China is in a mother of all bubbles

ei.sdraob

Looks like our friends out east are now experiencing a property "boom"

which as we now know will end in tears...

Feb. 11 (Bloomberg) -- China’s lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed the most in 21 months as banks extended more credit in anticipation the government will tighten monetary policy.
Lending was more than in the previous three months combined, data on the central bank’s Web site showed today. Property prices in 70 cities rose 9.5 percent from a year earlier, the National Development and Reform Commission said separately.
China’s 9.35 trillion yuan of loans in the past year has added to the risk that the world’s fastest-growing major economy may overheat as it rebounds from the financial crisis.

http://www.businessweek.com/news/2010-02-11/china-loans-property-prices-jump-as-economy-risks-overheating.html

more here
http://online.wsj.com/article/SB10001424052748704140104575058121514846134.html?mod=WSJ_latestheadlines

and here http://en.wikipedia.org/wiki/Chinese_property_bubble

the income to cost ratio is now at 27 to 1 in Beijing which makes even the crazy 10-15 to 1 ratios we had in Dublin few years ago looks sane

meditraitor

I bought a grand cottage with 10 acres and goat in the henan province for 25 dollaar....
Get in there now, if the prices go up 100% per annum it will cost me 50 dollaar next year

Amhran Nua

Yeah I've been keeping an eye on this one for a while. They are trying to get rid of USD and buck the general global recession by heating up their property market, although some moves have been made to cool it off. Once that collapses you can expect some problems. The question is what problems will they face? The central party holds on to power almost entirely by the perception that China is growing economically, once that fails how far will it go?

LostinBlanch

China is the only country that has gone through such an economic change from communist regime without the concommitant political change. They are walking a tightrope as it is estimated that they need to sustain a growth rate of approx 8% per year in order to keep the population happy. If the economy comes a cropper then you'll see what happens!

One thing about buying property there, it isn't freehold. Leases are only for 100 years

ei.sdraob

theres an interesting graphic here i seen other day

http://www.telegraph.co.uk/news/worldnews/asia/china/6248768/Chinas-GDP.html

their economy grew 5x in the 90s
and 3x in the 00s

the rate of growth has been incredible so far, but is now getting into the money being wasted territory, we also switched from export led growth to consumption led growth and that has spectacularly backfired here

one thing i always wondered, what good is being "wealthy" if you don't have many freedoms?

rubensni

meditraitor wrote: »

I bought a grand cottage with 10 acres and goat in the henan province for 25 dollaar....
Get in there now, if the prices go up 100% per annum it will cost me 50 dollaar next year

5hit joke on so many levels.

the_syco

ei.sdraob wrote: »

one thing i always wondered, what good is being "wealthy" if you don't have many freedoms?

You only know freedom if you have experienced it. For some reason, I don't think many there have experienced true freedom.

Sand

The question with China, which many Irish people might be able to commiserate with, is are the Chinese people getting wealthier, or is it just the Party insiders who are getting wealthier? There appears to still be deep discontent in the rural areas between the local government and the people. However, the Party has been able to champion itself as the defender of the common man against the Partys own representitives ( a truly Fianna Failian trick...Bertie, the greatest opposition politician of the past 20 years, would be proud) so for so long as the schmucks...sorry, rural electorate, accept that, then the Parties rule will remain solid. Its not like they can lose elections so long as the Army remains well paid.

Apart from that, China is the great white hope - everyone is hoping it will generate a new middle class that will offer an export market. If it gets trapped in a property bubble, then we are in deep trouble - we cant expect Chinese politicians to be anymore prophetic or statesmanlike than Bertie. And in this case, the Chinese are a major engine in the worlds economic development.

In terms of wealth vs. freedom...its all relative. In the kingdom of the blind, the one eyed are kings. In the old USSR, even the Party faithful were not rich in terms of the west, but they were fanatically loyal to the Party because they were rich/free in terms of their fellow citizens. Thats always been the important thing - rich, poor....they are simply descriptions of your relative position in any given economy or society.

DublinWriter

When the brown stuff hits the fan in China, they'll dump their billions of USD reserves, then the fun will really start...

Joey the lips

http://www.rte.ie/business/2010/0212/oil.html

perhaps they have copped this themselves. The american economy will suffer in terms of its balance of trade


Oil prices fell sharply this evening after China unexpectedly raised bank reserve requirements in a move that could slow its demand for commodities imports, Figures also showed that US oil stockpiles rose by more than expected last week.
China's central bank said it would boost bank reserve requirements at the end of the month for the second time this year. The move could tighten lending and slow China's booming economy, limiting demand for commodities like oil.
Oil prices also fell after US government data showed crude oil and petrol stockpiles rose more than expected last week in the world's top energy consumer.
Advertisement

US crude fell $1.33 to $73.95 a barrel, while Brent crude dropped $1.37 to $72.75.
US crude stocks rose by 2.4 million barrels last week, the Energy Information Administration said, exceeding forecasts for an increase of 1.5 million barrels. Petrol stocks also rose by more than forecast, indicating weaker demand.

fontanalis

Jared Diamonds book Collapse has an interesting piece on China, looks like it's rate of growth is unsustainable.

yoshytoshy

China probably has all the answers to the world economy ,not sure I want to know the answers though:(

Lockstep

ei.sdraob wrote: »

theres an interesting graphic here i seen other day

http://www.telegraph.co.uk/news/worldnews/asia/china/6248768/Chinas-GDP.html

their economy grew 5x in the 90s
and 3x in the 00s

the rate of growth has been incredible so far, but is now getting into the money being wasted territory, we also switched from export led growth to consumption led growth and that has spectacularly backfired here

one thing i always wondered, what good is being "wealthy" if you don't have many freedoms?

They're growth has always been a lot of leapfrogging it seems. Was reading something by Sean Makaris the other day who said that they're economic growth was partly due to they're being able to switch from outdated technology and ideas to cutting edge ones, rather than the US/Europeans who slowly made incremental breakthroughs.

maninasia

There is a construction boom across the entire country of China, something to behold first-hand!
In most of the country it will end in tears for millions of property investors. It is indeed the mother of all bubbles. However the general economy will move along well medium to long term. That's because the government there has huge reserves of currency to prop up industry and the stock market, a different situation than most countries worldwide. The general infrastructure is being invested in heavily aswell which will mean the boom is not all wasted. They have high education levels there and that is the key for now and the future.

The Chinese have so many USD bonds now that they would never sell them off enmass thereby devaluing their own holdings. They are trying to reduce it slowly but are basically stuff with a pile of the crap for a long time to come.

Jared Diamond's Collapse is a bit weak on China compared to his other excellent chapters, the situation has changed a lot even since his book was written, China now being the world's biggest CO2 emitter. Some of his statistics were off.

Freedom is almost worthless to a destitute person. A destitute or poor person is only free to get exploited by others so they can exist day to day. Look at India or Nigeria for example, many Indians or Nigerians would love to have the opportunities and infrastructure that China has now (and indeed there are many who have happily 'emigrated' to China). India has a caste system which is still very rigid, it also has a feudal land system. Nigeria is a democracy and majorly oil rich with no improvement in living conditions in decades. China has a communist system which doesn't disciminate by caste (although there is some racism like everywhere between majority/minority). Freedom is not high on list of things in China as there are still 100s of millions of poor people in China. Wealthier people in some of the bigger cities certainly will start to agitate for more freedom of course and that is a very good thing. It's very easy to sit in your armchair in Ireland and talk about freedom condescendingly as a rich person about poor people and their lack of freedoms.

ei.sdraob

uhm heres a rather unusual article

http://www.nytimes.com/2010/02/27/business/global/27yuan.html?em

Defying Global Slump, China Has Labor Shortage :eek:

ei.sdraob

more

http://www.telegraph.co.uk/finance/china-business/7339669/China-risks-property-bubble-as-prices-rise-20pc-a-month.html

China risks property bubble as prices rise 20pc a month

ei.sdraob

more publications waking up to the bubble

http://www.businessweek.com/news/2010-03-17/china-in-greatest-bubble-in-history-rickards-says-update2-.html

http://www.businessinsider.com/the-chinese-real-estate-bubble-is-the-most-obvious-bubble-ever-2010-1

be deliberately keeping the local currency undervalued they are playing with fire

Joey the lips

Actually thats interesting on keeping the currancy undervalued. This obv makes imports very expensive. But this is where we need to look at chinas balance of trade and its trade deficit imports v's exports.

It imports raw materials and exports finished goods. even with a low currancy value makeing the imports expensive they exports will counteract this and lets not forget its cost of labour is cheap.

However where its real; problem will lie in the importation of oil. However. Most of chinas power stations are coal fired and this it gets from within,.


My overall feeling is that even though I agree with the property bubble and the keeping currancy low is wrong... What is the govt to do. It seems the property bubble is the only way to get rid of that money...

Where the interest will come is what will happen when they borrow more that they produce. Will this stem the property bubble or will they like ireland borrow from abroad and then like ireland when the property bubble bursts find it difficult to pay back these loans...

personally I dont think they will... Why? because they have a low currancy and they will have to borrow a lot early which they wont be able to do...


Interesting times ahead for the great nation

ei.sdraob

Joey the lips wrote: »

Actually thats interesting on keeping the currancy undervalued. This obv makes imports very expensive. But this is where we need to look at chinas balance of trade and its trade deficit imports v's exports.

see this, now they are in a trade deficit (yes im talking of China :eek:)

http://www.businessweek.com/news/2010-03-23/china-may-see-march-trade-deficit-bolstering-yuan-resistance.html

as for bank lending its up 400% year on year (what credit crunch?)

http://ftalphaville.ft.com/blog/2010/03/23/183266/chinas-banks-more-liquid-hot-than-ever/

ei.sdraob

i think alot of people could relate to this article

http://www.favstocks.com/email-from-a-chinese-on-chinas-real-estate-bubble/036994/2/

For Beijing and Shanghai, housing is much more expensive. In Shanghai for example, the price for decent area is around 30000-Yuan/sq-meter, i.e., around $440/sq-feet. And yes, they are only condos/apartments. Hence, a 1000sq feet apartment will cost around $440,000. Yet the average college graduate earns only $5500/year

especially this

2. How did this happen?

The most important reason is the local governments. They heavily rely on the sale of real estate for their wasteful spending. During boom times, they get huge amounts of money for selling the land, and thus increase government employee’s wages and compensations. It is to their benefit to have a huge housing bubble, and they do everything they can to sustain the bubble.

and this

Construction companies also plays a role. They get easy money from banks, and earn a fortune by selling over-priced housing to people.

oh and this

Thus, the bubble is a result of corruption among local governments, banks, construction companies, combined with Chinese tradition. Lastly, please note the Chinese mindset. Chinese people love to buy houses. In the cities, it is often a prerequisite for a Chinese man to buy a house before marrying a Chinese woman.

maninasia

ei.sdraob wrote: »

see this, now they are in a trade deficit (yes im talking of China :eek:)

http://www.businessweek.com/news/2010-03-23/china-may-see-march-trade-deficit-bolstering-yuan-resistance.html

as for bank lending its up 400% year on year (what credit crunch?)

http://ftalphaville.ft.com/blog/2010/03/23/183266/chinas-banks-more-liquid-hot-than-ever/

Isn't it interesting China runs it's first trade deficit in over a decade JUST before the US govt. was going to make an annoucement on whether China is a currency manipulator. You cannot believe any statistics that are generated by the Chinese government.

It is possible they are running a deficit, but there is no actual way to know is that true or not.

ei.sdraob

http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html

if you thought ghost estates in Leitrim are bad, how about ghost cities in Inner Mongolia :eek:

Liam Byrne

ei.sdraob wrote: »

http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html

if you thought ghost estates in Leitrim are bad, how about ghost cities in Inner Mongolia :eek:

One massive difference jumps off the page :

The area is filled with office towers, administrative centers, government buildings, museums, theaters and sports fields

When the Chinese plan something, they do it right, providing the facilities to go with it.

Maybe they should open it as a walk-through museum so that idiots from our country can take a junket over there and see how it SHOULD be done.

catbear

I believe ordus sits on top off some really valuable mineral content, I think it's called rare earth minerals. These are used for all kinds of stuff. There's a graph on this wiki page showing China recent dominance of supplying the world with this stuff.
http://en.wikipedia.org/wiki/Rare_earth_element

It's probably the one mineral they have lots of.

I could be wrong but I believe Ordus was developed in anticipation of the local deposits becoming vital when other sources have been exhausted. It's basically building the mining town before anyone have started mining.

ei.sdraob

Jokes aside, the "we build it they come" thinking has been proven not to work over and over in last few years in many countries.

there is an interesting presentation over here talking about this monster bubble

As for rare earth minerals, they are not as rare as people think, just not economically (China produces a lot at low cost, "undermining" competition, no pun intended!) and environmentally viable (something not paid much attention to in China) in other "normal" countries like Australia and Canada.
Speaking of rare earth elements they are needed in alot of the Green technologies our greenies love to talk so much about, they forget to mention that by buying these from China we export our pollution there.

catbear

Good link, I like the line

Economic bubbles are usually just a good thing taken too far (think
railroads in 1890s, internet in 1990s) .

PanchoVilla

Making assumptions about China's economy is a bit pointless really. I imagine the Chinese government is about as honest as the U.S. government when it comes to economic stability. The main difference though is China is not a credit-based economy, so there's probably not much chance of a banking collapse there.

China's economy is completely different to economies in the west, so comparing them is fairly pointless. There's no such thing worker's rights and the government can pretty much do whatever it likes.

DeVore

DublinWriter wrote: »

When the brown stuff hits the fan in China, they'll dump their billions of USD reserves, then the fun will really start...

Well thats where it gets interesting... They can't really.... They own hundreds of billions, if not trillions of them. If they start to seriously sell them, not only will no one buy them (because they are about to become worthless junk) but they will massively devalue their remaining stocks of those bonds, severely damaging their holdings. They are literally in a trap of their own divising. Ironic like a Chinese finger trap!!

This is going nowhere good, mark my words.

DeV.

Yitzhak Rabin

Its lucky Bertie isn't at the helm over in China. He's have people killed by firing squad if they started to "talk down" the property market!

Highly Salami

The chinks have raised their interest rates by 0.25% to try and cool property prices:http://www.rte.ie/news/2010/1019/china-business.html

Scofflaw

Highly Salami wrote: »

The chinks have raised their interest rates by 0.25% to try and cool property prices:http://www.rte.ie/news/2010/1019/china-business.html

No, "chinks" isn't acceptable.

moderately,
Scofflaw

ei.sdraob

looks like the start of a trade war?

Lanaier

Highly Salami wrote: »

The chinks have raised their interest rates by 0.25% to try and cool property prices:http://www.rte.ie/news/2010/1019/china-business.html

Learn some respect.

Einhard

The difference between China and Ireland is that the Party will likely take some decisive acts to address an obvious problem. Sometimes living in an unrepresentative autocracy has its plus sides.

Einhard

ei.sdraob wrote: »

to consumption led growth and that has spectacularly backfired here

one thing i always wondered, what good is being "wealthy" if you don't have many freedoms?

I think that we in the West sometimes forget that freedom from hunger and violent disorder is probably the most sought after freedom of all, and that people will often quite gladly sacrifice political liberties if it means food on the table, relative stability, and a chance at further prosperity. Given the convulsions and humiliations that China has endured over the past two centuries, I don't think it's all that surprising that her people are willing to accept a curtailment of individual liberties. It'll be interesting though to see how this changes in the next couple of decades as they become used to their new found prosperity and place in the world.

ei.sdraob

more pictures of the Ghost Cities :eek:

kaiser sauze

Do you think that because of China's unique ability to influence markets that they can engineer a soft landing?

ei.sdraob

"soft landing" there's something I haven't heard in a while

Cavehill Red

kaiser sauze wrote: »

Do you think that because of China's unique ability to influence markets that they can engineer a soft landing?

It's way past that point. Sure, China can corner the rare earths market, or manipulate their own currency to operate a surplus.
But the product of their manipulations in the past has been to import inflation. All that forex flooded into China with nowhere to go. So it went internally, into the stock exchange, which has already had one bubble burst and is now in a bigger one, and property.
I said on another thread that prices in Shenzhen had risen around 100X in the same period prices in Ireland rose a maximum of 5X.
Ghost cities? That gives you a sense of the scale of this one. There's no easy painless way out for the Chinese on this one. Even if they kept up their monster trade surpluses, which they won't now the West has stopped buying their stuff, and kept all those factories open and people in employment, they still cannot dream of affording developments priced at 20 or 30X their annual incomes. Prices will collapse, then loans will default, then banks will start struggling. Any of this sound familiar?

kaiser sauze

Cavehill Red wrote: »

It's way past that point. Sure, China can corner the rare earths market, or manipulate their own currency to operate a surplus.
But the product of their manipulations in the past has been to import inflation. All that forex flooded into China with nowhere to go. So it went internally, into the stock exchange, which has already had one bubble burst and is now in a bigger one, and property.
I said on another thread that prices in Shenzhen had risen around 100X in the same period prices in Ireland rose a maximum of 5X.
Ghost cities? That gives you a sense of the scale of this one. There's no easy painless way out for the Chinese on this one. Even if they kept up their monster trade surpluses, which they won't now the West has stopped buying their stuff, and kept all those factories open and people in employment, they still cannot dream of affording developments priced at 20 or 30X their annual incomes. Prices will collapse, then loans will default, then banks will start struggling.

I had not heard of prices rising 100 times, 50-65 I had heard but 100!! :eek:

That's it then, even with the abilities the Chinese government have that is too much to cover up. I am glad I pulled out of all Asian equities four years ago.

Cavehill Red wrote: »

Any of this sound familiar?

Vaguely.

Cavehill Red

100X is probably the outlier. It relates to prices in Shenzhen, which adjoins Hong Kong on the mainland side.
Since it became its own SAR, operating alongside Macau and HK, prices went through the roof.
A lot of HK Chinese who had manufacturing on the mainland decided to sell up their properties in HK, where prices are high due to density and scarcity of property, and relocate across the border to be nearer their factories and suppliers.
So Shenzhen went from top end apartments being c. €4K to c. £350,000 today, just under 100X. All in not much more than a decade. Certainly since 1996.

Anonymous1987

Cavehill Red wrote: »

There's no easy painless way out for the Chinese on this one. Even if they kept up their monster trade surpluses, which they won't now the West has stopped buying their stuff, and kept all those factories open and people in employment, they still cannot dream of affording developments priced at 20 or 30X their annual incomes. Prices will collapse, then loans will default, then banks will start struggling. Any of this sound familiar?

Not to mention the fragility of many chinese companies:

In some industries conditions are horrible. Exporters’ margins are often less than 2%, if China’s minister of commerce is to be believed. Firms in the southern Chinese manufacturing belt are being painfully squeezed....

The government wants to allow ordinary people to enjoy more of the fruits of growth. Happy citizens are less likely to riot or demand the right to vote, it assumes. How far it will go remains to be seen, however. Will it allow the (artificially low) interest rates that banks pay depositors to rise? That would reduce the transfer of wealth from savers to well-connected corporations, which enjoy cheap credit. Will it allow the yuan to appreciate, thus walloping exporters but boosting consumers’ spending power? As usual in China, no one knows.

http://www.economist.com/node/17680814?story_id=17680814&CFID=156998044&CFTOKEN=75203701

maninasia

China is a massive country, you can't apply one rule for everywhere. But certainly Shenzhen, Hangzhou and lots of other cities have had a massive run-up in prices, if you define bubbles of lack of affordability they are very high up on the scale.
The banks will certainly suffer, as will the local governments when it crashes (they have bankrolled local banks and they also get most of their revenue from property taxes and sales of land)..so will the construction industry as building grinds to a halt and therefore the worldwide commodity industry. There is also a long-term trend at work here, the East Coast is already almost fully developed (actually they have far better infrastructure than Ireland already with modern airports, High Speed rail, highways, ports, subway systems etc. The centre and West rapidly developing and catching up. Chongqing is also in the middle of the mother of all building booms. Basically the growth will drop off anyway as any more rapid and quick development will be very wasteful...it will be surplus to needs.
You can see same phenomenon has occurred in Japan and Taiwan already.

ei.sdraob

I know this is an old thread and so far (surprisingly!) they managed to defy gravity but this BBC video is interesting > http://www.bbc.co.uk/news/business-13959239

"prices always go up" etc cliches included ...

"But we just don't know how much these properties are worth, because the prices aren't being tested in the market place," cautions Professor Chovanec. "Just what would the price be if people started to sell them?"
Well-off Chinese families may own five or even 10 apartments, and some of these might have been standing empty for five years.
Critics say that easy lending and low interest rates have led to a construction boom that has produced ghost housing estates and even ghost shopping malls.
One estimate put the number of unoccupied apartments bought as speculative investments at 65 million units.

sounds awful familiar