Speculation in Chinese equity / housing markets...
GMO: Something's Fishy in China By Robert Huebscher January 17, 2012 A wide gulf separates the two most prominent views regarding China’s future.
Guest Post via ChrisMartenson.com The global dominant narrative about China is wrong, claims Gordon Chang. Don't expect it to be the 'pocketbook of last resort' that will rescue world markets from their current malaise. And don't expect its remarkable economic growth to continue. In fact, expect a "hard landing" for China - and soon.
Inquiring minds are reading a GMO white paper on China’s Red Flags In the aftermath of the credit crunch, the outlook for most developed economies appears pretty bleak. Households need to deleverage. Western governments will have to tighten their purse strings.
For a while now, analysts have been arguing there is a bubble in China’s property market. Using records from 35 major cities this column finds evidence of a housing bubble. It compares house prices to cointegrated fundamentals and finds that property in China is in general overvalued by around 20% – and even more so in the boom towns. For many observers, the Chinese economy has been spurred by a bubble in the real-estate market, probably driven by the fiscal stimulus package and massive credit expansion (Nicolas 2009). For example, the stock of loans increased by more than 50% since the end of 2008. In reaction to the global crisis, the government urged banks to increase lending (Cova et al. 2010).
Chinese journalists soon arrived to count the number of BMWs on the roads (10 in 13 minutes, according to CCTV, the state broadcaster). Then they started asking questions about where the money had come from. Earlier this month, Shiji's boom ended as abruptly as it began. The local Dragon Court BMW dealership has been shuttered; its owner is under house arrest.
he Chinese economy must be getting out of control, because the Chinese government is doing the unthinkable: It is desperately trying to put the brakes on the economy. When you pump a stimulus package that represents 14% of GDP through a fire hose into an economy, which was already on shaky bubble foundation, in a very short time you’ll have some serious unintended consequences — you’ll get super bubbles. To understand what’s taking place in China today, we need to rewind the clock about a decade. At that time the Chinese government chose a policy of growth at any cost. To achieve that, it kept its currency (the renminbi) at artificially low levels against the dollar — this helped already cheap Chinese-made goods become even cheaper than its competitors’. The US and global consumers were eager to buy them.
China's high growth rates have encouraged foreign investment, which have in turn helped fund China's incredible growth. But such large capital inflows are bound to give way to sector imbalances and fraudulent behaviour. Recently, some fraudulent behaviour has been uncovered among small-cap Chinese stocks that trade in the US.
The following video is the first of the great series on China’s ghost cities that Bloomberg is running this week. Getting China right is key to your P&L and the direction of many markets, including emerging equities and commodities . We’re grappling with who financed these cities, who is holding the paper, and how were they financed. Recall China’s massive money supply growth and credit expansion which funded the country’s stimulus after the 2007-8 financial collapse. Our basic assumptions may be wrong, such as time horizon and holding period, and Adam Johnson does a good job covering these, but this is one issue that keeps us up at night and we won’t rest until we’re comfortable with a good working understanding of what is going “over there.”
By Chris Oliver , MarketWatch Reuters A laborer works at a construction site for new houses in Huaxi, China. Analysts say falling prices in the housing market could lead to social unrest this year, although Beijing is unlikely to let such grumbling go too far.
In his latest Email review, Michael Pettis at China Financial Markets discusses financial reform (actually the lack thereof in China), as well as an observation on China's Growth. Pettis writes .... Three months ago during their 2010 Q4 conference, the PBoC said that they believed that the global economic recovery would continue in 2011, although they acknowledged a great deal of uncertainty. The PBoC also said that stabilizing the price level was their top priority, and the central bank planned to control the “main gate” of liquidity inflows and to bring credit growth to “normal” levels. Chen Long at SWS notified me yesterday of a change in tone.
As the world’s attention focuses on the death of Kim Jong Il and shorts keep piling up in the Euro, China’s real estate bubble appears to have finally burst. This is the one macro swan that could really smack developed markets in 2012 as few are focused even though the Shanghai composite and Hang Seng are down over 25 percent from their highs earlier in the year. Both are down 21 percent for 2011 with Shanghai closing at its lowest weekly close for the year on Friday. Foreign Affairs has just posted a must read piece, China’s Real Estate Bubble May Have Just Popped , which will sound very familiar to Global Macro Monitor readers. Here are a few money quotes, For years analysts have warned of a looming real estate bubble in China, but the predicted downturn, the bursting of that bubble, never occurred — that is, until now.
The cooling of China’s real estate sector is good for the economy. But the government is right to be worried about the social consequences of the bubble bursting. In October, Beijing announced that four city and provincial governments – Shanghai, Shenzhen, Zhejiang and Guangdong – would be allowed to start issuing bonds for the first time in China’s history. Zhejiang is expected to issue $8 billion yuan in bonds, including half three-year bonds and half five-year bonds. The proceeds are intended to fund infrastructure projects already under construction.
The Burj Khalifa in Dubai, currently the world's tallest building at 828 metres. Photograph: Reuters China could be the next country to go bust, if its headlong rush to build ever-taller skyscrapers is a guide to its future economic health. According to a study by Barclays Capital, the mania for skyscrapers over the last 140 years is a sure indicator of an imminent crash.
It is no secret to anyone that as we said some 3 years ago, the world is now engaged in all out currency warfare whose sole goal is destroying one's own currency faster and more brutally than "the other guy" can. Because while devaluing one's currency is imperative in order to return to a viable debt load, about $40 trillion less than where it is now (as per BCG) by pushing monetary inflation upon one's people and inflating said debt away, just as important is to stimulate one's economy and exports which, all else equal, can only be done by making them cheaper to one's trading partners. It is, after all, a zero sum world.
So then, Chinese inflation is falling precipitously: There’ll be more big falls in the next few months too with some big numbers from twelve months ago dropping out of the series. It’s not hard to see where such a swift change is coming from: