End of the China bull?

[CanOz]

I wondered why they were tightening the borders for fear of the flight of high raking officials. It was on the Bloomy the other day...heres one opinion:

CanOz

 

[Uncle Festivus]

http://www.petermartin.com.au/2012/05/mining-boom-not-compared-to-whats-to.html

The total - the investment Australia would get if all the projects came to fruition .......................

That's a mighty big 'if' the way things are going - these projects can all be pulled at the stroke of a pen - BHP's chairman categorically and emphatically said that they will not be spending the $80B on projects next financial year.

The other side is that there is simply not enough liquidity to fund all of these projects anyway, at least not by the Oz banks, and as there is a small kerfuffle going on with a few banks overseas apparently they too would be reluctant to fund anything with a hard landing in China happening.....

So what are you buying if you are so bullish??

China's crash has only just started.

 

[imperator]

The total - the investment Australia would get if all the projects came to fruition .......................

That's a mighty big 'if' the way things are going - these projects can all be pulled at the stroke of a pen - BHP's chairman categorically and emphatically said that they will not be spending the $80B on projects next financial year.

The other side is that there is simply not enough liquidity to fund all of these projects anyway, at least not by the Oz banks, and as there is a small kerfuffle going on with a few banks overseas apparently they too would be reluctant to fund anything with a hard landing in China happening.....

So what are you buying if you are so bullish??

China's crash has only just started.

I think you may be being a tad dramatic.

Sure, China has been cooling in light off:
- tight monetary and fiscal settings (which were set that way to combat inflation - which has eased, and the current signs suggest that this inflation will remain within the target range over thing coming period).

- the fact that these policy settings have caused (amongst other things) fixed asset investment (buildings, infrastructure etc) growth to slow. It should be noted that this was the specific intention of Chinese policy makers for the past 18 or so months given that they pumped arguably too much stimulus into the economy during the early stages of the GFC, and they had to manage this carefully so that it didn't get out of hand.

- slowing external demand - there's no doubt about, and part of that is cyclical, and other parts are structural in the sense that - as you indicated, the higher production costs cause production shifts from china to other countries. Note however that in most industries, china still has significant competitive advantages - sure some other ASEAN nations can now compete with china in low value added manufacturing for example, but, historically over time, as economies develop, this is a normal development. The portion of activity attributable to "secondary industries" declines, and that attributable to tertiary industries increases. This is the next phase of the Chinese development, as their "consumer class emerges". So that trend we"re seeing, and that you mentioned, is actually positive overall and indeed expected.

- the easing in commodity prices we have seen recently will have a significant impact on chinese inflation. Having said that, I agree with you re food price inflation - that will likely remain an issue particularly if adverse weather events occur. But importantly, overall, it is my view that it is more probable inflation will remain under control given the easing in commodity prices, and the slow down in activity itself which of course leads to disinflationary pressures.

Now, moving on to why I don't Beleive China will slow significantly (defined as growth dropping below 6% for more than two consecutive quarters):

1. Their economic development has a long way to run. There's still a lot of fixed asset investment to occur mid term, and we will see the growth composition change over time to one that is more dominated by high value service industries, and related to that change is of course an increase in consumption. China will still remain a prominent manufacturer, even in the lower value segments, for years to come, but the growth contribution of such will decline in favor of that coming from other areas of the economy.

2. Chinese policy settings are tight. They were set when the view of the next 5 years was much rosier. This provides them with SIGNIFICANT room to provide support to their economy. Basically, policy makers will update settings in light of the weaker than expected activity of late, and the worsened global outlook.

3. Chinese policy makers have a great ECONOMIC track record over the past few decades. I'm happy to put my money behind a continuation of that good economic management, particularly when the Chinese political cycle is in a phase where politicians will want to be more active in ensuring that their economic targets are delivered.
4. Liquidity in ASIA is much better than In developed nations (excluding solid sovereign debt markets of course I.e. the AAAs of USA, Germany, and now, Albeit to a lesser extend, Aus.
5. The most important implication of the above is that China will embark on substantial monetary easing, and most likely will also launch fiscal stimulus packages, which will be focussed on fixed asset investment and good for Australian resource and resource related industries.

As a side note, i am not making commodity price bets. I am confident in the strength in quantity mid term, not prices. In my view, prices will continue to normalize - although they will remain high from a historical perspective.

 

[Uncle Festivus]

Now, moving on to why I don't Beleive China will slow significantly (defined as growth dropping below 6% for more than two consecutive quarters):

Bearing in mind that anything below 8% is contraction for them.........

Yes, your points are all very logical & plausible, but their problem is one of overproduction because they have a command-the-demand type economic model - the central planners command a certain figure to be attained, and so it shall, regardless of any intrinsic demand....

Here's a fun game - Google this - China glut - to see how bad they have overproduced just about everything, mostly humans.......

http://brazilianbubble.com/zulauf-o...eme-the-upside-the-more-painful-the-downside/

 

[Joules MM1]

Rising China is a Misnomer...and Other Actionable Takeaways

June 20, 2012

http://www.usfunds.com/investor-res...a-is-a-misnomerand-other-actionable-takeways/

Did you know that at the beginning of the 19th century, China made up the largest share of the world’s GDP? This makes the term “Rising China” a misnomer, as the country has been simply returning to, instead of rising to, super power, says former U.S. Secretary of State Henry Kissinger.

... in 1972, annual bilateral trade between the U.S. and China was less than $100 million (back then, the largest category of U.S. exports to China was cereal; from China to the U.S. it was animal parts). Now trade is more than $1 billion a day, with 800,000 U.S. jobs dependent on exports of goods and services to China.

 

[CanOz]

Nothing like a rubbery set of figures or three!!:dunno:

 

[numbercruncher]

Nothing like a rubbery set of figures or three!!:dunno:

Yes clearly dodgy numbers coming out of China - its alll bad news for sure - The rest of the world cant nose dive as it has and China remain thriving ....

 

[drsmith]

Their stock market has not exactly recovered with confidence from the 2008 crash.

 

[CanOz]

Their stock market has not exactly recovered with confidence from the 2008 crash.

Name one, other than a US index that has?

QE...otherwise known as 'kick the can down the road'!

CanOz

 

[drsmith]

Name one, other than a US index that has?

QE...otherwise known as 'kick the can down the road'!

CanOz

That highlights that all is not well, as equity markets see it.

China though is of particular interest as its share market performance is not consistent with its rate of economic growth.

 

[CanOz]

That highlights that all is not well, as equity markets see it.

China though is of particular interest as its share market performance is not consistent with its rate of economic growth.

I would say that's its not totally reflective of the growth, however i would also argue that their market went vertical prior to the GFC...it was basically a big casino. Not much has changed, just fewer punters. It'll be years before we see another big equity bubble i reckon.

CanOz

 

[drsmith]

On Q&A tonight towards the end of the show (~10:15pm EST), there was an interesting question on China's economy from a member of the audiance (who stated he had recently lived there) and an even more interesting response from the panelist, Dr John Lee.

Dr John Lee's comments on their banking system was of particular interest. Both were of the view that China's economy was a bubble and at some point, would burst.

 

[CanOz]

On Q&A tonight towards the end of the show (~10:15pm EST), there was an interesting question on China's economy from a member of the audiance (who stated he had recently lived there) and an even more interesting response from the panelist, Dr John Lee.

Dr John Lee's comments on their banking system was of particular interest. Both were of the view that China's economy was a bubble and at some point, would burst.

Yep, unless they can unlock some of the consumer savings then a hard landing would have to be on the cards....

Lots of money in banks here though, let not forget that they are legendary savers...

CanOz

 

[Uncle Festivus]

Yep, unless they can unlock some of the consumer savings then a hard landing would have to be on the cards....

Lots of money in banks here though, let not forget that they are legendary savers...

CanOz

So are the Japanese, and their economy has gone nowhere for the last 20 years

It's the perfect black swan in the making based on centrally controlled capitalism, centrally controlled information dissemination, indoctrinated corruption and low regard for basic human rights. Just needs a spark to recommence the revolution......

From the figures I see, China may well already be insolvent too, despite the so called trillions in foreign reserves....

 

[CanOz]

So are the Japanese, and their economy has gone nowhere for the last 20 years

It's the perfect black swan in the making based on centrally controlled capitalism, centrally controlled information dissemination, indoctrinated corruption and low regard for basic human rights. Just needs a spark to recommence the revolution......

From the figures I see, China may well already be insolvent too, despite the so called trillions in foreign reserves....

UF, i respect your posts....but give me a break...if China is insolvent, the world is insolvent. Europe would most certainly be close now, the US has been for years...

If the world is insolvent then it pretty much says it all really...insolvency doesn't matter for nations to big too fail!

CanOz

CanOz

 

[notting]

China stability has a lot to do with the oil price which effects food inflation. That has eased tremendously.
The army is so big and brutal the people are pretty much defenceless. There is so much internal spying even from your own family members that those voicing any politically dissatisfaction are silenced very quickly. The dobbing family member or friend is rewarded and when your poor and opressed that's attractive.
The only hope for the people is that the army turns on itself! Yet the leaders are pretty crafty, what they tend to do is take out the leader of such a possibility before that happens.

 

[prawn_86]

UF, i respect your posts....but give me a break...if China is insolvent, the world is insolvent. Europe would most certainly be close now, the US has been for years...

If the world is insolvent then it pretty much says it all really...insolvency doesn't matter for nations to big too fail!

CanOz

CanOz

Yeh i always said that like 5 - 8 years ago. Every major country is broke. At some stage they just need to 'reset to zero' and start over again. If every country did it at once, then the only losers would be who is holding their now worthless debt (ie all the banks, hedge funds etc). Of course their would be flow on effects, but if we wiped out pretty much the whole financial system and all debt, providing there was structures in place for new banks etc, then there might not be too much effect for Joe Average

 

[drsmith]

The transcript from yesterday's Q&A (quotations wouldn't post),

PETER HINTON: I recently lived in China. I moved back to Australia after living there for about two years and one of the enduring memories I have of the place is empty shopping malls, empty apartments, empty office buildings. There seems to be a lot of money trading hands but I don't know how they are making a profit and it’s led some economists to say or at least speculate that the Communist Party of China is the world's largest Ponzi scheme and I was wanting to know whether or not you’ve got any evidence that could sort of support that theory?

JOHN LEE: Well, the simple answer is that most of these projects aren't making a profit. You know, if you look at various figures that economists and researchers come up with, half of these things that they build don't make a profit. Now, you might ask "Well, why do they build them?". They build them because they have no other way of generating growth. And how do they do it, where do they get the money from? They get the money - essentially you’d have - I don't want to get too technical but they have a closed banking system, which means money doesn't get out of the country, which means that state owned banks effectively control all of the savings in the country. There is a enormous pool of liquidity that comes from the savings of the Chinese people. It’s pumped into state owned enterprises that build these buildings that are empty or no one needs.

PETER HINTON: So is that a yes?

JOHN LEE: Well, it’s a yes but this kind of model can go on for quite a long time.

TONY JONES: How long can it go on, because Nouriel Roubini, who is one of those economists I think that our questioner is talking about, says that China is headed for a very hard landing and that on the back of that - because this is unsustainable, he thinks, and on the back of that Australia will have a hard landing?

JOHN LEE: Well, the thing about bubbles it is certainly is a bubble. But the thing about bubbles is that, you know, everyone says the bubble will burst next year and it doesn't burst and it keeps on going and there comes a point where people say, well, China is a new paradigm and then the bubble will burst. And, you know, eventually this can't go on. When the bubble bursts we don't know how severe it will be but it certainly will happen. The consequences for Australia will obviously be pretty severe. I think the Australian businesses will be okay because we’ll adapt but I think the Government's fiscal position could be in a bit of trouble. But, as I said, the tipping point, it’s not a technical tipping point. It’s a psychological tipping point.

http://www.abc.net.au/tv/qanda/txt/s3527805.htm

My bold.

 

[CanOz]

70% of the Villas behind me right now are empty...but owned.

There was a local friend of mine a few years ago and we were having dinner....talking about some of the problems here....he knew this guy in charge of selling land, at the 'Land Bureau'. He said ( and my friend said he was dead serious ), that he had many apartments, a dozen or so. They were almost all empty shells, with only a couple finished inside.

But...in one room of each he had a safe, where he filled it with 100 RMB notes. Each safe contained many millions of Yuan, he could not keep it in the bank for fear of discovery.

How many are there like him do you think??

CanOz

 

[Julia]

70% of the Villas behind me right now are empty...but owned.

There was a local friend of mine a few years ago and we were having dinner....talking about some of the problems here....he knew this guy in charge of selling land, at the 'Land Bureau'. He said ( and my friend said he was dead serious ), that he had many apartments, a dozen or so. They were almost all empty shells, with only a couple finished inside.

But...in one room of each he had a safe, where he filled it with 100 RMB notes. Each safe contained many millions of Yuan, he could not keep it in the bank for fear of discovery.

How many are there like him do you think??

CanOz

How interesting. Was this money he didn't want to pay tax on? Is there some other reason for hiding his assets?
Does China have a similar taxation system to that which we employ here?
Are the Chinese people able to e.g. invest in a share market, bank deposits etc?
Apologies if the questions are ignorant. I know nothing about China's internal function.