Debunking The Chinese 'Soft Economic Landing' Myth: Short The Bubble

Seeking Alpha ^ | 12/19/11

[TigerLikesRooster]

Debunking The Chinese 'Soft Economic Landing' Myth: Short The Bubble

December 19, 2011

China’s growth curve has gone parabolic in recent years. For the last couple of decades, China has typically averaged 10% GDP growth, and it has maintained that growth even as a multi-trillion dollar economy. Of course, 10% growth in an economy already worth trillions is an astounding achievement, but it can also lead to severe economic tribulations, such as soaring housing and food prices. China has incurred both of these troubles. As a growing middle class emerges, demand for beef has far outstripped supply growth, and beef is typically making record highs every month. Additionally, the usage of real estate as collateral for local government loans, amongst other factors, has led to soaring housing prices.

China has a significant housing bubble on its hands. Growth in the real estate sector is important in all modern economies. Construction of homes and commercial office space is a huge driver for demand in the steel, cement, and construction sectors, and is an important part of demand in the commodities market. Construction requires the use of iron (in steel), copper, and fuel. Moreover, local governments depend wholly on rising land and real estate prices, since almost all of their collateral is in their properties. The famously investment driven Chinese also depend heavily on rising home prices to attain better rates of return than are possible in other markets.

[sickoflibs]

Does this sound familiar??

In 2006, it cost $100,000 to buy a decent apartment in Beijing. The average Chinese citizen would have had to save for 32 years based on the average disposable income. Five years later, in 2011, it cost $250,000. Of course, the actual price of housing is irrelevant if incomes are rising as much, if not more than housing prices are growing. Unfortunately for Chinese citizens, income growth came up short, and it now takes more than 57 years of saving to be able to cover the cost of buying said apartment. 57 years of saving is not a normal figure for average citizens in a healthy, economically balanced real estate market. Even the chairman of China Construction Bank, one of China’s largest banks (and who is heavily dependent on strong real estate growth) said, “In some ways, real-estate prices are really crazy.”
Housing prices got to this level mainly because the Chinese government wanted its citizens to save, but it has not offered them viable alternatives to the real estate market in which to invest.
As previously mentioned, the stock market has been too volatile for most individual investors, capital markets are considered to be overwhelmingly underdeveloped, and the deposit rates that banks are paying their customers are much too low to provide reasonable rates of return after inflation is factored in. Thus, citizens have had no other practical investment vehicles in which to park their savings.

Full article:
Debunking The Chinese 'Soft Economic Landing' Myth: Short The Bubble

[DB]

Here’s the an example of Chinese central planning in action:

http://www.youtube.com/watch?v=rPILhiTJv7E

If you believe that is real economic activity producing real wealth and will not end a disaster of epic proportions I don’t know what to tell you.

[SunkenCiv]

Thanks sickoflibs.

[American Constitutionalist]

" China will be better off than USA "

Forget about Europe buying China's products.
Without the USA consumers China's economy would be nothing.
China can't depend on domestic consumption because they have a small amount of people in China compared to the rest of their population to buy things.
Without the USA consumer, China is in trouble.
China can't leverage their foreign reserves because that would cause their currency to go up in value.
Also, China has to much debt loaned out.
They have a over compacity problem they are dealing with, and over investment by the government of projects of the sort of the bridge to nowhere.
The type of investments they made did not produce any kind of real a economy, in other words, crap investments, money wasted.

[American Constitutionalist]

" $3 trillion reserves. How much is their debt? If its not more than $3 trillion, then they’re still ahead "

It depends on what kind of reserves they are talking about.
There was a report here on FR that if they try to leverage their foreign reserves it would cause their currency to go up in value, that is not what they would want to happen.
If their currency goes up in value, it would make their exports more costly.
That is the one thing that the USA has been trying for years is for China to de peg their currency from our dollar.
What is China going to do with the debt we owe them ? call it in ? if we ain't got it, to bad, what are they going to do ? dump our debt ? yeah, go ahead, your biggest trading partner, or are they going to go to war over it ?
Looks like China is stuck between a rock and a hard place.

[American Constitutionalist]

" Any economy that shows a vast GDP such as China’s that grows ten percent per year, every year, is doing so with made up numbers."

It's called, the House of Cards, or the house that is built on sinking sand.

[American Constitutionalist]

Money is already pouring out of China at a fast rate.
Even some government officials are stealing money from the Chinese government and moving elsewhere.
There was a report here on FR a few days ago that says that " HOT MONEY " is flowing out of China.
I guess we can call it the canary in the mine... some see the crap getting ready to hit the fan in China.
There are companies that set up business and production in China 10 years ago moving out of China and moving back to the USA.
It's not going to be pretty in China soon.
A unstable China and North Korea is not good news on top of the bad news in the middle east.
Notice gasoline prices have gone down ? that's because of the global demand for fuel has gone down and China is a major part of that.
Noticed in the last 25-20-10 years the MSM has made a big hoopla over how China was so great ?
Now notice how silent they are about the problems China is facing ? the MSM does not want to lose face because of the faith they put in commie China, and it makes their philosophical belief in China all a big lie.

Hey MSM ?? China's system sucks, and the MSM sucks.... it was all a big LIE !!