The Chinese bubble - a lurking crisis?

[Vítor Gaspar]

Someone sent me this Australian report about China's eminent real estate bubble and yesterday a Portuguese channel did a report about the same subject.

It is amazing - in a terrible way. Now I have read before articles on China's not-that-sustainable growth but seeing these images shocked me.

If most of the world's currency is flocking to China and China isn't making it worth trillions of dollars are being burned, literally.

What are you thoughts on this?

[nameless]

Yeah yeah another "China will soon die"

http://www.forbes.com/sites/panosmou...s-ahead-of-us/

http://articles.businessinsider.com/...eng-xiaoping/2

http://www.time.com/time/magazine/ar...6345-2,00.html

The thing with the West is that they compare everything according to their standards when in fact China is anything but the west. The party knows it and they are doing what they can to avoid it or at least make a proper transition.

Hopefully as TIMEs has stated China will be able to do it properly or the US and everyone else is screwed.

[bushbush]

The bubble in China to an extent has already burst. The properties price in majority of cities in the past year have fallen. This was due to the full year devoted to tightening the credits by the central bank.

So why is China not going through the same economic recession like in the US? The reason is that China's housing market is not tied up to the financial system like the US housing market did. There is no massive subprime loans in China. There are no mortgage backed securities with fake AAA ratings in China. And there are no massive foreclosures and collapse of financial institutions in China when housing price declines.

http://online.wsj.com/article/SB1000...014227082.html

SHANGHAI—Average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive decline and intensifying concerns over the souring outlook for the sector and the economy as Beijing remains determined to continue to rein in unaffordable housing prices.

In fact, Chinese economy is predicted to grow more than 8% again in 2012.

As for the excessive buildings, they will be sold eventually. They are not going to rot. China has geninue demand as 50% of population still lives in country side and want to move to the city.

There still exists genuine demand for property, and the leverage ratio in the country's property market is low, as banks require higher down payments from home buyers, they wrote, adding that the decline in property prices is a result of government action, rather than a turnaround in the market.

[mrmouth]

The single most important factor in a soft landing after the burst, is that there is still a significant property demand.

[bushbush]

The single most important factor in a soft landing after the burst, is that there is still a significant property demand.

you are right here. China still has huge demands in terms of urban housing. Urban population just reached 50% of China's population last month. More are moving to the cities and housing is still in high demand.

The main difference though is that China has almost no mortgage-backed securities industry. US housing market burst would have been 50 times less destructive if they didn't have all the mortgage-backed securities (full of subprime mortgages...) that went nuclear in the face of financial industry after 08 and forcing the US government to bail them out. China is 30 year behind in the financial sector. This actually saved China.

[Mr. Scott]

Oh god... not AGAIN!!!

Also, old news. And whether China undergoes a hard or soft-landing remains to be seen. If Europe's crisis does really begin to unravel, than the former is more likely. However, a stronger US recovery may offset it.

[bushbush]

Oh god... not AGAIN!!!

Also, old news. And whether China undergoes a hard or soft-landing remains to be seen. If Europe's crisis does really begin to unravel, than the former is more likely. However, a stronger US recovery may offset it.

http://mobile.bloomberg.com/news/201...ents-for-banks

it seems the landing has completed though, at least from the regulators' perspective. Since housing price has decreased and inflation is now under control. The problem is that EU and USA are still sucking. So China is actually stepping on the gas again, instead of hitting the brake like during the entire year of 2011.

[Exarch]

nothing sells like doom and gloom and imminent collapse; how else do ppl who've been proven wrong over and over again, like gordon g. chang stay in business?

if he were a stockbroker he should've been fired decades ago

[Mr. Scott]

nothing sells like doom and gloom and imminent collapse; how else do ppl who've been proven wrong over and over again, like gordon g. chang stay in business?

if he were a stockbroker he should've been fired decades ago

He is a tad over-dramatic in his view, but it's no more wild than those who say China will surpass the US in just 4 years . Both the bears and bulls have their radicals.

http://mobile.bloomberg.com/news/201...ents-for-banks

it seems the landing has completed though, at least from the regulators' perspective. Since housing price has decreased and inflation is now under control. The problem is that EU and USA are still sucking. So China is actually stepping on the gas again, instead of hitting the brake like during the entire year of 2011.

Well, the recent numbers from the US are pretty positive (2.8% is not bad given the state of the global economy), but Europe's numbers aren't looking good. China's definitely put out some numbers that eased many investors fear of a hard landing. However, China's inflation and its real estate bubble still haven't fully been tamed (though they have managed the latter very remarkably), so they may be pressing on the gas a bit too soon because of Europe (or too late, depending on who you talk to). I think the biggest problem that they face though, is that they geared their recovery in a way that depended on the US and Europe also recovering. However, these economies are not recovering substantially (with the latter now in the red), and so they may have issues with some of the economic disequilibrium caused by their approach. However, based on how well they managed the real estate bubble, they may be able to scathe through a European crisis relatively unharmed (something that US corporations would love ).

Anyway, its starting to seem as though both the USA bears (virtually everyone from Europe and the Mid-East on this forum ) and the China bears (me lol ) may very well be wrong.

European bears however .

[mrmouth]

He is a tad over-dramatic in his view, but it's no more wild than those who say China will surpass the US in just 4 years . Both the bears and bulls have their radicals.

It's all speculation. And when dealing with China, it becomes that much more difficult. They are notoriously guarded about releasing even the most basic numbers. And there is significant evidence that they have cooked unflattering numbers in the past.



I'm not anti-China, but there are significant issues with how they play the game and use their buying and manufacturing power to strong arm the other large economies. That has gotten a little better, and the US and China appear to be on a better level of understanding. Obama has been fairly tough on them, and it was deserved.

But of course this growth is not sustainable, and it isn't an indictment of China. You cannot expect to manufacture at such a level, forever. The low cost manufacturing population base eventually begins to shrink. They move into management, they move into schools, they simply move on. There is a substantial difference between having relative nothing - to relative something.

The worker who lives in a factory dormitory, is thoroughly unhappy making under $20/month on 12 hour shifts - isn't going to be around forever. And that is what really propels the Chinese economy. Western investment in wholly unfair and unrealistic work conditions. That is unsustainable. They can move back to farming, pool what little they make and move on, or even rebel. The suicide numbers are only increasing.

[bushbush]

It's all speculation. And when dealing with China, it becomes that much more difficult. They are notoriously guarded about releasing even the most basic numbers. And there is significant evidence that they have cooked unflattering numbers in the past.

Actually, the opposite might be true. China is vastly underestimating its economy because of under-reporting and its outdated taxation system. In particular, China's service industry is vast and very difficult for its small taxation corp to audit. That's why agencies (not just China's data report) actually have to go back to adjust China's GDP upward in the past to account for what we now understand as unreported GDP growth.

Also, I wouldn't say China's notoriously secret about its numbers. Its economics data is fairly open. Agencies like IMF or World Bank hasn't really complained about China not releasing major economic data.

The part China is under-reporting though, is probably its banking sector, whose data is heavily guarded.

I'm not anti-China, but there are significant issues with how they play the game and use their buying and manufacturing power to strong arm the other large economies. That has gotten a little better, and the US and China appear to be on a better level of understanding. Obama has been fairly tough on them, and it was deserved.

The whole China unfair advantage thing might be a little overstated. I don't think Obama has taken this information to the American people yet. A lot of exports to US from China are actually from US companies investing in China. Take that out, you probably reduce the trade deficit by half.

But of course this growth is not sustainable, and it isn't an indictment of China. You cannot expect to manufacture at such a level, forever. The low cost manufacturing population base eventually begins to shrink. They move into management, they move into schools, they simply move on. There is a substantial difference between having relative nothing - to relative something.

The worker who lives in a factory dormitory, is thoroughly unhappy making under $20/month on 12 hour shifts - isn't going to be around forever. And that is what really propels the Chinese economy. Western investment in wholly unfair and unrealistic work conditions. That is unsustainable. They can move back to farming, pool what little they make and move on, or even rebel. The suicide numbers are only increasing.

That depends on whether or not China can develop a consumer economy, which is now the challenge, but the trend in the past 3 years has been an increase in domestic consumption with export slowing down.

[Burnum]

China's growth is unsustainable, but there is nothing too suggest an imminent financial collapse, a larger slowdown is far more likely.

[Robin de Bodemloze]

This...again? Why does the West repeatedly feel the urge to make itself look dumb by claiming that China will collapse imminently?

China faces many problems. Her economy is not one of them. At least we're not sitting in a crapload of debt we can't pay back

[Mr. Scott]

This...again? Why does the West repeatedly feel the urge to make itself look dumb by claiming that China will collapse imminently?

China faces many problems. Her economy is not one of them. At least we're not sitting in a crapload of debt we can't pay back

Because the East constantly says that China's economy will never collapse or slow and constantly says that the West will .

Oh and China most certainly does have an enormous debt, though that's an entirely different issue in itself

As it turns out, both bears may be wrong (except those about Europe )

[Robin de Bodemloze]

Because the East constantly says that China's economy will never collapse or slow and constantly says that the West will .

Oh and China most certainly does have an enormous debt, though that's an entirely different issue in itself

As it turns out, both bears may be wrong (except those about Europe )

I don't think anyone besides China in the East has ever said anything about China, and then it's only something along the lines of "we will manage things so we get a soft landing". The West on the other hand arguably has already collapsed

China's official debt ratio was traditionally something like 20-30% of GDP. After 2008 it went on a lending spree to stimulate the economy, a large part of which it will never get back. Now if you believe the naysayers the current ratio is closer to 80% which is close to the US (or 160%, according to this absurd Forbes article). They say this is largely thanks to "hidden debt" in the form of SOE's holding debt, but that's debatable as most of these companies are solvent and sustainable in their own right even if you factor in the extra debt. For the most part Chinese SOE's are not in danger of falling flat, and do not require government backstops.

China's biggest problem is that it uses policy to adjust its economy instead of using monetary or fiscal policy. That inherently creates all kinds of inefficiencies, but no China is not in danger of collapsing.

[selder]

chinas downfall will not be economic it will be civil, as those buildings sit empty and millions live in their shadows in sub human conditions. It is a ticking time bomb.

[bushbush]

chinas downfall will not be economic it will be civil, as those buildings sit empty and millions live in their shadows in sub human conditions. It is a ticking time bomb.

Actually I would argue that China has done a superb job in terms of housing its urban population (now 50% of its population or 600 million) precisely because it has devoted so much resources into building urban infrastructure and housing.

Compare to India or Brazil, Chinese cities actually don't have the kind of slums other developing countries do. People in cities actually can afford to live in apartment complexes (I am talking about renting at least, buying is another topic for the younger generation).

These apartments eventually will be occupied as more people move to the cities. It will just be up to the market to adjust the price to meet the consumer demands. It will also depend on China's mortgage market development. It is still very difficult to get mortgage for housing in China, something that will take time to develop.

[selder]

Actually I would argue that China has done a superb job in terms of housing its urban population (now 50% of its population or 600 million) precisely because it has devoted so much resources into building urban infrastructure and housing.

I guess sub human housing still counts as housing right? I would argue that most of those "new" housing units are either sitting empty or bought up by greedy investors waiting to offload for a profit. As the working class can only dream of one day being able to afford such "luxury"

but dont take my word for it http://www.foreignaffairs.com/articl...ve-just-popped

[bushbush]

I guess sub human housing still counts as housing right?

What would you consider as "sub-human" housing though? Are apartments with running water, electricity, garbage collection, internet, health services, etc, sub-human conditions?

China doesn't have slums like the ones in India and Brazil. I can't see why that shouldn't be praised given slums are a big problem for almost every developing country. Of course China is not house-per-family yet, might never reach there given its big population. But it has made serious progress in housing its people.

I would argue that most of those "new" housing units are either sitting empty or bought up by greedy investors waiting to offload for a profit. As the working class can only dream of one day being able to afford such "luxury"

I doubt how you can back that assertion up though. There are significant numbers of properties held as investments. However, there are also a large number of housing across China being sold to average folks.

Keep in mind, most people don't live in Beijing or Shanghai or a few other cities where properties are held as speculation goods. There are 50-60 major cities in China with population in the millions and their property prices vary in affordability.

In fact, the government has devoted considerable resources to build affordable housing. More are coming:

http://www.cnbc.com/id/44679352/Ulri...ng_Up_Momentum

China’s plan to build 36 million units of affordable housing during the 12th Five-Year Plan has been viewed as an important pillar of economic growth for the next several years, a tool to dampen price increases in the private housing market, as well as a major enhancement of social welfare.

Original announcements suggested a front-loading of construction within the 2011-2015 period, with 10 million units to be started in 2011. The rapid increase in construction starts – from just 34 percent in late May to 86.8 percent end August of this year’s targeted 10 million units – has raised many questions about the degree to which this surge in starts is translating into construction activity.

I don't see any other developing country devoting this kind of resource to housing.

[selder]

What would you consider as "sub-human" housing though? Are apartments with running water, electricity, garbage collection, internet, health services, etc, sub-human conditions?

Do I really have to answer that? well I guess 8 families living in 80sq m appartment...that sort of thing or how about China's "floating population" which exceeds 100 million some say closer to 200 million, etc.

I doubt how you can back that assertion up though

that is what the link was for, go ahead and read it and then tell me what part of it is incorrect.

Don't get me wrong I am not bashing China as this is a common problem in modern societies. I am only suggesting that they are not immune to the same problems that the rest of the world faces.