Posted on 09/29/2011 6:13:17 PM PDT by blam
More Signs China Is Going Bust
Economics / China Economy
Sep 29, 2011 - 12:04 PM
By: Justice Litle
While the world fixates on Europe, signs of a China crash are mounting behind the scenes.
Imagine you run a business with 3,000 employees. Your factories churn out 20 million pairs of sunglasses per year -- the best-selling brand in China. You are a celebrated businessman in your region, with expanded interests in real estate and solar energy.
Oh, and one more thing: You are flat broke.
As it turns out, your company borrowed huge sums at high interest -- more than cash flow could justify -- and you have no hope of paying the loans back. Now the business is insolvent. What do you do?
If your name is Hu Fulin, you run away.
"The east China city of Wenzhou is battling its own subprime crisis," Shanghai Daily reports, "after seven local business owners fled." Wenzhou, the "cradle of China's private economy," is China's latest ground zero for a credit boom gone bust.
Hu Fulin is one of the seven "runaway bosses" who, faced with insurmountable debts, decided to hit the road this month, "leaving thousands of employees in a state of shock and enormous unpaid loans in hundreds of millions of yuan."
When Mr. Hu disappeared, his suppliers panicked too. Large payments were owed, along with two months' salary for thousands of employees.
The Wenzhou crisis is dubbed "subprime" because the state-owned banks pulled back, allowing private lenders to step in at sky-high rates. The loans being defaulted on had subprime rates of interest.
The Chinese government attempted to cool off reckless lending by putting restrictions on the state-owned players. All they accomplished was a juicy handoff to others to take on more risk, in exchange for subprime lending terms.
And the net result? Bosses fleeing as loans implode. "Thousands of employees in a state of shock." A ripple of destruction all down the supply chain... and a possible tipping point in the whole Ponzi-financed boom that counts Chinese real estate as its white-hot center, as greed morphs into fear.
The Wenzhou bust comes against a backdrop of warning signs for China's broader economy. The dragon had already lost a step, as evidenced by manufacturing data declines.
"The country's huge manufacturing sector is starting to slow," the NYT reports, "and orders are weakening, especially for exports. The real estate bubble is starting to spring leaks, even as inflation remains stubbornly high."
But what about the rich?
As in the United States, it's the wealthiest portion of Chinese society that drives spending (and thus equity valuations). Those who can afford luxury apartments and Hermes scarves matter a lot more than subsistence farmers.
Here too there is trouble. "Sounding the latest alarm about slowing economic growth in China," the WSJ reports, "Mercedes-Benz on Friday said luxury-car sales gains slowed in what has been its fast-growing major market."
After 60% growth in the first half of 2011, the pace of Mercedes sales decelerated in July and August. The rich are paring back.
Yet more warning signs abound. Last week, Chinese property stocks were hit hard on fears of a financing crunch. Various Hong Kong-listed developers fell more than 10% in a single day.
"Initially, people were worrying about earnings," said Agnes Deng of Baring Asset Management. "What happened is that people started to worry about balance sheet problems as well as cash flow and funding."
Cracks in the façade are widespread. Property prices are dipping in many cities after "a sharp decline in sales volumes," the Financial Times adds. Shanghai real estate transactions are down more than 50% year-on-year.
Guess who is in the middle of all this? "China's economy is very distorted, and the banks, as ever, are at the epicenter of the distortions," says Edward Chancellor of Grantham Mayo Van Otterloo. "If China runs into problems with the banking system, which I think it will, I cannot see a situation in which foreign investors are the main priority of Beijing."
It is hard to pinpoint the bursting of a bubble. But for China the warning signs abound, with free-falling copper prices a quiet confirmation. Even as the world focuses on Europe, a full-on China bust could have greater impact than many realize.
My advice is that the next time you “explain” something that is false and dishonest and ill intended you should give some plain indication that you are neither misapprehending that which is being described nor are you deliberately telling lies. That way no one will mistakenly conclude that you are either retarded or evil.
I will, if you will explain that you are incapable of figuring the context of comments and you like slandering people, k?
I did not say that China could do that, I only explained what the term meant.
Now that you have the context of my comment, you can go back to your petty little life.
What you posted was, at best, false and illogical.
It was also precisely the sort of thing that ill intended people say in order to drag America down.
I have not concluded nor stated why I think that you posted what you did. I don’t know.
I do know that it was false and illogical and so I criticized it.
If you can’t handle criticism then you should try to post better things.
You didn’t criticize the post, you slandered me. You added intent to my answer without clarifying it.
A criticism of my answer might be along the lines of, “you are incorrect, China cannot do something like that.”
You accused me of out and clear lying.
I did not.
Sob elsewhere.
You called me a liar, jerk.
That means you assumed an intent that didn’t exist. That makes you the liar.
Just so we’re clear on that point.
His American cousin is ‘Fulin Hu’. ;D
Stunning post. Just awesome.
comment: “many are vacant apartments minus appliances, wiring, furniture, toilets and water pipes - empty space with walls.”
Sounds like Detroit.
Except Detroit wasn't built that way.
Commence the trade war.
Now.
For China, it WILL need at least two generations, with their entrenched system, to change in the right ways. But it could happen.
According to this article (usual cavaet), there are growing problems.
“The point is that much of what they own comes up for renewal periodically and the simple fact is that if the Chinese and others do not roll over these loans at regular intervals, the United States simply cannot pay them off.”
I agree with what you are saying about them rolling over the debt, but that’s not the point that was made. The poster said they could ‘call the note’, which is not possible.
That means the Chinese aren’t productive enough. More caffeine is the solution.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.