Is China heading for a crash?

[crazy-meiguoren]

You know "Red Dawn" is being remade, this time instead of the Soviet Union invading the US it is.......China.

There always has to be a straw man somewhere. There is no comparison. The old Cold War dynamics no longer exist. The US got more trouble from one Nigerian last Christmas than it ever did from 1.2 billion Chinese.

Edited January 8, 2010 at 06:00 AM by crazy-meiguoren
correct grammatical errors.

[Outofin]

I played Call of Duty. You know, the worst place a Russian can ever be is in American video game.

By the way, big Red Star has great aesthetic value. They look so cool to me.

[crazy-meiguoren]

the worst place a Russian can ever be is in American video game.

North Koreans aren't doing very well either. Come to think of it, nobody's safe in any American video game. If I were a cat, I would've lost all nine lives within 15 minutes. I was much better off taking on the neighborhood bully when I was 12.

[Outofin]

Is China an Enron? (Part 2)

Friedman's take on Google vs China. I think it's more about China heading for a crash than about the Google incident.

I never heard Li Peng talking about America, it must be something like this one. Theorists are all geniuses.

[gato]

See this chart comparing rent-to-purchase price rate (yield) for different cities in China. Shanghai has the lowest yield among these cities. The yield has become even lower, with the 20-30% increase in property prices last year. The rent has not increased.

http://www.globalpropertyguide.com/Asia/China/Rental-Yields

China: House Prices, Rents, and Rental Yields

[Outofin]

谢国忠：走向滞胀

谢国忠 is among a few economists that make sense. His blog is worth reading. He's seeing another crisis in 2012.

Usually predictions don't mean much because lots of things can happen between now and then. It's more about "now" than "then".

[gato]

谢国忠 (Andy Xie) actually writes most of his columns in English. They are then translated by people at the magazine (used to be 财经, now it's 新世纪周刊) where they are published. I guess he's been writing in English so long that he doesn't feel comfortable writing in Chinese anymore. The Chinese translations also leave a lot from the English original out, maybe for space reasons.

I found out about this when a sentence in his Caijinig column didn't make sense. When I read the English version, I discovered the Chinese version got the meaning reversed.

You can find Andy Xie's latest columns in original English at the 新世纪周刊 site.

http://english.caing.com/andy_xie/index.html

Pumped With Cash – And Ready to Crash?

and an archive of his old columns at the Caijing site:

http://english.caijing.com.cn/xieguozhong/

Here is the translation mistake I referred to above. The translator didn't know that "rallied hard" means "rose rapidly" and instead translated it as "进程十分艰难".

http://xieguozhong.blog.sohu.com/128801315.html

泡沫惊梦

本文见《财经》杂志 2009年第16期 出版日期2009年08月03日

当然，货币政策可以促成一个短暂而火爆的美元牛市。上世纪80年代初期，当时的美联储主席保罗沃尔克，用两位数的幅度加息，以控制通胀。从那以后，美元升值的进程十分艰难。目前的局势与此类似。照此发展，几乎可以肯定，中国资本市场和经济将会“硬着陆”。

http://english.caijing.com.cn/2009-08-05/110220584.html

Andy Xie: China Counts Down to the Next Bubble Burst

08-05 08:28 Caijing comments( 1 )

However, monetary policy could trigger a short but powerful bull market for the dollar. In the early 1980s, the then-chairman of the Fed, Paul Volker, increased interest rates to double digits to contain inflation. Afterward, the dollar rallied hard. A Latin American crisis had a lot to do with that.

The current situation is similar. As in the 1970s, the Fed is denying inflation risk due to its loose monetary policy. The longer the Fed waits, the higher inflation will peak. When inflation starts to accelerate, it could cause panic in financial markets. To calm the markets, the Fed would have to tighten aggressively, probably excessively, leading to a massive dollar rally. This would be the worst possible situation: A strong dollar and a weak U.S. economy. China's asset markets -- and the economy -- would almost surely see a hard landing.

[chrix]

Aw bummer, and here I thought I had found a nice Chinese-language blog to add to my feeds Will still add the English version though...

[outcast]

He's forgetting a fundemental difference: in the 70's the US government debt was not actually that high, nothing like what it is today.

[eatfastnoodle]

Well, that will depend on what's your definition of "crash". For the most part, the anger and anxiety about China are mainly about the steep rise of housing price over the past few years. Indeed, it's very clear that housing price at current level is unsustainable, so correction is inevitable, the only question is when and in what form correction will happen (the government knows it, however, for various reasons, what it wants is a graduate deflation of the bubble rather than an sudden burst, of course, what eventually happens will depend on a lot of variables. So the government may or may not be able to achieve its policy objective.)

On the other hand, I don't think China's growth will be seriously affected by correction in the property market, for one thing, China enjoys enormous economics of scale in manufacturing and export that few other countries can match (tons of countries have much lower labor cost, yet none of them could compete with China in manufacturing mainly because of China's advantages in scale, supply chain and infrastructure. Between 2006 and 2008, RMB gained 20% in value against the US dollar, yet during the same period, China's current account surplus with the US also increased 20%. Personally, I think the whole brouhaha about China's exchange rate by the US and EU is totally misplaced.) Drop in housing prices will only increase the cost advantage China enjoys against the rest of the world (not to mention the government can execute a massive depreciation of RMB to increase export competitiveness, as Zhu Rongji did back in 1994.) So one pillar of economic growth will not be affected by what happens in the housing market.

At the heart of the housing bubble is China's tax system which, after Zhu's reform in 1994, gives most of the tax revenue to the central government while leaves local governments with far less resources. To make up for the lack of stable tax revenue, local government, in cohort with property developers, engage in massive sale of public land for property development in order to generate revenue, in another word, local governments have the incentive to create and support high housing prices to protect their main source of revenue. On the other hand, China's fast growth over the past few decades generate a lot of cash inside the economy with few investment opportunities, due to an still far from sufficiently mature financial system, these money practically has nowhere to go but to swarm into the property market, coupled with the local government's desire for higher revenue, housing price took off. The central government knows perfectly well what's going on and it's perfectly capable of putting down the housing price, but with so many local government's finances tied up to property market, the central government has no choice but to tread extremely gently in order to avoid wrecking local government's finances. (Whatever policies conjured up in Beijing must be implemented by various provincial capitals, if these policies go against provincial interests, obviously, they're gonna create all kinds of excuses to avoid implementing central government's policies. Of course, after sacking Chen Liangyu, Shanghai's top party boss, for going directly against central government policies, nobody at the provincial level dares to go against central government, if they sense Beijing is serious.) The flurry of approved IPOs in Shanghai and Hong Kong in 2009, the creation of stock market for start-ups were all designed to suck liquidity out of Chinese market, in another word, away from housing market, along with interest hikes and various "administrative measures", they were utilized to slow down and stabilize property market, but ultimately, the government needs to reform tax system (for example, introduce property tax to provide stable stream of income to local government and increase the cost of ownership.) and financial system to unhook local government from property market and direct domestic liquidity toward other kinds of investments. The demand is genuine as urbanization accelerates, but the system is totally out of balance because of above mentioned problems, which could only be addressed by systematic reforms.

In sum, I think a correction in housing market is all but inevitable, whether or not it'll be a crash still remains to be seen. Even if there were a crash, I don't think it's gonna do irreversible damage to the economy as China's export engine still enjoys massive competitive advantages that are unlikely to disappear any time soon and momentum of urbanization generated by 30 years of massive temporary migration from rural areas to cities (very few migrant workers wanna go back to their villages to do farm work any more, they may stay in coastal manufacturing hub or stay in small cities, but their yearning for urban life and their determination to not live like their parents are unstoppable at this stage. New cities would have to be built, new housing complexes have to be built, new schools, new public amenities, etc. All of these will generate demand for Chinese industries.) means domestic demand is unlikely to stay dormant for long no matter what.

[ning22047]

i agree with what "anonymoose" said. for it is the truth that we can observe everyday here in shanghai. i found that money has depreciated now and i have much than before to buy dishes. but our real income has not kept pace with the speed of inflation, meanwhile, i also the interest of bank is comparatively higher to us ordinary people. reesidences who bought real estate must pay much interest rate if we contract with bank for 30 years mortage, so our chinese chose to free from the burden of mortage as soon as possible. the final purpose of the banks(the chinese owned company) are gaining profits from slave of house.

[carlo]

Here’s a link to the video of a presentation by Chanos, where he goes into some detail.

http://www.youtube.com/watch?v=99HNFCn5RP8&feature=player_embedded

Much of his argument boils down to what Andy Xie succinctly sums up in one sentence: “The biggest risk to China’s economy is the desire to maintain past economic growth rates by maximizing investments in property — an unproductive asset.” The word “collapse”is probably only the journalist’s idea of a good headline. Chanos is not claiming China’s economy will implode tomorrow, only that soon there will be a major correction in the real estate sector and there is money to be made from short selling related assets (if you have very deep pockets, that is).

[adrianlondon]

Didn't want to start a new thread when this topic, albeit not posted to for a while, covers the subject already.

http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?slop=1#slideshow-start

Very interesting - whole areas prepared, architected, built and ... empty.

[xiaocai]

This article is laughable, especially the last one. 2.3 million students? The author obviously has no idea how much space you will need to accommodate so many people... He might as well just put 2.3 billion, and there will still be people out there believe it.

[adrianlondon]

Depends if they're foreign students or Chinese students ;)

[jbradfor]

Why is it impossible? There are already several universities in the world with enrollment over 1 million, and wikipedia says the enrollment at Indira Gandhi National Open University, for example, is 3.5 million.

[gato]

The projected student population for the "university city" near Kunming should be 200,000, not two million. It's not just for one school, but ten schools.

http://news.archina.com/arch/news/14/65252.html

看国际东城“七年之变”（图）

放大字体 缩小字体 发布日期：2010-10-20 来源：云南信息报

目前，高校片区建设快速推进，累计完成投资78.1亿元，约占计划总投资的91.88%，大学片区现在的人口已经突破5万，而终极规模则要达到30万人。高校配套项目累计投资41 亿元，建设面积达128.77万平方米。

届时，呈贡新城将云集云南大学、昆明理工大学、云南师范大学、昆明医学院、云南中医学院、云南艺术学院、云南交通职业学院、云南民族大学、云南广播电视大学、昆三中等10所高等院校的20万学生，和昆明市委、市政府的8000名公务员入住新城。

[xiaocai]

Well I never said that it is impossible. But as for this particular case, first the university is in Yunnan and most likely in Kunming, where the total population is only over 6 million; second the name of the university is Yunnan University but not something like "Chairman Mao University"; and third obviously the satellite image provided simply fails to support the 2.3 million student claim. Based on my limited experience with the chinese tertiary education system the claim is, if not completely false, at least highly exaggerated.

[gato]

You have a point there, xiaocai.

[Player01]

oh my god and I thought houses in China were cheaper. Is it a bad idea for me to want to immigrate to China? Lol