GMO: Something's Fishy in China. 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. Faced with slowing economic growth, one side says its leaders will deftly navigate a soft landing, while the other claims it will face an implosion similar to those that befell Japan 20 years ago and the US in 2008. Count GMO, a firm that has built its reputation on its ability to identify a bubble about to pop, in the latter camp.
Edward Chancellor, who focuses on capital market research as a member of Grantham, Mayo, Van Otterloo’s asset allocation team, laid out that negative forecast last week when he spoke in London at a research symposium hosted by Societe Generale. Accusing the soft-landing camp of “uncritically accepting” China’s growth story and placing an “overblown belief” in the authorities in Beijing, Chancellor listed 10 tell-tale traits of an economy on the verge of collapse. Ten signs you know you are in a bubble. The Reasons For China's Imminent Bust. 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. Forbes.com columnist and international lawyer Gordon Chang has spent much of his time since the early 1980s working and living in China.
His primary knowledge of the country and his relationships there give him a superior understanding to how its economy is actually faring than many analysts based in the West. We are seeing the first real signs of slowdown in China's economic growth looking at the year-over-year numbers for the past several months. Gordon sees these as the inevitable harbingers of a coming collapse in China due to excessive stimulus policies the government undertook starting in 2009.
On The Repercussions of Excessive Stimulus. 10 Signs of Speculative Mania in China. China’s housing bubble: New evidence. Ponzi in Peking - Forbes.com. 'BMW town' crashes in pyramid fraud. Chinese Quest for Shortcut to Greatness. 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 turned into a significant exporter to the US. Normally, if free-market economic forces were at work, the renminbi would have appreciated and the US dollar would have declined. Systemic Fraud In China? -- GuruFocus.com. 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. But as the story continues to develop, it is beginning to increasingly appear as if the fraudulent behaviour could be operating on a much more massive scale.
Many of the reverse takeover stocks that have been uncovered as frauds have been small cap stocks with auditors with small operations. The auditors of some of the recently uncovered fraudulent companies in China have been chided on this site and others. For example, Longtop Financial Technologies (LFT) is a billion dollar Chinese company trading on the NYSE. "In that connection, we must insist that you promptly return our documents. "Then on 20 May the Chairman of the Company, Mr.
About the author: Barel Karsan. China’s Ghost Cities. 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.” The renowned hedge fund manager, Jim Chanos, has and we suggest you do the same. Our good friend Deano Williams reminds us of the cheerleading mantra of the real estate industry , “they ain’t building anymore real estate.” Category: Think Tank. China faces social unrest from housing woes - Emerging Markets Report. 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.
HONG KONG (MarketWatch) — Irate Chinese homeowners are among the top policy concerns for Beijing this year, according to analysts who say weakening house prices are stoking serious tensions. Financial author and CSLA Singapore managing director Fraser Howie calls it the “real unknown” of 2012, as there’s no track record of how this newly emerged class of homeowners would react if the current softening in residential housing prices turns into a prolonged decline. “It’s too difficult to analyze what’s going to happen,” he said, citing the difficulty in sourcing accurate statistics on the property market and the short history of property ownership in China.
China's property slowdown spreads to other sectors. Hidden Losses And Little Reform: China May Be Slowing More Than You Think. 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. In their 2011 Q1 conference earlier this week the PBoC said that the fundamental basis of the global recovery is not very solid. The central bank still acknowledges that stabilizing price levels is an important task, but they only refer to “managing liquidity efficiently”.What does this imply? Duration Mismatch Everywhere Question of Stability. China's Housing Bust: A Potentially Devastating Blind Side In 2012.
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 2011with 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. In a telling scene two months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. If China’s Property Bubble Bursts. 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. By Eve Cary for The Diplomat December 08, 2011 Facebook0 Twitter0 Google+0 LinkedIn0 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. But why now? Quite simply, it’s a financial pacifier – recent central government policies aimed at cooling down real estate have hurt local governments, who rely on land sales and development fees as their most important sources of revenue.
Real estate has certainly been a boon for local governments. Land transfer fees form another crucial piece of the pie: in 2007, land transfer fees were 67 percent of Sichuan Province’s local revenue, and 40 percent of Chongqing’s. China's skyscraper craze 'may herald economic crash' | Business. 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 points out that the construction boom that threw up New York's Chrysler and Empire State buildings preceded the New York crash of 1929 and Great Depression.
More recently, Dubai built a forest of skyscraping offices, hotels and apartment buildings, including the world's tallest, the Burj Khalifa, before it got into terrible financial difficulties. In 2010 Dubai had to be bailed out by its neighbour, Abu Dhabi, to avoid going bankrupt. Bar Cap's report said: "Thankfully for the world economy, there is not currently a skyscraper under construction that is planned to overtake the height of the Burj Khalifa.
" China is already showing signs of fulfilling the prophecy. China Soaring Skyscrapers Latest Confirmation Of Housing Bubble, Barclays Finds. China’s inflation bust - macrobusiness.com.au | macrobusiness.com.au. 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: Look at that food bust go! As Zarathustra predicted last month on the following chart: That is good news, helping boost consumer’s disposable incomes. That’s a collapse. Again, it’s across industries but is perhaps strongest in construction related activity: But there are strong falls too in consumer facing industries: This is a concern. In timing its real estate busting campaign with an external slowdown brought on by Europe, the PBOC looks to have overdone it.
China's Real Estate Bubble May Have Just Popped. 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. In a telling scene two months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. Crowds of owners who had recently bought apartments at full price converged on sales offices throughout the city, demanding refunds.
Some angry investors went on a rampage, breaking windows and smashing showrooms. Shanghai homeowners are hardly the only ones getting nervous. Sudden, steep price reductions are upending real estate markets across China. What makes the future look particularly bleak is the lack of escape routes. To continue reading, please log in. Don't have an account? Register Register now to get three articles each month.
As a subscriber, you get unrestricted access to ForeignAffairs.com. Register for free to continue reading. Have an account? The Chanos Equilibrium Will Tell You When China's Financial Meltdown Begins. At an October seminar of the Chicago Council on Global Affairs (CCGA), carnival economist Niall Ferguson promoted his new book, Civilization: The West and the Rest. He revealed the blindingly obvious as if it were a divine revelation: the U.S. has serious problems. He preached that the U.S. corrupted its six Ferguson-defined "killer apps": competition, science, rule of law, medicine, the consumer society, and a strong work ethic.
Ferguson claims India and China have downloaded these killer apps and compares the West with a virus infected PC and the East with a fast Mac. Never mind that competition, science, medicine, trade, and industrious workers have been in evidence in India and China for centuries. The West didn't invent these ideas, so perhaps there's more to the story than Ferguson's pat explanation.
As for rule of law, that killer app seems as corrupted in the East as it is in the West. Ferguson projects that China will have closed the material goods gap by 2016. China's Ordos property bust offers warning sign.