http://www.theage.com.au/business/c...-for-growth-20130628-2p2r0.html#ixzz2XbEvl9cX

There has never been any evidence that China is making the transition from the Tiger economy to a consumption-led economy.
This is a naive economists fantasy.

People that make these statements do not understand the ruthlessness of Chinas ex leaders.
They had not interest in the country or the people other than how to use them to feed off.
The last leadership simply kept the foot on the accelerator because they new they would be getting off before the train smashes through the station.
There is no way to stop this runaway speed train.

It's very simple. It's what the Chinese do and have always done. They have simply never had the opportunity to do it on such a grand scale with modern technology.
No different to the way they dealt with the environment and pollution which is equally out of control and irreversible, unsalvageable.

It's all the same.

The Dragon has cancer!
The reaper is grinning
And hells smelter pots are boiling.

 

[sinner]

Speaking of Michael Pettis,

Mish often posts private emails from Michael on his blog (with permission), so if you want to hear what M Pettis had to say on the interest rate volatility, check out the link below

http://globaleconomicanalysis.blogspot.com.au/2013/06/michael-pettis-on-china-liquidity.html

...


The most important effect is likely to be on demand for wealth management products. I believe that there is RMB 1-2 trillion of WMP coming due before the end of June, and most if not all of this will have to be rolled over. Already it seems that WMP rates are rising. Several friends received SMS offers on their mobiles (this happens a lot in China) for short-term WMP deposits at 6%, which is 100-200 bps higher than we have seen in the past and higher than the 5% cited in the People’s Daily article. Until recently, the average rate on WMP seems to have been around 4.3%.

So what can we conclude from the events of last week? The good news is that the new administration seems far more determined than the previous to rein in credit growth and restructure the economy. Clearly the PBoC’s refusal to provide liquidity to bail out the interbank market reflects Beijing’s tougher stance on speculative excesses. The bad news is that the credit system is so distorted and over-leveraged that any attempt to rein in credit growth creates enormous stress in the system.

 

[sliMexchange]

Anyone else see a trend here ?

China is consuming resources in record volumes.
What are they doing ?

The USA seems to be faltering.

Could the balance of power be shifting ?,

I for one hope not because , no offense intended, I just don't trust them.

I'd trust China over the U.S. any day of the week.

 

[MrBurns]

Just watched 60 minutes, it seems our economic survival depends on a pending basket case economy where they are building entire cities that are empty because no one can afford to live there, 700 million people survive on about $2 a day.
So the building stops, they have the biggest housing bubble in history.
No more building no more steel needed.............

 

[FlyingFox]

Just watched 60 minutes, it seems our economic survival depends on a pending basket case economy where they are building entire cities that are empty because no one can afford to live there, 700 million people survive on about $2 a day.
So the building stops, they have the biggest housing bubble in history.
No more building no more steel needed.............

Many have been trying to highlight this point for months if not almost a year on here. Seems most don't want to admit that the fairytale will ever end (not talking about ASF but in general).

The question is will it be a slow deflation of the bubble with reduced growth in China or another financial crisis?

 

[MrBurns]

Many have been trying to highlight this point for months if not almost a year on here. Seems most don't want to admit that the fairytale will ever end (not talking about ASF but in general).

The question is will it be a slow deflation of the bubble with reduced growth in China or another financial crisis?

The scale of the whole thing almost defies belief, if they stumble we're in for it big time and I really don't see how they can avoid it, but. then again, I don't know enough about the big picture there to be sure.

 

[FlyingFox]

The scale of the whole thing almost defies belief, if they stumble we're in for it big time and I really don't see how they can avoid it, but. then again, I don't know enough about the big picture there to be sure.

I think it hard to get a clear picture because the "investors" don't really care if the properties are sitting empty as long as the paper prices are going up. Some of the economic realities are lost on many of these people. Also post GFC, the construction boom has helped shield the Chinese economy from drop in exports to US and Europe therefore the government didn't care until recently.

I remember reading an article in 2010 about empty apartments based on zero electricity usage in the prior six months. The number was shocking to say the least...64.5 million. While this might not be correct, I don't think it was wrong by a factor of 10 either. http://english.caixin.com/2010-08-03/100166589.html.

One thing I am certain of, we are in s*** regardless of whether China reduces growth or there is a financial crisis because I don't think they can continue on the current path for too long. Rudd mentioned it this week; I was very surprised at the reaction to his comments.

 

[MrBurns]

I don't understand how they can build like that and not be concerned about lack of income.....anyone here would be wound up by banks in seconds flat, unless they used cash...

 

[FlyingFox]

There has never been any evidence that China is making the transition from the Tiger economy to a consumption-led economy.
This is a naive economists fantasy.

Whether China can make the transition or not, what bugs me is the supposed ease at which this transition is meant to occur. Many observers/economists seem to be of the opinion this will happen over the next few years rather automatically with a minor reduction in economic growth in China.

- - - Updated - - -

I don't understand how they can build like that and not be concerned about lack of income.....anyone here would be wound up by banks in seconds flat, unless they used cash...

Different culture and values? I have been told by a few people form China that "used" apartments loose value quite quickly. Don't know if it's true or not, just word of mouth.

Just hazarding a guess, I would say that it is a combination of cash and the fact that people are happy that the property prices are going up. The return on bank deposits are quite low compared to returns in prop. Many are equating property to money (not wealth but money) not realizing that they may not be as liquid. Also prices haven't fell since the market was opened up by the government about a decade or two ago therefore it is all good.

Like here, many prop investors buying since 2008 are loosing money but they expect to make it up when the prices go up. That's what all the spruikers are telling them lol.

 

[MrBurns]

Different culture and values? I have been told by a few people form China that "used" apartments loose value quite quickly. Don't know if it's true or not, just word of mouth.

Just hazarding a guess, I would say that it is a combination of cash and the fact that people are happy that the property prices are going up. The return on bank deposits are quite low compared to returns in prop. Many are equating property to money (not wealth but money) not realizing that they may not be as liquid. Also prices haven't fell since the market was opened up by the government about a decade or two ago therefore it is all good.

Like here, many prop investors buying since 2008 are loosing money but they expect to make it up when the prices go up. That's what all the spruikers are telling them lol.

There has to be more to it than that, perhaps they're banking on the population move from rural to city living, they have enormous expectations there, I don't know............. it's a mystery.

 

[FlyingFox]

There has to be more to it than that, perhaps they're banking on the population move from rural to city living, they have enormous expectations there, I don't know............. it's a mystery.

GREED mate, usually no great mystery beyond that. I am not sure how much government involvement is there but just like here, the local govs make a killing from taxes and duties and therefore it is in their best interests to continue building.

Also think about it. They have 1.35 billion people. If you believe that there are 65 million empty apartments or houses today (say the numbers in 2010 were wrong) than they can house another 200 million people in them then if these were filled up, you would have ~920 million in urban centers and ~ 70% urbanization (from various Wikipedia articles, numbers from 2012). Doubt you can achieve or want to achieve much higher than that.

Now the only way many of these people will be able to afford these places if they are handed out. I don't see that happening...

The most important thing that everyone is conveniently forgetting is that China's population growth is declining and infact their population will peak somewhere ~ 2040 at ~1.4 billion. Therefore for all intents an purposes the will have no population growth from now. Moreover their labour force has already began to shrink http://www.cnbc.com/id/100392731.

 

[CanOz]

Thats key here as F.Fox mentioned, liquidity...try to sell that apartment that they say has gone up in value since you bought it...yeah right.

Bubble, oh yeah. In 2008, i knew it had further to go, that things were just getting wound up, but this is ludicrous.

Apartments are empty, but owned....sometimes rented without being decorated, just bare concrete.

CanOz

 

[lusk]

I don't understand how they can build like that and not be concerned about lack of income.....anyone here would be wound up by banks in seconds flat, unless they used cash...

Given the government controls information would we ever be told the truth.

Its quite likely that it could have all imploded and Chinese people don't own them, its the banks and the government.

 

[CanOz]

Given the government controls information would we ever be told the truth.

Its quite likely that it could have all imploded and Chinese people don't own them, its the banks and the government.

The biggest problem with the information is the culture, its related to face...if anyone spent any time in Asia you would understand this.

Allot of apartments are still owned by the developers, waiting to be sold. Until this happens no one gets paid, no employees, no concrete suppliers, no construction contractors, no banks...understand? My father in law's construction company doesn't get paid until years after the project is finished sometimes, his concrete business has 90% receivables over 360 days...In the meantime, the bank loans just keep getting rolled.

CanOz

 

[Trembling Hand]

his concrete business has 90% receivables over 360 days..

Geeeezusssss!!!

 

[satanoperca]

his concrete business has 90% receivables over 360 days...In the meantime, the bank loans just keep getting rolled.

CanOz

Talk about a very very risky game of dominos. One falls and can literally bring the house down.

Surely no one can sustain a business based on this.

Cheers

 

[Julia]

One thing I am certain of, we are in s*** regardless of whether China reduces growth or there is a financial crisis because I don't think they can continue on the current path for too long. Rudd mentioned it this week; I was very surprised at the reaction to his comments.

What was that reaction, FF, and from whom?

 

[FlyingFox]

What was that reaction, FF, and from whom?

Mainly form the mining industry. I think Atlas Iron chairman David Flanagan was the most vocal.

http://www.macrobusiness.com.au/2013/06/mining-boss-slams-rudd-doomsaying/