PRC Economy - New Reflections : Dec 15 2011

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Yagnasri
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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Yagnasri » 19 Dec 2011 21:37

He shifted from Bangalore to Delhi and may be planing to move further north.

By the way I hear there is 30y per day remunaration paid to Drons. Same rate for Drons who post in BR also or more? I mean Drons here need to post lot of old information and shift positions like Mallika Sharavath in Jelebi Bai song.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby abhischekcc » 19 Dec 2011 21:38

rohitvats wrote:WoW!!!! That is phenomenal.

Apart from 97 in Bangalore and 92-93 in Mumbai, I've never seen property prices, let along land prices, fall beyond 5%-6% range in India.

There is something more worrying which that charts tell me - that, someone needs to sell land for the demand-supply situation to kick-in and manifest itself in the land price. While there are no formal studies per se, the land prices in India are highly unelastic (I know this from professional experience)...how come they vary so much in China? And BTW, who owns the land? Because that would add a different dimension.


Rohit,

Everything in China is technically (and practically) owned by the government.

Actually, you have to understand that the Chinese local (provincial and below) need rising land prices for another reason - taxes. There is circular movement, which goes like this:

Investment fuels RE price escalation, which inflates government coffers as more land is being sold at higher prices. The governments (mind you, we are talking about the local governments here - why that is important, I will explain in minute) then use the higher tax revenue to build more basic infrastructure, which helps attract even more investment. Very few people are aware that the much vaunted "high savings rate" of China was actually tax receipts. It was government making most of the investment through RE/land tax.

Thus a virtuous cycle was created in China, lasting for a generation. More investment -> higher RE price -> higher tax revenue -> higher infrastructure investment -> even more investment.

The local governments thus become addicted to the crack cocaine. As long as there was a buyer of last resort (US consumer), nobody in China cared about who was bringing investment, and what was being produced. They had a vested interest in keeping RE prices rising as far as long as much possible. I think this is what you are asking when you said somebody needs to sell land in China.

Of course now that the lender of last resort itself has become a saver, this virtuous cycle has become a vicious cycle in China: shrinking investment -> lower RE prices -> lower tax receipts -> lower infrastructure investment -> lower employment -> higher social anarchy -> even lower investment.

----------
The local governments used to compete against each other in attracting investment. China's liberalisation was actually carried out by competitive policies of the local government against each other. The central government was quiet as long as money was coming in. But they had effectively lost control of their local governments a long time ago. Now, as they try to rein in investments by local governments, or land sales, or some thing else, they find that the locals, who are used to taking decisions on thier own, are unwilling to give higher priority to Beijing's needs.

What this means is that the Chinese government has effectively lost control over its local governments. IOW, the structure of the Chinese system is now like a feudal setup, such as under Aurangzeb or Europe in dark ages. It is only a matter of time before it starts producing results like those also.

From a political point of view, it is interesting to see China make a transition from Monarchy to communism to fascist -capitalism to feudalism in the space of a 100 years.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 19 Dec 2011 22:08

G,

You are missing the shadow bank system which uses local folks homes as collateral to generate yuan. Also missing is loans to local governments, loans borrowed against inflated land collateral, loans to SOE's that then were invested in real estate, etc. According to Chanos & Faber these total another $10 Trillion or so of off-books Yuan supply. So yes, $22 Trillion of notes may be an understatement.

Smart companies get paid in Dollars. The ones with joint ventures, which appears to be most of them, get paid in Yuan.
-----------------------------------------------------

Bloomberg is on the case finally. The tale of red ink is staggering.

http://www.bloomberg.com/news/2011-12-1 ... larms.html

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund. There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan.That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt.

The fact so few of the companies have accumulated that much debt suggests a bigger problem, says Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.

“You know how this story ends -- badly,” he said.


Yao Wei, an economist at Societe Generale (GLE) SA in Hong Kong, says another 7 trillion yuan of debt will be needed to finish projects in the government’s five-year plan through 2015.


Its total debt surged 29 percent in the first nine months to 15 percent of the province’s gross domestic product last year. The company’s entire 2010 operational cash flow was 3.04 billion yuan, while it had 55.9 billion yuan in bank borrowing reported at the end of September. The revenue wouldn’t cover interest payments at China’s standard lending rate of 6.56 percent, let alone paying down principal.

Fortunately for Gansu Highway, it doesn’t have to. Almost half of its outstanding loan principal and interest due this year -- 24.1 billion yuan -- is being rolled over into its outstanding bank debt, and the company plans to repeat that exercise every year until at least 2019 when it is forecast to owe lenders 148.9 billion yuan, according to a chart in the prospectus it issued for a 2 billion-yuan bond sale last month.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 19 Dec 2011 23:20

I think one big question is that who owns this debt? That will help understand the fallout. Since it is primarily internal, my guess is more of a Japan style slowdown than a Euro style crisis.

Wouldnt it be nice if the CPC drones could come in and write something in detail, explaining what is going on, how is it being managed, what are the likely outcomes & how the CPC plans to mitigate risk etc.?

Unfortunately their brief seems to be print one or two liners claiming PRC superiority and support it by a "look at the past 10/20/30 years" as the one and only answer.

Their handlers need to realize that "past performance is neither an indication nor a guarantee of future performance".

By not responding they are ceding the space to Westerners who have their own agenda. The drones (or the handlers) are more than capable of coming up with an intelligent response but they are not. I am waiting. I hope it is not that all those Westerners are liars and there is no debt overhang.

And I am sure my post will be classified as "not capitulating" by the computers of the Great Chinese Firewall's classification system.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 19 Dec 2011 23:32

The fact that the CPC owns all Chinese territory means their view of debt is rather more complicated, as they consider the asset side of the table to read infinity, thanks to the value of the land. Building out unlocks that value. I would not be surprised if use a circular approach compensating for paper losses with land leases that they then build out further. From their point of view it's not paper losses that are the issue as much as ability to apply manpower and resources cheaply enough to unlock enough land value faster than the math can catch up.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 20 Dec 2011 00:00

Suraj: That is so true. I think chola's post about how the $3T reserves act as China's gold is a keeper. It explains everything, the G2, the Chinese purchase of UST, etc.

Like cheap liquidity kept the Western bubble going, cheap labor and infrastructure keeps the PRC going. So the confidence in the Yuan and the $3T reserve is the key to understanding how the PRC can continue the build out at a pace rarely if ever seen in human history.

This brings up an interesting question: Does this mean that unlike what the headlines scream, the US holds a stronger hand than what is obvious? What if something happens which shakes the confidence in the USD/Euro backed Yuan?

Is the PRC in a position to truly confront the EU/USA in a long-drawn state of conflict (war via financial & political means, not guns)? There is definitely going to be protectionism going forward. Or are the resources of the PRC are sufficient enough that the more accountable governments of the West will blink first in any conflict?

Closer to India, how much will the PRC be willing to stake to save the TSPA if Uncle goes mad?

When China put duties on GM vehicles, it was a warning shot. GM is a big success story in China and China is helping it recover. By putting the gun right between the eyes, the CCP has responded to a flare (duties on tyres) with the Big Bertha. Is it a sign of assertiveness, a sign of rash decision taken in hubris, or a sign of panic when you attack the other parties crown jewels in the first salvo itself?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 20 Dec 2011 00:13

chola:

I am not sure how accurate those figures on return on FDI are. I think when it comes to business in China, either you are in or you are not. i.e. the CPC decided which foreign business will succeed and which will not. The decision might be taken at different levels: from local, provincial or even central Beijing. And a significant component in that decisions would be political. VW's huge success in China may have to do with the PRC/CPC deciding that it would be good to have a European brand in their pockets as they diversified out of their USD holdings; spreading the goodies around.

In that context, I am not sure how well Indian companies will do unless there are in an area where there are few other alternatives. NIIT may be one such case where the Chinese who want to emulate Indian success in software/services would like to learn as much. It is not that there are a lot Western companies offering the same product at similar price anyway.

I often wonder why Google left PRC. in spite of all the talk of GOOG being a SD arm etc., a presence inside PRC, even it is small or token, is much better than no presence at all. I do not buy all the Human Rights non-sense; there was something more to it, but what was it?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby member_20317 » 20 Dec 2011 00:21

Suraj wrote:The fact that the CPC owns all Chinese territory means their view of debt is rather more complicated, as they consider the asset side of the table to read infinity, thanks to the value of the land. Building out unlocks that value. I would not be surprised if use a circular approach compensating for paper losses with land leases that they then build out further. From their point of view it's not paper losses that are the issue as much as ability to apply manpower and resources cheaply enough to unlock enough land value faster than the math can catch up.



^ but therein lies the problem. Unfortunately for chicoms, land is just another asset class. Land too will submit to the economic logic of higher supply lower prices, especially when there is only one supplier and that supplier has only one hammer and several problems. The fact that chicoms treat the 'infinite landbank' in their hand as muft ka maal, for them to dip into, shows the fact clearly. Now juxtapose that against the need to hide losses which is dependent only on the greed of the unchecked fellow.

For understanding to why and to what extent land would be inelastic, you need to understand the workings of Indian RE market. But even here the supply and prices do have enough truck inspite of the supply situation being as it is.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 20 Dec 2011 01:53

GoI needs to acquire the land it holds; CPC does not. They need not depend solely on taxation revenue, but also on land lease revenue. To obtain greater revenue, they need to unlock value by enabling a rapid infrastructure buildout. To do that they need a compliant labourforce and access to resources. That is why Chinese core sector output metrics are far beyond the rest of the world. It can't run for ever, but they've still some steam left, even if their export markets contract significantly - they've sufficient liquidity to throw at another buildout. However, it means they have to keep ahead of the math - greater buildout = greater maintenance and depreciation costs. At some point both a wider buildout and more value from existing infrastructure will hit a wall.

It would be interesting to learn more of the underlying dynamics of the land lease mechanism, property taxation regimes and related aspects. We see their external economic engagement, but not the underlying internal dynamics around how the land revenue mechanism works.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 20 Dec 2011 02:52

Suraj wrote:GoI needs to acquire the land it holds; CPC does not. They need not depend solely on taxation revenue, but also on land lease revenue.


That is a very interesting point. It is not just the CPC but also private companies favored by the CPC who can acquire the land literally free. So in some way this is like the Indian land-reforms where land was distributed to farmers In the case of the PRC, the land is acquired by the state and distributed to set up factories, build infrastructure and those fancy cities.000000..

Suraj wrote:It would be interesting to learn more of the underlying dynamics of the land lease mechanism, property taxation regimes and related aspects. We see their external economic engagement, but not the underlying internal dynamics around how the land revenue mechanism works.


I agree Suraj. That is why I truly wish that the CPC sends some drones this way who actually understand how the process works.

Who determines the land valuation? Who buys and invests in the bonds? What is the recourse investors have if deals go sour?

Or perhaps the lack of transparency is one of the prime arrow of the quiver. Dangle the carrot in front of the West, rope them in and then dont let them leave.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby vina » 20 Dec 2011 11:56

Oh well.. To all the Chinese posters here thinking that the CPC and it's Govt can "control" this and that and bring a "soft randing", it looks like the real estate bubble in Hainan has popped big time per Bloomberg.

Hainan Home Bubble Pops as Curbs Deflate Prices

Hainan Home Bubble Pops as Curbs Deflate Prices
By Bloomberg News - Dec 20, 2011

Zhu Lei, a property agent for the Serenity Coast luxury residential and hotel complex in Sanya on China’s Hainan island, recalls clients carrying suitcases of cash to shop for holiday apartments last year.

“We didn’t even have time for toilet breaks because there were just too many clients,” :eek: Zhu said. Today, sales in the second-biggest city on the tropical island compared to Hawaii for its sandy beaches and weather, are “bleak,” he said.

A two-year lending binge and the government’s plan to transform Hainan, in the South China Sea, into an international tourism destination helped fuel a 48 percent surge in Sanya’s home prices last year, making it the nation’s best-performing property market. As China in 2011 switched gears with policies such as increased deposit requirements designed to curb speculation, Sanya’s home prices have dropped 28 percent since last December.

“It was really no different to what was driving prices in other cities in China, which was an explosion of liquidity that caused asset inflation across the country,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing.

China spent 4 trillion yuan ($628 billion) to shield its economy as credit markets froze when Lehman Brothers Holdings Inc. collapsed in September 2008. It also encouraged banks to lend out a record $2.7 trillion in 2009 and 2010, fueling a surge in home prices and construction that it’s now battling to restrain after warning of an asset bubble.
Prices Plunge

While the rest of China hasn’t experienced a property collapse since people were given ownership of their previously state-owned homes in 1998, Hainan, part of about 200 islands that make up China’s smallest province with the same name, is in the midst of its second rout in 20 years.

Residential property prices in Sanya fell 28 percent in November from a record high of 32,020 yuan per square meter (10.76 square feet) last December, according to Centaline Property Agency Ltd., China’s biggest real-estate brokerage. Sales fell 52 percent in October to 36,600 square meters from last year, and more than 80 percent of buyers are not locals, the brokerage said.

Zhu, the realtor, sells high-end apartments in eight buildings with ocean views or overlooking golf courses in the Serenity Coast complex, which is still being built and will include five-star hotels, a music hall and water park. Zhu said only about 70 units were sold during the week-long October holiday, which “couldn’t be compared with last year,” declining to give the 2010 sales figure.
Holiday Homes

A three-bedroom apartment in the luxury development sells for about 49,000 yuan per square meter on average, while a penthouse could cost as much as 13.8 million yuan. The Serenity Marina in the project will be the host port and race village for the Volvo Ocean yacht race in February.

Globally, it’s the luxury holiday property sector of the real estate market that typically is first to fall and often drops the most when property markets sour, Jeremy Helsby, chief executive officer at Savills Plc, the U.K.’s biggest brokerage, said in an interview in Shanghai.

“You get what we call the froth of the market: it’s the first bit of the cappuccino you drink,” he said. “It tastes very good, but when the market goes down, the froth goes very quickly.”

In the U.S., Miami-area homes are selling for about half their December 2006 peak, according to the S&P/Case-Shiller index. Sanya is on about the same latitude as Hawaii and Miami.
Tourism Center

The government unveiled a plan in December 2009 to build Hainan into an international tourism center. Hotel chains such as Starwood Hotels & Resorts Worldwide Inc. and Marriott International Inc. line up along Yalong Bay, to Sanya’s east.

The island has hosted the Boao Forum for Asia, a gathering of government and business leaders modeled on the World Economic Forum and the forum in Davos, Switzerland. It also is home to Hainan Airlines Co., backed by billionaire George Soros.

China’s home prices declined in 49 of 70 cities in November from October, the worst performance this year, after the government expanded efforts to curb the risk of an asset bubble by raising down-payment and mortgage requirements. It also imposed home purchase restrictions in about 40 cities including Sanya and Haikou, the provincial capital of Hainan.

Hainan, with an economy largely dependent on property and tourism, said the real estate industry grew 2 percent in the third quarter, 32 percentage points lower than the same period last year. About 58 percent of Sanya’s fiscal revenue came from real-estate taxes last year (someone was talking about the virtual and vicious cycle of investment and taxes right here.. uh. oh), about the same as for the entire province.
Few Pillars

“Some areas in China are oversupplied in real estate, and the correction will be pretty big,” said Huang Yiping, a Hong Kong-based economist for Barclays Capital Research in a phone interview. He forecast China’s nationwide home prices will fall by 10 to 30 percent next year.

“Hainan is particularly vulnerable as it depends heavily on property and doesn’t have many other pillars to diversify risks,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc. “It’s only a matter of time until the slowdown in the property market affects China’s public financing adversely.(well folks, 'ol vina said very similar things when the spending binge was unveiled by the CPC, I said this about the railways and other stuff too.. how come our PRC friends who came up with "statistics" and other stuff to justify railway investment dont talk about it any more ?)

About 20 percent of the properties in eastern Hainan including in Sanya may end up unfinished, said Huang Hong, a researcher at Centaline’s Hainan branch.

“Those homes are usually with high prices and no buyers these days,” Huang said. The peak property sales season for Sanya, usually in winter, won’t occur this year because buyers are in a wait-and-see mode as they watch the direction of the government’s policies, he said.
Clearwater Bay

Agile Property Holdings Ltd. (3383), the developer in which JPMorgan Chase & Co. has a 4.75 percent stake, has its biggest project in Sanya. The Clearwater Bay is a 20 billion-yuan investment including residential apartments, villas, five-star hotels, a yacht club, shopping mall and golf course. The project, which accounted for 31 percent of the developer’s total sales last year, is expected by the company to account for around 20 percent this year as sales slow.

Still, the developer hasn’t “really cut prices” at the Hainan project, Alex Liu, the company’s vice president, said in an interview. He said demand for holiday homes will remain as the country’s middle class grows.

Buyers from Beijing, Shanghai and other mainland cities make up the majority of Agile’s customers, Liu said. About 70 percent of them pay the full sum in cash, he said.
Warmer Weather

Agile shares fell 0.6 percent in Hong Kong at midday break, while KWG Property Holdings Ltd. (1813), the Guangzhou-based luxury home developer which also has projects in Hainan, dropped 1.6 percent to the lowest in three weeks.

The tropical island’s average temperature in summer is around 27 degrees Celsius (81 Fahrenheit) to 29 degrees Celsius. Its winter average of 19.2 degrees Celsius compares with 6.9 degrees Celsius in Shanghai and minus 2.9 degrees Celsius in the capital city of Beijing.

“There are tourist-type visits in some showflats, but it doesn’t turn to property deals,” wrote Citigroup Inc. analysts led by Oscar Choi in a Dec. 14 report. “Interest in Hainan property is still here, but that hinges on overall investment sentiment and it is not the right time now.”
Bubble Pop

Housing prices on the 34,000 square-kilometer (13,127 square-mile) island jumped by as much as 6,500 yuan per square meter in 1993 after it was spun off from Guangdong province as China’s biggest Special Economic Zone, according to Mizuho Securities Asia Ltd. Prices in Beijing and Shanghai were around 2,000 yuan to 3,000 yuan at the time.

When the bubble popped in 1995 as Beijing tightened monetary policy and prodded banks into canceling loans, some developers went bankrupt, leaving unfinished real estate projects and a decade-long subdued market in Hainan.

Chen Zheng, a Sanya resident and property agent who lived through the 1990s bubble, said the government’s incentives to boost the island’s tourism industry and the increasing wealth in China will help Sanya’s prices avoid an all out crash.

“I don’t think today is like 20 years ago, when there was just nothing to sustain the market but speculation,” he said. “But for sure, last year’s boom has gone forever.”

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 20 Dec 2011 17:08

from what I can see - there must be a lot of business owners and party elites with black money in suitcases. the stock market is one avenue to speculate, real estate is another they park their investments...house and fancy car is taken care of.

so overall lots of people are making $$ by hook or crook. this "overclass" must be in the range of millions for the kind of luxury properties that were sold for real money during the boom.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 20 Dec 2011 17:40

http://www.nytimes.com/2011/12/19/opini ... ef=general

Op-Ed Columnist
Will China Break?
By PAUL KRUGMAN
Published: December 18, 2011


Consider the following picture: Recent growth has relied on a huge construction boom fueled by surging real estate prices, and exhibiting all the classic signs of a bubble. There was rapid growth in credit — with much of that growth taking place not through traditional banking but rather through unregulated “shadow banking” neither subject to government supervision nor backed by government guarantees. Now the bubble is bursting — and there are real reasons to fear financial and economic crisis.

Am I describing Japan at the end of the 1980s? Or am I describing America in 2007? I could be. But right now I’m talking about China, which is emerging as another danger spot in a world economy that really, really doesn’t need this right now.

I’ve been reluctant to weigh in on the Chinese situation, in part because it’s so hard to know what’s really happening. All economic statistics are best seen as a peculiarly boring form of science fiction, but China’s numbers are more fictional than most. I’d turn to real China experts for guidance, but no two experts seem to be telling the same story.

Still, even the official data are troubling — and recent news is sufficiently dramatic to ring alarm bells.

The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth. At this point consumer spending is only about 35 percent of G.D.P., about half the level in the United States.

So who’s buying the goods and services China produces? Part of the answer is, well, we are: as the consumer share of the economy declined, China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P.

The obvious question is, with consumer demand relatively weak, what motivated all that investment? And the answer, to an important extent, is that it depended on an ever-inflating real estate bubble. Real estate investment has roughly doubled as a share of G.D.P. since 2000, accounting directly for more than half of the overall rise in investment. And surely much of the rest of the increase was from firms expanding to sell to the burgeoning construction industry.

Do we actually know that real estate was a bubble? It exhibited all the signs: not just rising prices, but also the kind of speculative fever all too familiar from our own experiences just a few years back — think coastal Florida.

And there was another parallel with U.S. experience: as credit boomed, much of it came not from banks but from an unsupervised, unprotected shadow banking system. There were huge differences in detail: shadow banking American style tended to involve prestigious Wall Street firms and complex financial instruments, while the Chinese version tends to run through underground banks and even pawnshops. Yet the consequences were similar: in China as in America a few years ago, the financial system may be much more vulnerable than data on conventional banking reveal.

Now the bubble is visibly bursting. How much damage will it do to the Chinese economy — and the world?

Some commentators say not to worry, that China has strong, smart leaders who will do whatever is necessary to cope with a downturn. Implied though not often stated is the thought that China can do what it takes because it doesn’t have to worry about democratic niceties.

To me, however, these sound like famous last words. After all, I remember very well getting similar assurances about Japan in the 1980s, where the brilliant bureaucrats at the Ministry of Finance supposedly had everything under control. And later, there were assurances that America would never, ever, repeat the mistakes that led to Japan’s lost decade — when we are, in reality, doing even worse than Japan did.

For what it’s worth, statements about economic policy from Chinese officials don’t strike me as being especially clear-headed. In particular, the way China has been lashing out at foreigners — among other things, imposing a punitive tariff on imports of U.S.-made autos that will do nothing to help its economy but will help poison trade relations — does not sound like a mature government that knows what it’s doing.

And anecdotal evidence suggests that while China’s government may not be constrained by rule of law, it is constrained by pervasive corruption, which means that what actually happens at the local level may bear little resemblance to what is ordered in Beijing.

I hope that I’m being needlessly alarmist here. But it’s impossible not to be worried: China’s story just sounds too much like the crack-ups we’ve already seen elsewhere. And a world economy already suffering from the mess in Europe really, really doesn’t need a new epicenter of crisis.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby g.sarkar » 25 Dec 2011 01:17

http://www.mercurynews.com/nation-world/ci_19614328
In China, a daring few challenge one-child limit
By ALEXA OLESEN Associated Press
Posted: 12/24/2011 05:04:42 AM PST
Updated: 12/24/2011 05:04:42 AM PST
"ZHUJI, China—Seven months pregnant, Wu Weiping sneaked out early in the morning carrying a shoulder bag with some clothes, her laptop and a knife.
"It's good for me I wasn't caught, but it's lucky for them too," said Wu, 35, who feared that family planning officials were going to drag her to the hospital for a forced abortion. "I was going to fight to the death if they found me."th her escape, Wu joined an increasingly defiant community of parents in China who have risked their jobs, savings and physical safety to have a forbidden second child.
Though their numbers are small, they represent changing ideas about individual rights. While violators in the past tended to be rural families who skirted the birth limits in relative obscurity, many today are urbanites like Wu who frame their defiance in overtly political terms, arguing that the government has no right to dictate how many children they have.
Using Internet chat rooms and blogs, a few have begun airing their demands for a more liberal family planning policy and are hoping others will follow their lead. Several have gotten their stories into the tightly controlled media, an indication that their perspectives have resonance with the public.
After finding out his wife was expecting a second child, Liu Lianwen set up an online discussion group called "Free Birth" to swap information about the one-child policy and how to get around it. In less than six months, it has attracted nearly 200 members.
We are idealists," said the 37-year-old engineer from central China, whose daughter was born Oct. 18. "We want to change the attitudes of people around us by changing ourselves."
Freed of the social controls imposed during the doctrinaire era of communist rule, Chinese today are free to choose where they live and work and whom they marry. But when it comes to having kids, the state says the majority must stop at one. Hefty fines for violators and rising economic pressures have helped compel most to abide by the limit. Many provinces claim near perfect compliance......"
Gautam

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 25 Dec 2011 06:11

G.Sarkar: I have mentioned it before. My son took some piano lessons with a young college girl. She has siblings who could be her own children. Her parents immigrated to the US five-six years ago and went the IV way to get a second child. No luck for a few years, but finally it worked. There was one there, and another one on the way.

What I find odd, is that the CPC drones do not see anything wrong in such a fundamental denial of a basic human rights.

In the past while the society was poor, there was a community network in China. With a single child princelings living in the anonimity of big citiy apartments, what kind of network will remain? Imagine growing older and living in a world where you have no sibling and no parents. It can get really lonely especially if you are one of the million who may not have a woman to marry.

It is not an economic issue per so but a social issue. People are eventually going to look for more as they move up Maslov's pyramid.

Incidentally the drones have been absent since I made the request for them to explain how the land based financing system works. Waiting for instructions perhaps from the CPC :mrgreen:

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby r_subramanian » 26 Dec 2011 04:18

Experience of Australian firms doing business in China
Australian Firms warned about China
AUSTRALIAN companies operating in China have been advised against appointing ethnic Chinese staff to senior executive positions in the wake of the 12-year sentence handed to businessman Matthew Ng {who holds an Australian passport}.
...
In the past, ethnic Chinese have been hailed in Beijing as tong bao - ''compatriots'' - who bring capital, technology and foreign contact to the motherland. But when these tong bao tread on the toes of local powerbrokers, they can be labelled ''foreign agents'' or ''spies'' and singled out for punishment.

An Australian businesswoman based in Beijing told The Age that Ng's conviction had shaken her faith in doing business in China. A Chinese-Australian lawyer, who declined to be named, told The Age: ''Chinese authority is less forgiving of Chinese-Australians - it still sees them as Chinese first and foremost.''

http://www.theage.com.au/national/firms-warned-about-china-20111225-1p9lt.html

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby zlin » 26 Dec 2011 10:30

This is a critical moment to China
Urban population to exceed rural population
population will outnumber the rural population by the end of 2011 at the current speed of urbanization.

According to China's latest nationwide census that wrapped up in 2010, China's urban population accounted for 49.68 percent of the total population.

"If the rural population really outnumbers the urban population, it will be a significant breaking point for China in changing its thousand-year-old farmer-dominated population structure," the blue book said.

It will not only mean a simple alteration in the percentage figure of the urban population, but will also mean profound changes in people's lifestyles, employment, consumption and even values, it said.

The blue book said China's millions of migrant workers had acquired increasing income growth, but more than 60 percent of them lived separately from their family members.

With a rapid rate of urbanization since China adopted an opening-up and reform policy at the end of the 1970s, millions of farmers left their rural homes to find seasonal jobs in the construction and service industries.

Estimates put the country's number of migrant workers at over 240 million people, a number roughly equal to the entire US population.

Compiled by the Chinese Academy of Social Sciences (CASS), the book said that about 40 percent of migrant workers had chosen to relocate their families to urban areas, while 60 percent left either their spouse or children in rural homes.

"Even migrant workers who have settled family members in urban areas may live in different cities than their families," said Li Wei, a researcher with the Institute of Sociology of the CASS.

Meanwhile, Chinese farmers who have not left rural areas are also seeing increasing incomes.

The book said that urban residents' disposable income per capita was 16,301 yuan (2,574 US dollars) in the first three quarters of 2011, marking a 7.8 percent jump compared with that of 2010.

Rural residents' cash income per capita during the period was 5,878 yuan, marking a 13.6 percent increase that has outpaced the income increases for urban residents.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 26 Dec 2011 10:57

Panda is succumbing to US pressure. Couple the rise in the Yuan, an urbanizing China without the large numbers of excess rural poor and the depreciation of the rupee, a perfect storm is brewing for a manufacturing influx into India.

The only questions are power and infrastructure. If we cannot solve those then a good proportion will flow to other nations. But out of China the world supply chain will flow. Just as it had flowed out of Japan, Taiwan and South Korea before China.

http://www.reuters.com/article/2011/12/ ... 3220111226

Yuan hits record vs dollar, on track for over-4-percent gain

(Reuters) - The yuan hit an all-time trading high against the dollar on Monday, guided by a stronger mid-point by the People's Bank of China, and looks set for an over-4-percent appreciation for 2011, traders said.


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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Atri » 26 Dec 2011 21:53

chola wrote:Panda is succumbing to US pressure. Couple the rise in the Yuan, an urbanizing China without the large numbers of excess rural poor and the depreciation of the rupee, a perfect storm is brewing for a manufacturing influx into India.

The only questions are power and infrastructure. If we cannot solve those then a good proportion will flow to other nations. But out of China the world supply chain will flow. Just as it had flowed out of Japan, Taiwan and South Korea before China.

http://www.reuters.com/article/2011/12/ ... 3220111226

Yuan hits record vs dollar, on track for over-4-percent gain

(Reuters) - The yuan hit an all-time trading high against the dollar on Monday, guided by a stronger mid-point by the People's Bank of China, and looks set for an over-4-percent appreciation for 2011, traders said.



the recent policy behavior of India in South African climate summit stalling the treaty which infringes upon the developing countries for pollution caused by west in past is also indicator. Do they really want the low cost manufacturing jobs to move from China to India? Will it convert India into another China with environmental problems? The tendency of US establishment find quick fix for the problems without looking for long term implications gives me shudders in spine.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby zlin » 26 Dec 2011 23:46

China tests 500 kmph super high-speed train
Published: Monday December 26, 2011 MYT 2:47:00 PM

BEIJING (Reuters) - China launched a super-rapid test train over the weekend which is capable of travelling 500 kilometers per hour, state media said on Monday, as the country moves ahead with its railway ambitions despite serious problems on its high-speed network.

The train, made by a subsidiary of CSR Corp Ltd, China's largest train maker, is designed to resemble an ancient Chinese sword, the official Xinhua news agency reported.

It "will provide useful reference for current high-speed railway operations", it quoted train expert Shen Zhiyun as saying.

But future Chinese trains will not necessarily run at such high speeds, CSR chairman Zhao Xiaogang told the Beijing Morning News.

"We aims to ensure the safety of trains operation," he said.

China's railway industry has had a tough year, highlighted by a collision between two high-speed trains in July which killed at least 40 people. Construction of new high-speed trains in China has since been a near halt.

In February, the railways minister, Liu Zhijun, a key figure behind the boom in the sector, was dismissed over corruption charges that have not yet been tried in court.

Image

More pictures
CIT500

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby PrasadZ » 27 Dec 2011 08:55

What's trending at Baidu (that's Google in China)

1. 成都地震 Chéngdū dìzhèn – Sichuan Chengdu and Pengzhou city experienced a 4.8 magnitude earthquake at 00:46 local time today. There are currently no reports of injuries or property damage at the moment. Here’s the story in Chinese

2. 蒙牛 致癌 Měngniú zhìái – China’s General Administration of Quality Supervision recently released a report noting that dietary milk produced by well-known dairy brand Mengniu exceeded the state limit for the carcinogen aflatoxinM1 by 140%. The result is based on a selective examination carried out by the state organ in October. Here’s the story in English.

3. 黄玉斌 huáng yùbīn – A forum post detailing Tianjin Sports School’s guest expenses for entertaining deputy director of national gymnastics center Huang Yubin is drawing much attention. The post includes a photo of a list containing 12 types of expenses totaling more than 160,000 yuan, including “shopping expense for Huang’s wife and son,” and “pure gold decorative item.” Here’s the story in Chinese.

4. 河南周口警察杀人案 Hénán Zhōukǒu jǐngchá shārén àn – Policeman Meng Junwei and member of Joint Defence force Jia Xuehui have been sentenced to 12 and 10 years jail respectively for the murder of civilian Li Shengli committed seven years ago. Here’s the story in Chinese.

5. 甘肃平凉车祸 Gānsù Píngliáng chēhuò – A serious car accident involving a large trailer and coach car resulted in six deaths on the spot. The accident took place last Friday on the Xichangfeng Highway in Jiangsu province. Here’s the story in Chinese.

6. 天涯密码 Tiānyá mìmǎ - Popular online community Tianya was victimized by a hacking incident that resulted in more than 40 million users’ information leaked. Tianya announced yesterday that the information leaked was backup data updated before 2009. Here’s the story in Chinese.

7. 湖人vs公牛 Húrén vs Gōngniú – Netizens are looking up information on the NBA showdown today between Los Angeles Lakers and Chicago Bulls. Here’s the story in Chinese.

8. 猫肉火锅 中毒 māoròu huǒguō zhòngdú – Provincial people’s congress representative Long Liyuan died on last Friday from eating cat meat at a hotpot restaurant in Yangchun city, Guangdong province. Long’s accompanying friend Huang Wen survived the food poisoning incident, and revealed to reporters that him and Long frequently visited the same restaurant for cat meat hotpot. Huang suspects that one of Long’s competitors may have poisoned the cat meat hotpot ahead of time to kill Long. Here’s the story in Chinese.

9. 周其凤 Zhōu Qífèng – Peking University President Zhou Qifeng was quoted out of context in a news article reporting on his speech from two days ago in Changsha city. Zhou was quoted saying that American’s education system is a mess and that the problem is clear from seeing how recent U.S. presidents have forced their beliefs and values on other countries.” This quote received a whirlwind of comments and attention on Chinese microblogs. Zhou and others present at the speech stated that the quote is completely taken out of context and that Zhou believes there are many things one can learn from the American education system. Here’s the story in English.

10. 保时捷少女 bǎoshíjié shàonǚ – A young teenager roughly 13-14 years old ordered her driver to stop their Porsche convertible and save a middle-aged woman who had fainted on the sidewalk in Guangzhou. A passersby took photos of this sight using their mobile cameras and uploaded the pictures online. Though some netizens expressed appreciation for such refreshing act of kindness from a “rich second generation” (富二代fùèrdài), many believe that the heroine is too young to think of the consequences, or perhaps her family is just too wealthy to be concerned with the possibility of being blackmailed by the victim. Here’s the story in Chinese.


For those who do want to follow the train story, Faster Train Comes Amid Rail Doubts
Passengers anxious over this year’s tumult on China’s railway – notably a deadly high-speed crash that remains unexplained – may be comforted to know the sword-nosed new train will remain sheathed for some time.

There is little suggestion in state media that the train has actually made a test run. Photos show the train in various places, though always stationary

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 27 Dec 2011 11:03

the curve of the nose does resemble a traditional chinese sword.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Christopher Sidor » 27 Dec 2011 11:07

^^^^
Reminds me of a flamingo's beak. Flamingo's Beak is elegant and looks delicate. I am not too sure the same can be said about this. But well the idea of pudding is to eat it and not to comment on its look
:wink:

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Gus » 27 Dec 2011 11:51

"Provincial people’s congress representative Long Liyuan died on last Friday from eating cat meat at a hotpot restaurant in Yangchun city, Guangdong province. Long’s accompanying friend Huang Wen survived the food poisoning incident, and revealed to reporters that him and Long frequently visited the same restaurant for cat meat hotpot. Huang suspects that one of Long’s competitors may have poisoned the cat meat hotpot ahead of time to kill Long."

errr,,,,wtf

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 27 Dec 2011 17:26

koreans are big on cat meat. they usually strangle the cats with a rope and hang it on a hook...animal cruelty sites have pictures of it.
you can see some of it here..just search for "korea cat slaughter"
http://www.liveleak.com/view?i=f83_1183303403
http://animalcrueltyworldwide.com/Anima ... a-2.1.html

no killing is humane. commercial killing of the 'proper' animals like goat, chicken, duck, pig, cow, pigeon is also not humane.

since around 6 months back I have drastically reduced my meat footprint for health reasons and also the above kind of thing leave a disturbing kind of feeling in stomach..if each of us had to kill , skin and butcher the chicken or goat we eat, I have a feeling 99% of us would turn veg overnight. its because the ugly part is hidden and sanitized away it doesnt affect us.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby rohitvats » 27 Dec 2011 20:03

abhischekcc wrote:
rohitvats wrote:Is there any open source information/data base on real estate in China? Thanx.


Why? Are you planning to shift base to the Middle Kingdom? :D


:mrgreen:

Not any time soon. RE Story in India is real and here to stay. And so am I.

But I really want to get hold of some data about supply and stock and if possible, absorption. The analysis part I can do myself. Just wanted to check how real the market is.

Theo_Fidel

Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 28 Dec 2011 05:08

Re: Food. OT.

Since it came up recently per Jared Diamond, the Greenland Norse starved in part due to their dietary prohibition against eating fish. There is nothing known as humane this, humane that. We might choose to place restrictions and socially exert pressure but that is an artificial construct. I have seen a tiger bring down a deer in Mudhumalai and start eating the animal while still alive and have its cubs come over and also start eating while the deer is still blinking its eyes at you. The real world is truly brutal and cruel. Our technology protects us from it. This is the real sadness that we are disconnected from nature.

I have killed and butchered many a chicken and eaten of it. Does not make me squeamish. In fact it does make me realize that I'm part of the same circle. One day that will be my fate as well. Something else will eat me and return me to the earth. You look at animals in a more sober and tolerant way. We are all part of the same cycle.

The human race has eaten everything available when hungry. Looking at the archeological records hunger was a permanent camp follower of most societies. People were hungry all the time. They ate everything from mice, grasshoppers, worms, clay, tree bark, lichen, etc. When you are hungry enough you will eat anything including the books you are carrying, I can attest to this. Occasionally it has come down to eating each other and people have not been squeamish about that either.

I would not make fun of the Chinese for having different dietary preferences. This borders on racism.

WRT meat, the main problem is the serving portion recommended per day is about 40-50 grams. Yes that is right. About 2 large grasshoppers, which are delicious by the way. One piece of Chicken the size of your thumb or smaller is the recommended serving portion. A kg of chicken can feed about 20 people. People can't control their diets to restrict intake to what you body needs. That is the main problem. One of the unfortunate things that a society can do is prevent growing children or pregnant women from having access to meat. Inevitably dietary prohibitions go overboard.

All doctors will tell you the #1 dietary problems are Sugar, Fats and Salt, in that order. A true healthy diet would minimize those first before meat.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Virupaksha » 28 Dec 2011 05:21

Theo,

there are records that the ordinary chinese people had to resort to cannibalism and eating out of graves during the glorious mao rule.
http://www.bloomberg.com/news/2010-08-2 ... books.html

So we need go too far. If one has to, he will. But that is different, he should.

Those phases in societal life leaves scars for generations.

or consider this
http://www.time.com/time/magazine/artic ... 07,00.html
the documents reveal, several party leaders in Guangxi incited followers to kill "class enemies" and then eat their flesh in public ceremonies.


That the above was possible with official sanction is the effect of the scars of the mao generation.

Theo_Fidel

Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 28 Dec 2011 06:33

Lets see what the drones have to say about that. They are always remarkably quiet about Mao. Very organized.

The Koreans too went through some particularly punishing times with the Japanese and the Chinese at their throats. That probably influenced their dietary choices.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 28 Dec 2011 07:36

>>One piece of Chicken the size of your thumb or smaller is the recommended serving portion

my PCP doc once told me a piece of flat chicken fillet about size of my palm(no fingers) was enough. inevitably people eat a lot more when they do eat chicken...in my office canteen the chicken biryani for Rs55 is a giant pile of rice and two big pieces of chicken - almost 1/4 of a broiler.

per my r&d endurance athlete types eat very little protein...they eat around 75-80% carbs. seems to work for their level of aerobic activity which is very high...the way they sustain high speed for long durations is scary when observed first hand.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby rohitvats » 28 Dec 2011 16:44

abcc, thanks for the information.

Now, coming to the RE development. The central point of RE development is that most of the land is consumed for Residential Segment. That is where the money is. There is only that much development you can undertake in the office or industrial development.

Office development is vertical and while the sq.ft build would be high, the net land used is less due to higher FSI(Floor Space Index). Yes, the land will be of the expensive variety as it needs to be in or close to CBD. But the scope for continous/Y-o-Y development in the commercial segment is not high - unless, you have manpower centric industries like IT and ITES. W/O such industry, the addition on YoY basis after the intial development spur is not going to be high.

Industrial development is horizontal but is situated back of the beyond and land is cheap. It cannot be expensive as the input cost otherwise will kill the viability of the project itself.

All the above means that there is massive development going on in the residential segment - that is going to be largest generator of tax revenue. The recent news of Urban population being more than rural would indicate towards this. Now, what remains to be seen is the level of absorption in these residential projects to know the real picture. But what is puzzling is the variation in the land price in the graph listed earlier.

For example: Fall in demand from end user--->fall in demand for land from builders--->fall in land prices. But, this also means that the value of the entire RE Stock went down by the same margin!!!! Which is insane...what does that mean to the banks which have given the mortgages on these homes? The entire portfolio just went down the drain!!! The biggest component of your house price is the land (or FSI) cost. That is why even after depreciation, homes in good locations command high prices. You're basically paying for the location and consequent value of land.

You see, the price of end-product cannot continue (or should not continue) to hold if the land prices vary so much. Because, if they do, what it means that inspite of strong demand and sustainable prices, land prices have gone down and as a builder, I now have more margin because the cost of the most important input just went down. Not likely to happen under normal conditions. You see, what happens in India is that builders build land bank in areas with development potential in next 5-10 years. They buy land and in due course of time, as the development happens and RE/Land prices go up, they make the killing. If something like this happens in India, developers will simply gobble up land. I expect the same thing to apply to China as well. They have all the dynamics as we do for a strong RE market.

So, to me what it says is that there is pressure on the authorities to sell land. And hence, the movement in prices. The market for land may be de-linked from the actual demand-supply dynamics in the RE Segment.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Gus » 28 Dec 2011 18:09

it was not the cat eating that made me go wtf. but the idea that somebody would go to a hotel and poison cat food..aren't there better ways to hit somebody

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby pankajs » 28 Dec 2011 18:47

Developers go cold on once-hot lots

SHANGHAI - Many prime land sites in major cities that were the target of heated bidding by developers have become hot potatoes for their owners, analysts and industry experts said.
With many new apartments failing to find buyers, developers can't recoup their investments, nor can they start a new round of land bidding or property development.


China's original ghost city
The long-predicted crash has arrived with a vengeance in China's original ghost city.
Home prices have plunged by one third recently, down 60% from 2006, in Kangbashi, the ambitious second city built on the outskirts of Ordos. Developers, investors and migrant workers are all giving up on Kangbashi.
You can see for yourself how many much excess real estate there is around China -- by some estimates as many as 64 million empty apartments. "It's like walking into a forest of skyscrapers, but they're all empty," Tulloch said of another ghost city, Chenggong.


China's Ordos property bust offers warning sign
The monumental, neo-Mongolian sculptures, empty plazas and hulking concrete shells of buildings in Ordos district, deep in the steppes of Inner Mongolia, are a potent symbol of how China's property boom can turn to bust.
After a housing bubble that doubled values in 35 cities between 2004 and 2009, prices are now falling nationwide. The central bank said on Friday property prices had reached a turning point while banks are worried a price slide of 20 percent could trigger panic selling.
"If society demonises the property sector, especially if buyers think prices will fall, creating a sharp cooling of for instance 30-40 percent, I think that's very serious," said Hui Jianqiang, head of research for consultancy E-House China.

More worrisome, the property market, which contributes about 10 percent of Chinese growth and drives activity in 50 other sectors, could drag the real economy to a hard landing.
Last edited by pankajs on 28 Dec 2011 18:55, edited 1 time in total.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 28 Dec 2011 18:48

the meat might have been fermented or old to bring out some fabled medicinal properly....arent there snake and rat wines with the dead creature at the bottom....fooling around with stuff we are not normally eating can sometimes result in issues.

Theo_Fidel

Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 28 Dec 2011 22:51

rohitvats wrote: You see, what happens in India is that builders build land bank in areas with development potential in next 5-10 years. They buy land and in due course of time, as the development happens and RE/Land prices go up, they make the killing.


I think this is the key point.

The ones making the killing are the local governments. Since private developers can not directly acquired land to develop. What should have been wealth for land owners is confiscated by the Chinese state, the land is then reclassified and sold to developers at inflated value. This money is then used to finance the local governments fancy life style. All the way from the BMW's in front of city hall to the fancy stadiums to party officials owning 8 apartments.

Due to its size and terrain China will hit a brick wall with its urban population concentration when it reaches about 65%-70%. What that number showing over 50% urban says is that China is going to hit that wall fairly soon.

This is some thing I've said before. Those 100's of million expected to move into the 10 million person empty cities simply do not exist. If anything as China ages the housing stock will decline as retires move in with children and into old age homes.
--------------------------------------------

Also cats are know to harbor all manner of critters that can be fatal to humans. It is part of their nature to eat vermin. Pregnant women in particular are strongly advised to stay away and get rid of pet cats. It easily have been under-cooked meat that caused the problem.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby pankajs » 28 Dec 2011 23:57

The local governments have started to feel the squeeze.

China’s worried local governments
Residential real estate construction now accounts for nearly ten percent of the country’s total GDP — four percentage points higher than it did at the peak of the U.S. housing bubble in 2005
Perhaps there will be adequate demand for those apartments some day, but the combination of developers discounting new apartments, and secondary apartment sales volumes falling drastically, would-be buyers who have so far been priced out of the market will be inclined to wait for further falls.
According to Chen Xiaotan, a real estate market researcher quoted in the report, the local authorities are not dropping their prices, despite the obvious lack of demand. Meanwhile, the developers are holding back, well aware that some in their number are having to discount new apartment prices by 30 per cent or more
Which all creates a problem for the local governments who are heavily reliant on the revenue from selling land to developers.


Governments in a Hole as Land Sales Plummet
The development-ready land market, long a reliable revenue source for local governments across China, has suddenly turned cold. And city halls are shivering.
But local governments now face a dilemma. On the one hand, they see a need to control real estate prices, and would never dare disagree with or try to disrupt central government policies. But land sales have plunged, hurting their ability to pay for public services, ranging from police patrols to teacher salaries.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby pankajs » 29 Dec 2011 11:23

China’s greatest threat is internal
I have been travelling to China for more than three decades, but never have I encountered a Chinese leadership so uncertain of the country’s future. It is little exaggeration to say that the world’s most populous country is on its heels. The irony is inescapable: political leaders in the US and Asia are busy debating how best to meet what they see as the threat from China; political leaders in China are debating how best to meet the many threats they perceive to China.

Most of the threats the Chinese see to their country come from within. For three decades China has depended on robust growth, largely from ever-increasing exports, to maintain high levels of employment and raise living standards, thereby assuring social tranquillity.

This era may have run its course. Years of low economic growth in Europe and the US (and the prospect of more to come) have limited their ability to absorb Chinese goods. There is also increasing resistance to the country’s policy of keeping its currency at artificially low levels to reduce the cost of its exports to consumers in Europe and the US.

Domestic pressures – the need to raise hundreds of millions more Chinese out of poverty, growing resentment over income and wealth inequality, the need to keep growth rates high – are also pushing China to find something to complement, if not replace, export-led growth. The result is that China is in the early days of a transition, one in which economic growth will increasingly have to stem from increased demand at home. Like all transitions, economic rebalancing is easier to call for than to bring about.

What makes it hard to accomplish is the inflation and a housing bubble that must be brought under control. Such pressures argue for policies that cool the economy – something that makes long-term economic sense but risks causing short-term political criticism. A further complication is that China must undertake this economic transition amid a political transition. The next generation of leaders is about a year from assuming office. The men taking over will face a daunting array of challenges in addition to those already mentioned: a deteriorating environment (when I was in Beijing recently it was possible to see only a few hundred metres and all but impossible to breathe), an ageing population and an increasingly brittle political context. The recent protests of the southern villages of Haimen and Wukan are but the tip of the iceberg: China experienced well over 100,000 political protests of some scale this past year, most over grievances from land confiscation to unemployment and the environment.

Then there are developments beyond its borders. China’s heavy-handed diplomacy and expressions of special rights in the South China Sea have left it isolated in the region. As a result, there is greater interest in working with the US to balance China. Chinese officials are also uneasy over the potential showing of pro-independence forces in Taiwan’s January elections. The Chinese are nervous, too, about western overtures to Burma. And the death of Kim Jong-il in North Korea has created the possibility of change on the peninsula, which could result in refugees flocking into China, conflict with, or even the demise of, North Korea. This last prospect would constitute a strategic setback. China does not want to see the peninsula unified under Seoul and in the US’s orbit.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby PrasadZ » 29 Dec 2011 16:03

From the economist, probable dates for when China's economic size overtakes that of America.
Image

Retail sales and imports will be the same size as that of America by 2014. On a per capita basis, still quite small but we should see a far more interesting world develop within this decade. America had a housing bust and now, its GDP is growing again. Nevertheless, it seems inevitable that China will overtake it. No reason to believe a housing bust in China will stop the PRC from continuing expansion of its GDP. What does that imply for India?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby pankajs » 29 Dec 2011 20:20

PrasadZ wrote:No reason to believe a housing bust in China will stop the PRC from continuing expansion of its GDP.

Lest we forget the the dangers of asset price bubble, we would do well to look at Japan after 1990.
Japanese asset price bubble
Lost Decade (Japan)

We have two recent examples of nationwide housing bust (US and Japan) that may help us understand the implications for the Chinese economy.

Let us look at a comparison. Posting in full.

Is America facing a Japanese future?
The word “Japan” has become synonymous with economic malaise. Any time an economist wants to describe how bad things could get for an industrialized economy, he or she inevitably says something like the place “could end up like Japan.” And there is good reason why Japan has become a four-letter word in the world of economics. Ever since a gargantuan stock-and-property price bubble deflated in the early 1990s, Japan has never returned to its pre-crisis glory days. The economy slips in and out of recession. Japanese companies seem dazed and confused, and are losing out to more aggressive rivals from South Korea, Taiwan and elsewhere. The welfare of the population has stagnated. Meanwhile, Japan’s policymakers and political leaders do a lot of blabbering and very little reforming. They often appear out-of-touch with the real problems of the economy or unwilling to fix the ones they do recognize. Japan’s mess is that dreaded “L”-shaped recovery, in which an economy collapses, and then just goes flat, year after year, never quite recovering from its fall.

With the recovery in the U.S. so feeble nearly three years after the evaporation of Lehman Brothers, we have to wonder: Is America facing the same future as Japan? Here’s what I think:

We can find some unfortunate similarities between the Japanese and American economic situations. In both countries, asset bubbles left financial sectors gutted and in need of drastic reform and repair, with huge consequences for other sectors. Just like the property bust in Japan, the housing bust in the U.S. will take years to work itself out. Both governments experienced worsening fiscal balances and precipitous increases in national debt as they struggled to keep growth alive through government spending. And in both capitals, political paralysis (though rooted in different factors) has prevented policymakers from truly tackling the problems head on. The course of the two recoveries has also been similar, in certain respects. Just as Japan limped along for years after its bubble burst, the U.S. has consistently appeared poised to sink back into recession – those recurring fears of a “double dip.” Just when hope comes alive that the recovery is really, truly on track, we find out it’s not. The Japanese know all about that. Clive Crook of the Financial Times recently argued that the possibility the U.S. might end up like Japan has to be taken very seriously:

"The administration thinks the pace of recovery will pick up soon. Last week President Barack Obama called the pause a “bump in the road”. Others think the slowdown will persist and might get worse, fears that cannot be dismissed. One alarming possibility is that the traits the US has relied on to drive growth in the past – labour market flexibility, rapid productivity growth – might have become toxic. If the US is unlucky, traits seen as distinctive strengths are now weaknesses, and a “lost decade” of stagnation, like Japan’s in the 1990s, might lie ahead."

He has a point. One of the reasons why Japan has been unable to recover is that the strengths that drove rapid growth before its financial meltdown — bureaucracy-led policymaking, close ties between government, business and banking {Stronger in case of China}, and consensus-based corporate management systems — became impediments to growth after the crisis. Too much government interference{True for China} came to stifle new thinking on policy {Will have to wait and see}, while insular management became resistant to globalization and out-of-touch with emerging business trends. What happened is that the world changed around Japan and Japan didn’t change with it. Japan’s economic model could no longer succeed in a world where up-and-coming economies (South Korea, Taiwan, China) were eating away at Japan’s competitive edge. The Japanese failed to reform and respond, and the result is continued stagnation.

Crook raises the possibility that today the main factors behind America’s usual strong economic performances and post-recession recoveries are becoming the anvils in a Wile E. Coyote cartoon. The vaunted flexibility of America’s labor market – usually seen as a key factor in its corporate competitiveness compared to more protective Europe — may in these times be a hurdle to growth if unemployment remains too high for too long. Crook also notes that the famed American ability to improve productivity may actually hurt demand by turning real interest rates positive. In other words, the very things that make the U.S. economy tick, as in Japan, could end up prolonging the pain.

I, however, don’t see things that way. While I have little hope for Japan’s economic future, I don’t see the U.S. heading in the same direction. There are just too many differences between the two economies, differences that can work in America’s favor.

First, I have much more faith in the American corporate sector than Japan’s. One big problem that stymied Japan’s recovery was the sickness of its companies. During the boom years, companies took on too much debt and built too many factories, creating useless excess capacity.{Valid in case of China} The result: “Zombie” companies that were too indebted to grow and were kept alive by creditors. Japanese companies have also been slow to adapt to new trends in global business. They’ve haven’t been aggressive enough, for example, in capitalizing on emerging markets or latching on to new consumer trends. Japanese firms, for example, are losing out to Samsung and LG in flat TVs and to Apple and others in smartphones. American firms don’t have either of these problems. Continued strong profitability and rising stock prices are a testament to the health of America’s corporate sector, even after the Great Recession. And American companies continue to lead in all sorts of innovative industries. It’s Americans who are developing the iPad and Twitter, not Japan{Japan was/is better off than China on this point}. That makes America’s situation much different than Japan’s – the corporate sector is potentially part of the solution, not the problem.

Secondly, the U.S. is a much more globalized economy. True, exports play a bigger role in Japan’s economy than America’s. But the U.S. is much more open to foreign investment and foreigners. We can’t underestimate the importance of the fact that the U.S. is still a very attractive place to invest. Nor can we ignore the benefits the U.S. gains from immigration – entrepreneurship, talent and new influences. Japan hasn’t been willing to open to the world, and that has made the domestic economy uncompetitive and the population old.

Third, I just don’t think that the level of denial is the same in Japan and the U.S. What I find so infuriating about Japan is that the place has been an economic catastrophe for 20 years and its politicians and corporate leaders don’t seem willing to do much about it. Denial has been a big part of the Japan story since the bubble burst. It took a half decade for the Japanese government to begin restructuring the moribund banking sector after its financial crisis.{The same denial in case of China} The unwillingness to admit the depth of the problems continues to this day, built into a policy-making process and political system resistant to change. In the U.S., matters are different. Yes, there is paralysis in Washington, with pointless ideological battles and political posturing. But there is also a national debate on what ails America to a degree that doesn’t exist in Japan.{The debate if any will be within the CPC} That gives me a bit more hope that the U.S. can more readily reform than Japan.

And don’t get me wrong. There are problems that need solving and reforms that need to get done. I worry that the sentiment in Washington is that fixing the stalled recovery means simply creating more demand – to get consumers spending again and companies investing again. Then there is the debate over the need for continued government stimulus. Of course, demand is the problem, but things aren’t that simple. There are also structural impediments that need to get resolved if the U.S. is return to health. That’s something the Japanese never realized. Its politicians thought that if they just spent a bit more money this year, growth would restart without making politically sensitive choices. Now they have government debt equal to 200% of GDP.{Can't comment in case of China}

What I mean by structural is that real damage has been caused by the housing bust and Great Recession that needs to be addressed. Take a look at unemployment data, for example. Joblessness in construction is at 20%, the highest of any industry. That’s a consequence of the housing bust. These people may need to find jobs outside of their industry – who knows when the housing market will stage a major comeback. That means the U.S. needs to invest more in job training and education to prepare the unemployed for new jobs in new industries.

There also needs to be reform in the corporate sector. Productivity gains are all well and good, but not if they destroy your market. If the unemployed don’t have the money to buy the cars you make or burgers you flip, then eventually the profitability gains from cost-cutting turn counterproductive. Corporate America needs to reform its idea of “shareholder value” and look as much at the long-term interests of their businesses as the short-term stock price.

Fixing America’s economy will not be easy, and it may take a while. But some changes need to get made. Otherwise the word “America” may turn into a synonym of “Japan,” and the U.S. could end up going to L.


There are other similarities between China and Japan
1. Export driven economies
2. large trade surpluses
3. Huge foreign reserves
4. Aging population
5. High rate of savings

It is way too early to talk of US recovery. The above is not to say that China will definitely go the Japan way but the Japanese case is definitely worth remembering with respect to any asset price bubble, be it in China or India or Ireland.

pankajs
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Re: PRC Economy - New Reflections : Dec 15 2011

Postby pankajs » 30 Dec 2011 02:48

Abandoning GDP fixation
The economic work conference transmitted a significant and unambiguous message that focus will be real economy{Was the focus till date on the bubble economy}
Many market observers have said the just-concluded Central Economic Work Conference of the Chinese government placed particular importance on "sound" or "steady" macroeconomic, fiscal and monetary policies in the year ahead{Realization sinking in about the turbulence ahead}.

However, to my mind, the annual top economic conference also transmitted an unambiguous message to the outside world that the country is poised to make some significant economic policy changes.

To promote these policy changes, China will first abandon GDP-dominated performance as the guideline for its economic development. As early as October 2007, in his report delivered to the 17th National Congress of the Communist Party of China, President Hu Jintao vowed to reduce the country's dependence on GDP, saying economic development should aim to improve people's livelihoods and welfare rather than purely push for GDP growth.{Classic Chinese spin}

However, the country's efforts in this regard were interrupted by the economic stimulus packages it launched amid concerns over an economic slowdown, following the financial crisis in the United States in the latter half of 2008 and the following global economic recession. The side effects of the policy interruption are expected to unfold and to be mended in the years ahead.{We pumped hot air and lots of it to keep the miracle balloon floating but alas the sins have caught up with us}

Fortunately, the Chinese government did not cling to the GDP-preoccupied economic development approach this time{Are the Chinese GDP numbers hot air and hence this particular spin}, even though the country still faces the risk of an economic downturn in the context of global economic uncertainties. Despite being encircled by a treacherous external economic environment, the country has shown more determination than ever to shy away from any enormous economic stimulus packages{Does not work or the balloon bulges in unexpected/unwanted places e.g Property speculation} in an endeavor to decelerate its fast pace of GDP growth, as indicated by the circular issued after this year's Central Economic Work Conference. Such a departure from the GDP preoccupation has also been reflected in some open remarks made by the country's top leaders.

The country is also expected to become firmer in extricating itself from its long dependence on currency over-issuance in the next year.{More hot air pumps for the balloon} For many years, some in China have regarded the virtual economy, or the financial economy, as being the same as the real economy, believing that a fast-growing GDP or the increased wealth on paper - which has proved to be mainly based on credit over-expansion - means fast development of the country's economy{So finally the miracle/prosperity formula revealed. Chinese admitting that all is Maya onlyee}. Dominated by such an ideology, the country has shown a serious dependence on currency growth in recent years. Statistics indicate that China's newly increased credit volumes now amount to 8 trillion yuan ($1.26 trillion) every year{More maya}, eight-fold the average 1 trillion yuan from 1998 to 2002. However, the country's newly increased GDP value has increased less than four times during the same period. Compared with the growth of its real economy, China's monetary supply has witnessed a twisted growth over the past years. For example, the country's bank assets have increased to 110 trillion yuan over the past 10 years, an eight-fold increase that was equal to 2.5 times the GDP in 2010.{Saab maya hai! No wonder the new slogan is GDP means nothing} Such a high ratio between the two indexes has rarely been seen anywhere else. The lion's share of this flood of fluidity has gone to the property market and virtual economy rather than the country's real economy, such as agriculture and small and medium-sized enterprises.

Promising a prudent monetary policy in the year ahead, the country is expected to funnel more monetary supplies into the real economy, such as the construction of irrigation facilities and other infrastructure instead of the real estate sector{So where will that leave the Real Estate and the people caught in the maya jaal (Investors, Developers and the local government)}. This will be a key way to prevent the speculation-prone housing market from continuing to hijack the world's second largest economy. On the contrary, the country is expected to remain unwavering in pressing ahead with ongoing regulations of its realty market to ensure that the still unendurably high property prices return to a reasonable level to meet the demand for accommodation.

This overdue and much-needed emphasis on the real economy will dominate the country's economic policy changes in the year ahead and will also decide domestic industrial adjustments over a longer period.

Such a policy shift from an excessive focus on the financial markets to the real economy is also an indication that China's policymakers have embraced the idea that the financial market can only serve as an auxiliary means to aid the country's real economy.

The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences.


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