PRC Economy and Industry: News and Discussions

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harbans
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Re: PRC Economy and Industry: News and Discussions

Postby harbans » 03 Jul 2011 23:57

India's delays are the result of corruption and poor governance.

I would like to add further on this. There is a huge constituency that's not corrupt, but left socialist in India. This community fought tooth and nail against reform. This community is knee jerk against any sort of reform. This community cuts across party lines. This community stalls projects, genuine efforts at improving upon infrastructure, delays implementation decisions in whatever manner possible, argues the hardest against nuclear power so essential to develop the energy mix in India.

It's very difficult to talk retail, financial real estate, land acquisition, electoral reform with this constituency, They also harp the loudest against corruption. If you saw and read through the original JLPB they tried also to introduce their agenda's to literally stall the GOI decision making ability. This very large constituency has not yet reconciled to reform. It does not think much of needed policy changes. They believe in a chimerical 'danda' solution as the panacea for all in India. They are vocal, loud and aggressive. India needs to tackle this lot ideologically.

Theo_Fidel

Re: PRC Economy and Industry: News and Discussions

Postby Theo_Fidel » 04 Jul 2011 00:53

Money has a lot to do with it. If we had the money we could pay off everyone. This is what happens in other countries esp. massaland. Doubt Panda is different. trying to do stuff with a trickle of money is our problem. Often a 1000 Crore project only gets 200 crore a year. Which is what happened at the Worli sealink. Panda dumps money in upfront and gets results.

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Re: PRC Economy and Industry: News and Discussions

Postby chola » 04 Jul 2011 02:13

ashashi wrote:Autocracy is efficient in certain areas, but they are usually overthrown. I cannot envision Chinese people letting the communist party rule over them in 20 years. Can anyone?
Once people gain power in China, it will not be any less chaotic than Indian democracy.


It could. Or democracy could make China even more efficient like a Japan, South Korea or Taiwan.

Chaos happens in India because Indians are individuals with individual dreams. Ant societies like China and Japan trend less towards chaos in a democracy because they sacrifice the individual for the group.

In fact, there is more chaos in oriental communist societies like China than in Japan or South Korea because topdown mismanagement is the only way you can force the submissive ants into chaos, i.e. Cultural Revolution or Great Leap Forward or in the countless protests and revolts over communist bureaucrats today (80,000 such protests last year from what I read.)

Now if you give the ants a sense of control with elections, even if it is usually single-party dominance (again like Japan or South Korea), they will be more placid, happy and efficient.

If India wants to catch up to China the last thing we want is to take a chance that democracy will slow Chinese growth. Especially since democracy has overwhelmingly created the world's wealthiest nations.

Dont think Chinese civil engineering technology is any superior to India's.


Most of their engineering is Western/Japanese/Korean. For access to China's market, everything from skyscrapers to railroads are built with technology transferred from Europe and East Asia.

India could do the same if and when the GOI decides to leverage the market for our infrastructure.

So is Chinese civil engineering better than India's? No. But what they are building with foreign tech in China and in other countries are.

The African projects are negotiated and funded by PRC govt. Chinese contractors have total autonomy over the project. India never went that route.


From what I read, China's African projects make no money. But since the PRC has $3T to blow, they use it to gain geo-political influence and also to keep their infrastructure work force fully employed. They use their own workers exclusively. These deals are actually financial sinks that would bankrupt any private firm.

This is another reason why a communist China is far easier to catch up with than a democratic one. No democracy would build up an insane amount of forex like China had. That money would have been used in a democracy to lift the population's standard of living way before it could have piled up in the trillions. This misappropriation of wealth basically stunts civilian consumption and growth for the benefit of the government. It is why we don't see major Chinese brands like Sony or Hyundai. Their innovative private sector is starved.

Now as an Indian, I hope they continue misspending in this way. The longer they keep their private firms starved of capital the better.

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Re: PRC Economy and Industry: News and Discussions

Postby ashashi » 04 Jul 2011 09:11

chola wrote: It could. Or democracy could make China even more efficient like a Japan, South Korea or Taiwan.

Chaos happens in India because Indians are individuals with individual dreams. Ant societies like China and Japan trend less towards chaos in a democracy because they sacrifice the individual for the group.



Japan and South Korea are homogeneous civilizations. China is too, for most part. So, differences between peoples are harder to detect.

India is the home of all three races, Caucasoid, mongoloid and negroid since pre-historic times. Its is a place where people of all major religions, Hinduism, Buddhism, Christianity, Islam and Judaism coexisted since their birth.

There is no other place like this on earth.

Considering the differences in us, we should be fighting each other like cats and dogs. Its an amazing feat people from 3 races, 350 languages, 3 religions and numerous ethnic groups proudly consider themselves Indians first.

Truly Amazing India.
Isnt it?

No democracy would build up an insane amount of forex like China had.


Have you forgotten USA? (by forex if you mean wealth).
The other diverse society. Incredibly success story, in every field that matters.

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Re: PRC Economy and Industry: News and Discussions

Postby ashashi » 04 Jul 2011 09:14

Deleted.
Last edited by ashashi on 04 Jul 2011 17:46, edited 1 time in total.

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Re: PRC Economy and Industry: News and Discussions

Postby Abhijeet » 04 Jul 2011 10:27

How did this discussion get from efficiency building infrastructure to home of the world's oldest civilizations etc? So now the excuse is that because there is such diversity in India we should be even poorer at building stuff than we are?

Keep deluding yourself, I guess.

Theo_Fidel

Re: PRC Economy and Industry: News and Discussions

Postby Theo_Fidel » 04 Jul 2011 11:54

It appears Guangdong has entered the Middle income trap.

http://www.msnbc.msn.com/id/43600432/ns ... e_economy/

Many of those yuan didn't get where they were supposed to go. It's still not clear exactly where they all went. But this week the Chinese government announced the results of a nationwide audit of 31 provinces and hundreds of municipalities which found that those local governments are now carrying some $1.6 trillion worth of loans. And a large portion — as much as 20 percent — may have to be written off as bad debt.

Following the blueprint of economic transformation laid out in the early 1980s by Communist Party leader Deng Xiaoping, China has embarked in recent years on a massive spending spree. Beijing hopes the spending will expand the economic success of coastal cities to inland regions by stitching them together with vast networks of roads, railways and high-speed Internet. But many of those projects have become mired in debt, with modern high-speed rail lines carrying handfuls of passengers and four-lane rural highways all but empty of vehicles.

“Last year, 55 percent of GDP was contributed by infrastructure investment — in other words bank lending,” said Carl Waters, an American investment banker until recently based in China and co-author of "Red Capitalism." "If you keeping making bad loans that don't pay back, you’re going to run out of money sooner or later."


“China is already rapidly becoming significantly leveraged,” said Waters. “If you look at what happened in Greece or Ireland or Portugal when a country is leveraged, it has to borrow more and more to meet its interest obligations. That makes it less and less possible to invest in projects that will grow your GDP.”


Demands for higher wages in factory towns have sent multinational manufacturers looking elsewhere for cheaper labor. Southern China, where the low-cost manufacturing revolution began two decades ago, is now suffering what the Chinese people call a “hollowing out,” according to John Rutledge, an investment manager and advisor to the Chinese government.
Story: Surging China costs forces some U.S. manufacturing companies back home

“The assembly jobs in Guangdong that are now going to places like Vietnam are leaving empty buildings behind,” he said. “Those buildings were filled with the migrant workers from Sichuan and Hunan who were making money to send home to their families in the poor villages in western China. So there's a serious employment issue there.”

Infrastructure development was supposed to spread the wealth created in factory cities to rural inland areas to raise the living standards of those poor villages. Now, rising levels of bad debt will make it much harder for Beijing to continue to invest in those efforts to realize Deng's vision of spreading the wealth to all of China.

Beijing's massive spending spree poses another threat to China’s long term economic stability. Pumping more money into infrastructure projects may help prop up growth. But that cash infusion raises the risk of a sustained bout of higher inflation.

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Re: PRC Economy and Industry: News and Discussions

Postby vina » 04 Jul 2011 12:42

Demands for higher wages in factory towns have sent multinational manufacturers looking elsewhere for cheaper labor. Southern China, where the low-cost manufacturing revolution began two decades ago, is now suffering what the Chinese people call a “hollowing out,” according to John Rutledge, an investment manager and advisor to the Chinese government.
...

“The assembly jobs in Guangdong that are now going to places like Vietnam are leaving empty buildings behind,” he said. “Those buildings were filled with the migrant workers from Sichuan and Hunan who were making money to send home to their families in the poor villages in western China. So there's a serious employment issue there.”

Oh. Oh.. That is serious stuff. Among the "real " things in China is the vast Shenzen SEZ and the Pearl River Delta area and the highly entrepreneurial success . The rest , the so called "Shanghai Model" of govt directed , "baboo" business is all smoke and mirror.

If Guangdong gets hollowed out, watch out for the rest of China to rot from within like a diseased coconut tree. Yeah, the momentum might keep it going for a few years now,but then, if he hollowing continues, it is terminal decline.

It looks like what China did to Asean, Vietnam and Cambodia are doing to China! Ah, the logic of capitalism. You cant contest that.

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Re: PRC Economy and Industry: News and Discussions

Postby ashashi » 04 Jul 2011 18:04

^^^^^
For the couple of years, small manufacturing factories that are moving out of US are going to Vietnam instead of China. Lower wages and less govt. regulations are cited as the reasons. Some of US companies that have manufacturing facilities in China are branching out to Vietnam.

China's strength is in outsourcing of production. Many small American companies have cut down production facilities in US and getting widgets made in China.

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Re: PRC Economy and Industry: News and Discussions

Postby Singha » 04 Jul 2011 19:13

the combined deployable industrial worker population of vietnam and cambodia is a fraction of what guangdong, fujian, zhejiang and other coastal provinces can do, and inland centers like chengdu.

so there is no real danger of a mass scale movement. now if India were to do a vietnam thats another level of threat. philipines and indonesia do have the population but are as yet too badly run to pose a serious threat. malaysia and thailand are already middle income, have lowish population and would not be seriously interested in bottom-fishing.

the big dog thats staying out of the melee courtesy delhi and its inertia is India.

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Re: PRC Economy and Industry: News and Discussions

Postby shyamd » 04 Jul 2011 22:09

Add to that the FTA with EU. I think a lot of businesses will shift from China to India. They are working on commonalities in all professions from accountants to doctors and stuff. This is going to be big for India and I think it will tie the noose around PRC going forward.

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Re: PRC Economy and Industry: News and Discussions

Postby ArmenT » 05 Jul 2011 01:21

Ocean floor muddies China's grip on '21st-century gold'
China's monopoly over rare-earth metals could be challenged by the discovery of massive deposits of these hi-tech minerals in mud on the Pacific floor, a study on Sunday suggests.

China accounts for 97 percent of the world's production of 17 rare-earth elements, which are essential for electric cars, flat-screen TVs, iPods, superconducting magnets, lasers, missiles, night-vision goggles, wind turbines and many other advanced products.
...
...
As a result, the 17 elements have sometimes been dubbed "21st-century gold" for their rarity and value.

Production of them is almost entirely centred on China, which also has a third of the world's reserves. Another third is held together by former Soviet republics, the United States and Australia.

But a new study, published in the journal Nature Geoscience, points to an extraordinary concentration of rare-earth elements in thick mud at great depths on the Pacific floor.

Japanese geologists studied samples from 78 sites covering a major portion of the centre-eastern Pacific between 120 and 180 degrees longitude.
...
...
The scientists found rich deposits in samples taken more than 2,000 kilometres (1,200 miles) from the Pacific's mid-ocean ridges.
....
At one site in the central North Pacific, an area of just one square kilometre (0.4 of a square mile) could meet a fifth of the world's annual consumption of rare metals and yttrium, says the paper.

Lab tests show the deposits can be simply removed by rinsing the mud with diluted acids, a process that takes only a couple of hours and, say the authors, would not have any environmental impact so long as the acids are not dumped in the ocean.


I'm guessing that the Japanese are going to start developing deep sea mining technology pretty quick, especially since China decided to temporarily cut off exports of rare-earth minerals last year.

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Re: PRC Economy and Industry: News and Discussions

Postby RamaT » 05 Jul 2011 02:17

So I've been following the Chinese attempt to digest this loan/unsustainable building/fake GDP mess for the last year.

The way I see it below.. comments around where my understanding is wrong are appreciated.

1. Unsustainable Building - Chinese bankers have been lending to create construction of highways/bridges/factories/office buildings when there is not enough demand to sustain the current pace. This is leading to empty cities(Ordos) and malls(Great Mall of China) and railroads(HSR) that serve no purpose than to employ those building them.

2. Bad loans - Because of #1, the loans handed out are not able to be repaid because the underlying assets aren't generating income. The assets are sitting around mothballed or as 'bank accounts' for wealthy families.

3. Fake GDP - Due to #2 every year more loans have to be given out to keep the workers who finished the previous projects employed and for that years GDP to be 'sustained'. The profits from the past can't sustain future growth as there are no profits and the companies doing the building have no client base other than the local governments/banks.

Those are the problems.. they have resulted in:

A. Inflation - Due to increasing resource consumption for the construction side of the economy commodities are expensive and are getting more so. This is affecting the buying power of the workers as their wages are not keeping pace with the increased cost for basic goods and housing. The government's response to increase wages is causing problems in the manufacturing sector and making them less cost competitive so jobs are starting to leave for other countries/regions.

B. Inefficiency - I mean this in the economic sense, as in the inefficient allocation of capital. The Chinese packaged up the last bath of bad loans into long term government bonds and they may be able(probably will be able) to do so again but the costs are higher this time around. Of the 1.6 Trillion outstanding, the estimates are from 20% - 50%. 20 is definitely too low, and 50 might be a bit low or a bit high, let's assume 40%. That's $640 billion that will be packaged into this long term paper, easily handled by their (current)growth trajectory and the fact that the economic system is rigged so that banks can use the spread in (non-construction and performing)loans vs. deposits to cover it over a long enough period.

The problem here is that the system is setup like a drug addict, except the drug here is money in the form of construction loans. The local governments know they will get bailed out so they'll create more unnecessary projects to keep up employment and GDP, which will cause inflation to increase and a third round of bad loans that will be bigger and created faster than this one.

C. (Un)Employment - Construction workers have no sustainable profession without continuing loans to feed bad projects.
There are farmers still leaving the countryside looking for work.
Manufacturing is turning away due to inflationary pressure, causing more unemployment.
The kids from the last generation who's families sent them to college can't get work because there aren't enough knowledge jobs(due to low internal consumption).

D. Infrastructure - Everything has a limit, even a good thing. Infrastructure was a problem but the utility of every new highway/bridge/railway/building has less value when the existing assets aren't even utilized. If every family can have an apartment and you build a 1million more then what purpose will that serve?

The one thing the Chinese have gotten from all this, is infrastructure, in many cases world class. And the question is, will it matter in time to have enough of an economic impact, before the other problems derail them?

===============

On top of all this, are two major structural problems.. the communist system and the transition from a manufacturing to a balanced economy, i.e. the middle income trap.

IMO, the Chinese are in for a period of 'low' growth 4% - 6% over the next decade. This is below the level they need to keep people employed and pay for their past mistakes. If this was a democratic stable nation this wouldn't be much of a problem.. see Japan, US, etc. But the fact that this is a repressive regime with significant pent up internal destabilizing forces and the CPC will look to distract the populace from their immediate problems.

I used to think this would result in some adventures in Arunachal Pradesh or Aksai Chin, but the Chinese see that India isn't what it was in '62 and more importantly.. they have huge economic gains to be made by exporting their infrastructure technologies here(Also, India's Nukes are serious). No, I think the recent South China Sea sabre rattling is to build up an external bogeyman there, perhaps Vietnam, the Philippines or even Japan and have the ace of a short conflict there as a distraction measure for their people.

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Re: PRC Economy and Industry: News and Discussions

Postby Prem » 05 Jul 2011 03:31

ArmenT wrote:Ocean floor muddies China's grip on '21st-century gold'
...
I'm guessing that the Japanese are going to start developing deep sea mining technology pretty quick, especially since China decided to temporarily cut off exports of rare-earth minerals last year.


Once they master the commercial harvesting of gas hydarte from ocean floor , it will change the world energy map.

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Re: PRC Economy and Industry: News and Discussions

Postby wong » 05 Jul 2011 06:24

RamaT wrote:
"On top of all this, are two major structural problems.. the communist system and the transition from a manufacturing to a balanced economy, i.e. the middle income trap."

Two comments as a Chinese person visiting here:

1. China isn't really communist. One party rule? Yes. Communist? No. They practice a really ruthless and brutal form of capitalism in the private sector. If you ask any Chinese-American doing business in China, they will tell you they have trouble keeping up with capitalism in China. Did you know half of the world's richest women are now in China and all are self-made? This is pure capitalism and entrepreneurship.

2. If you consider other East Asian places like Taiwan, Korea, Singapore, Hong Kong & Macao as having escaped the middle income trap, then odds are China will escape it too. China is following a nearly identical development path as its smaller East Asian neighbors before it. It's a formula with a proven track record. From Confucianism to the high savings rate, China has much more in common with a Korea and Taiwan than a Mexico or Argentina.

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Re: PRC Economy and Industry: News and Discussions

Postby vina » 05 Jul 2011 06:46

wong wrote:Two comments as a Chinese person visiting here:

1. China isn't really communist. One party rule? Yes. Communist? No. They practice a really ruthless and brutal form of capitalism in the private sector. If you ask any Chinese-American doing business in China, they will tell you they have trouble keeping up with capitalism in China. Did you know half of the world's richest women are now in China and all are self-made? This is pure capitalism and entrepreneurship.


Very true. But that is only half the picture. Large sectors of the Chinese economy are walled off from private competition and reserved for the govt sector. It really is a "mixed economy" model that India practiced for 60 years and still does (the govt:private mix ratio was changed post 1991 reforms here and other than very few areas like defense and certain other areas, the entry restrictions were eased).

The China story so far has been to bleed the really entrepreneurial , go getting intensely competitive private sector (which is primarily export oriented) and build giant public sector white elephants. You cant make the problem now, but only when the tide goes out, you can see the real problems and that the massive investments into the public sector industries are largely wasted /swindled/gone down the drain. The other source is the diversion of savings of the Chinese population to govt directed "fiat" projects with nary a consideration towards viability. All these are long term problems that will go Ka-Boom one day.

2. If you consider other East Asian places like Taiwan, Korea, Singapore, Hong Kong & Macao as having escaped the middle income trap, then odds are China will escape it too. China is following a nearly identical development path as its smaller East Asian neighbors before it. It's a formula with a proven track record. From Confucianism to the high savings rate, China has much more in common with a Korea and Taiwan than a Mexico or Argentina.


The key word is size. What works for Korea , Hong Kong, Macao, Taiwan, Singapore (just leave out Korea and consider the size of others.. or even include Korea and consider the size) , cannot work for China! Their prosperity were export led tapping into the demand in US. China has done it successfully until now. But where is the next $5Trillion worth of demand for Chinese goods and services going to come from, especially when it has a comatose domestic demand situation?

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Re: PRC Economy and Industry: News and Discussions

Postby somnath » 05 Jul 2011 07:38

wong wrote:
2. If you consider other East Asian places like Taiwan, Korea, Singapore, Hong Kong & Macao as having escaped the middle income trap, then odds are China will escape it too. China is following a nearly identical development path as its smaller East Asian neighbors before it. It's a formula with a proven track record. From Confucianism to the high savings rate, China has much more in common with a Korea and Taiwan than a Mexico or Argentina.

China isnt going to be able to repeat the SEA story to high income status..If it tries, it will almost certainly get stuck in a middle income rut..

Your policymakers are only too aware of this...That is precisely why you have such a large invstment cycle sponsored by the govt...The big challenge along the way is to maintain banking sector solvency - Chinese banking accounting standards are about 3 decades behind rest of the world...

Which is why you have everyone Wen Jiabao downwards talking about moderating the rate of growth...the undertone of that is simply a dampening of investment demand, letting the economy graduate to a (more) consumer demand driven construct...

Whether it can be pulled off, its anyone's guess...China's policymakers have only one trick to tackle social tensions - economic growth...So, "you are living in interesting times"! :)

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Re: PRC Economy and Industry: News and Discussions

Postby shyam » 05 Jul 2011 07:53

I doubt there will be any PRC bank sector crisis. When TFTA banks had crisis, it was averted by a stroke of pen by changing accounting rules. PRC can easily do the same thing as they are owned by government. Sustaining growth and inflation are going to be the real issues.

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Re: PRC Economy and Industry: News and Discussions

Postby somnath » 05 Jul 2011 07:56

shyam wrote:When TFTA banks had crisis, it was averted by a stroke of pen by changing accounting rules

??Which banking stress was resolved by accounting rules changes?

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Re: PRC Economy and Industry: News and Discussions

Postby shyam » 05 Jul 2011 08:01

Change in Mark to Market rules for banks. They are still not reporting actuall asset values they hold.

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Re: PRC Economy and Industry: News and Discussions

Postby vina » 05 Jul 2011 08:52

Ouch.. Even the Mortgage securities scamsters are now saying that China's banks are shot.

Lookee.. China's Local Govt Debt understated by 3.5 trillion Yuan - Moody's. :shock:

In view of that, the non-performing loan ratio for Chinese banks could be as high as 8-12 percent, compared with 5-8 percent in the base case and 10-18 percent in the stress case.


In a bid to assuage investor worries about the potential souring of its massive local government debt, different Chinese authorities including the state auditor, the bank regulator and the central bank have tried to assess the situation. But all three agencies have used different definitions and accounting methods to review the debt, resulting in a hodgepodge of official forecasts.
:rotfl: :rotfl: :rotfl: .. Classic FUD!

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Re: PRC Economy and Industry: News and Discussions

Postby somnath » 05 Jul 2011 09:06

shyam wrote:Change in Mark to Market rules for banks. They are still not reporting actuall asset values they hold.

Yes, that did help..But the heavy lifting was by capital injection and the heaviest lifting was on sovereign guarantees on senior unsecured debt..China tried, a few years back to recapitalise the major banks using part of their forex reserves (and selling minority stakes to foreign banks) - it didnt work out as planned, not fully...The real amount of capital required is probably much higher than anticipated...With the compulsion of keeping investment demand growing, it is a never-ending tail chase...

It will be interesting to see how it works out..

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Re: PRC Economy and Industry: News and Discussions

Postby Theo_Fidel » 05 Jul 2011 09:48

More empty cities in Pandaland. Apparently about 20 more are being built every year. Each costs about $15 Billion.

http://www.businessinsider.com/chinese- ... 011-5?op=1

Image

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Re: PRC Economy and Industry: News and Discussions

Postby harbans » 05 Jul 2011 14:10

A Comment on the above Ghost towns makes sense:

Casper, SWG on Jun 16, 4:45 PM said:
Ghosts are people too...


And Paki's would say: Djinns are people too..

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Re: PRC Economy and Industry: News and Discussions

Postby amit » 05 Jul 2011 15:22

The fun will start when they run out of places to build. What will happen to the ginormous steel making capacity (more than the next 10 to steel producers), the cement capacity etc? I know they can then go to Pakiland and start building! :-)

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Re: PRC Economy and Industry: News and Discussions

Postby Singha » 05 Jul 2011 15:33

I liked one of the comments - maybe they are putting their $$ to work , better a empty highway than a piece of paper.

perhaps the strategy is even if these overbuilt infra stay lightly occupied for another 10-15 yrs, eventually people will come and live there, and repairs can spruce up the place. prices might not appreciate but thats a issue for the speculative buyers not the crony developer allied to local party officials who grabbed the land and made his money already :)

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Re: PRC Economy and Industry: News and Discussions

Postby amit » 05 Jul 2011 15:45

Singha wrote:I liked one of the comments - maybe they are putting their $$ to work , better a empty highway than a piece of paper.

perhaps the strategy is even if these overbuilt infra stay lightly occupied for another 10-15 yrs, eventually people will come and live there, and repairs can spruce up the place. prices might not appreciate but thats a issue for the speculative buyers not the crony developer allied to local party officials who grabbed the land and made his money already :)


Bro you "put your dollars to work" if they are bringing in returns (for example tolls from highways). If they are not you are splurging. You cannot build a house or other infra and wait for 15 years before your returns come back. Also, you are looking at China infrastructure building as one homogeneous entity. They are not.

Folks who are building monstrosities like Ordos are individual companies who are borrowing money from banks with no hopes of every repaying them. If banks don't get their money back they are not putting their dollars to work, they are just creating NPAs.

The Chinese have been caught in a vicious cycle. In order to kick start their infra build up and create employment they first built up capacity like mad - this is a country which till recent was just one sixth or so the size of the US (in economic terms) and yet it has a steel making capacity which is more than what the next 10 biggest steel producers in the world (I mean countries not companies) have together.

Now their problem is if they slowdown the infra build up they'll have to par down capacity and that would mean loss of jobs and social unrest. And nobody is willing to buy the stuff from them either, not in the quantity they themselves consume.

So we have continuous cycles of building which warm the cockles of Chinese jingos who visit this forum and shock and awe SDREs like us. But that's a damn expensive way to get us shivering in our dhotis. :)

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Re: PRC Economy and Industry: News and Discussions

Postby Singha » 05 Jul 2011 18:07

another interesting comment:

perhaps forced relocation is coming for some Chinese people in order to "serve the greater good". a new dam, or infrastructure project on currently occupied land. they've done it before. just a wild guess. could also be just pure corruption. build a big govt. back project for no reason, provide jobs, and siphon off as much as you can without getting caught.

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Re: PRC Economy and Industry: News and Discussions

Postby harbans » 05 Jul 2011 18:57

At the beginning of the US sub prime crisis, home prices were rising such that the lending industry was confident of repayment because appreciation equity would offset the lack of down payment equity. The crisis thus was precipitated by creating a speculative market based on the assumption that demand will always drive prices up. Lack of down payment was a driver and people invested in multiple properties. For some time it was good. But when the appreciation equity could not affect offset the down payment equity the proverbial Pakistan hit the fan.

China is way beyond that now. The driving factor is 'development' and i think last few years the frenzy to keep ahead of India. If India is growing 8%, China must grow 11%. I think this part also has a play in Chinese policy circles today. The manifest irritation when linked or compared to India's rise in Asia is evidence of that desire. So policy makers sent orders to each district boss to show development and they will be granted whatever resources to build and build. So began the frenzy to show 12% growth. Development was not based on a ROI model, but the assumption that appreciation will offset the ROI. That demand will always exceed supply. That's obviously beginning to stretch a bit. Once the reversal occurs, which it already has, i don't see how China can escape this bubble.

Another thing which many comments are about mass moving people in. Doubt China is preparing for Global warming and stuff. Doubt they will be able to sell this to the highest bidder types and make money. I'm curious to know how this can end without a bust.

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Re: PRC Economy and Industry: News and Discussions

Postby Theo_Fidel » 05 Jul 2011 20:40

Keep in mind that a lot of these apartments have been sold to mostly speculators. One estimate shows that 70% of sales is to speculators. These are mostly regular Chinese folk.

The logic of growth is that right now they are building about 15-20 Million apartments a year. To keep growing at 10% in 2014 they will be building 30 Million apartments a year. They have already built about 200 million of these over the past 20 years. Enough to house the entire China population with a family of 5 or so. Very soon there are going to more apartments than families in China. Soon after there will be more apartments than individuals.

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Re: PRC Economy and Industry: News and Discussions

Postby ashi » 06 Jul 2011 01:48

China Bears Have It Wrong: Jim Rogers

"Those guys have been dead wrong for two years. Chanos said two years ago he was shorting China and it's going to collapse," Rogers told CNBC.

"I know Jim and I like Jim and admire Jim but he's been dead wrong for two years, I hope he's still solvent. If he did the things he said he's doing, he's losing a lot of money," Rogers added.


Rogers isn't disputing that China could see a slow down, but he doesn't think it's going to be severe. He said he doesn't plan to sell his China shares and expects to pass them on to his grandchildren one day.

"Every country, every family, every individual has setbacks as they rise. China is going to have some horrible setbacks. America had unbelievable setbacks as we rose," he said.


"China is entirely different. You cannot buy 4 or 5 houses with no money down and (without a) job like you could in the U.S."

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Re: PRC Economy and Industry: News and Discussions

Postby RamaY » 06 Jul 2011 01:53

Singha wrote:I liked one of the comments - maybe they are putting their $$ to work , better a empty highway than a piece of paper.

perhaps the strategy is even if these overbuilt infra stay lightly occupied for another 10-15 yrs, eventually people will come and live there, and repairs can spruce up the place. prices might not appreciate but thats a issue for the speculative buyers not the crony developer allied to local party officials who grabbed the land and made his money already :)


This is what I said many moons ago.

After 10-15 years of such spending, when the communist party collapses and a more democratic chinese govt comes in its place, they can use this infra to benefit the masses.

This infra and industry is like a short-term treasure (30-40 years). If the commoners of china can use it before it deteriorates, it is a better investment than the near-zero yield bonds (taking inflation into consideration).

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Re: PRC Economy and Industry: News and Discussions

Postby VikramS » 06 Jul 2011 05:12

http://www.zerohedge.com/article/chinese-black-swan

I often hear the argument that China will not have a real estate crisis of US proportions because home and condo owners have to put 30-40% down when they buy. So where do people get the money to buy a house that costs, on average, 8 times their annual income (a figure several times higher than in the US)? Some of it comes from savings, and some comes from borrowing from relatives.

Let’s pause for a second. In the 1990s, the Chinese banking system basically collapsed. To revive it, the Chinese government took bad loans from banks’ balance sheets and put them into off-balance-sheet vehicles (Enron would be proud of that financial ingenuity). Banks started to function as though nothing had happened. To finance the off-balance-sheet assets, the government set deposit interest rates at very low levels: 1% or so. In a country with a very high savings rate and 5% inflation, this resulted in a 4% annual loss of purchasing power.

Chinese consumers were punished severely over the last 10 years for the banking crisis of the late ’90s. And they’ll be punished even more soon. Keeping money in the bank didn’t make that much sense, and investment alternatives were limited. However, they could invest in an asset that supposedly never declines in price – a house or condo. So they did. As China slams the brakes on the economy and as housing prices fall, the banks will lose plenty of money. But more importantly, it is the people who bought tremendously overpriced houses, and their relatives who lent them money, who will lose. :cry: The wealth and hard work of more than one generation will be lost, and this kind of pain leads to political unrest. That is the Chinese Black Swan!


Found this in the comment section of the following article:
http://contrarianedge.com/2010/10/30/ch ... rey-swans/
CHINA IS ABOUT TO SUFFER THE MOTHER OF ALL BANKING CRISIS

It is ironic that as China is demanding greater control of the World Bank and International Monetary Fund, just as the nation’s banking system is about to be devastated by the white hot flames of inflation.

From a distance, China’s economy seems to be the poster child of sustainable growth. Recent government reports show the economy expanding by 9.7%, retail sales up a blistering 17.4%, foreign reserves at $3 trillion, and inflation only 5.4%. But these statistics mask a dark side, Chinese communist authorities have been artificially holding down fierce inflationary pressures by subsidizing consumer prices. Over the last six months the government artificially restricted increases in retail food prices to 11%, while wholesale commodity food prices have jumped by 35%. In the last two months the government capped retail gasoline price increases at 10%, even as Middle East turmoil caused crude oil prices to leap by over 30%.

Most Americans believe that the secret-weapon of the “China Economic Miracle” has been currency manipulation of Chinese yuan’s exchange rate with the U.S. dollar. In the past two years as Asian economies and foreign exchange reserves expanded dramatically, the yuan gained only 4.6% versus the dollar. This modest rise compares currency gains of 31% for the Indonesian rupiah, 22% for the South Korean won, and 21%for the Singapore dollar. China has subsidized its exporters by recycling its export earnings back into over-valued U.S. dollars. The strategy makes China’s exports more competitive, but at the cost of spiking inflation at home.

The less known and far more important secret-weapon of the “China Economic Miracle” is the absolute control of the banking industry by China’s four largest state-owned banks (“SOB”); Industrial and Commercial Bank, Agricultural Bank, People’s Bank of China and Construction. Since the government does not provide adequate social welfare programs and restricts its citizen’s investment options to bank accounts, about 40% of Chinese household income is deposited in SOBs each month. :( The SOBs then leverage the deposits by ten times and loan 75% of this massive amount of cash at extremely low interest rates to state-owned enterprises (“SOE”). The other 25% of lending is allocated to real estate development.

China is no stranger to bankers making risky loans to communist party officials and their crony real estate developers. During the Asian Financial Crisis of the mid-1990s, it is estimated that 40% of all SOB loans were non-performing and most were written off. The Chinese paid for the SOB losses with a 76% devaluation of their currency that crushed the people’s buying-power by 76%. From 1997 to 2004 Chinese frivolous lending was somewhat restrained, but since 2003 the bureaucrats have mandated a massive expansion of lending. In comparison to the U.S. and Europe where bank lending is flat, SOBs have been expanding loans by 25% annually.

With inflation fears rising and bank leverage at an all-time high, the Chinese authorities just began to raise interest rates and instruct SOBs to slow the growth of lending to avoid another banking crisis. Outsiders have no idea what percent of SOB loans to SOEs over the last seven years are already non-performing, but the China Economic Miracle for real estate is quickly turning into a horrendous nightmare. Quoting from CNN Market News "Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission." The cumulative plunge in real estate prices in China’s capital this year is 34% and similar losses are being reported in fast growing Hangzhou near Shanghai. :eek:

The Chinese officials like to present an image of their population as very industrious, but also stoic and reserved. But with the real estate bubble bursting, banks stuffed with non-performing loans, interest rates rising and inflation raging, the flames of social protest may soon ignite. Fitch Ratings just lowered China’s AA- sovereign credit rating to “negative” from “stable”; citing a “high likelihood of a significant deterioration” in banks’ asset quality within three years. Credit rating agencies also like to present a stoic and reserved image; but this eloquent language is actually code words for “duck and cover”.

China may have achieved the fastest economic growth in world history, but that growth has been powered by currency manipulation and an exponential growth of risky bank lending. The Chinese authorities have been shielding their citizens from the inflationary effect of their strategies through subsidies paid for with more bank lending. Now that inflation is out of control and the Chinese government to trying to shrink lending; the mother of all banking crisis is looming!
Feel free to forward this Op Ed and follow our Blog at http://www.chrissstreetandcompany.com

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Re: PRC Economy and Industry: News and Discussions

Postby VikramS » 06 Jul 2011 05:53

shyam:
Regarding mark to market rules in Massa. What happened was that these assets were kept in trading accounts where the banksters could book profits and take bonuses every year. They were then moved to held to maturity accounts since a broken market will discount good assets also.

It is something like this: You have a car loan. Because of rising unemployment the default rate on car loans go up, and hence they are sold for less. However, for the 90% people who are employed, the loans continued to be paid. If kept in a trading account, the banks would have to mark them to market (say 85c to the dollar). However when kept as held to maturity, the banks only have to keep adequate reserves for loan losses. In this particular case, 90% of the people make their payments, and it is the 10% who are left which are a problem. Many of them the payments continue to be current; in others there is enough equity left behind. So the true loss to the bank will eventually between 0-10% and they will be taken as the loans default which is spread over time. It will not be 15% hair-cut up front which the current market for those loans will bear which mark to market accounting would demand.

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Re: PRC Economy and Industry: News and Discussions

Postby wong » 06 Jul 2011 05:57

http://www.forbes.com/2011/06/15/nouriel-roubini-is-all-wrong-about-china.html?

He bases his pessimistic forecast on phantom facts.
The famed bearish economist Nouriel Roubini has been making waves recently by siding with China bears like Jim Chanos and saying that China will run into big economic problems in 2013. To buttress his argument, he has been telling anecdotes from a recent trip to China.


However, most of Roubini's conclusions are based on phantom facts, as is his evidence for why China will have economic problems. There is no direct flight between Shanghai and Hangzhou, nor is there a maglev train system connecting the two cities. Shanghai has two, not three, airports, and the last new one opened a dozen years ago, in 1999. Both the Hongqiao and Pudong airports have been adding runways and terminals because the airports are too crowded, contrary to Roubini's suggestions of emptiness. Pudong's passenger and cargo traffic grew 27% in 2010, to 40.6 million passengers. It is now the third busiest airport in the world in terms of freight traffic, with 3,227,914 metric tons handled every year.


That hardly sounds like an underutilized airport with wasted investment in triplicate. Many analysts have turned bearish on China's economy over the last few years because they are concerned about empty apartments, too much debt and overcapacity. However, like Roubini, these analysts surprisingly misunderstand basic facts about income, demographics and investment in these facilities, and they use data points that are simply wrong to lead to their conclusions.

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Re: PRC Economy and Industry: News and Discussions

Postby somnath » 06 Jul 2011 06:40

VikramS wrote:shyam:
Regarding mark to market rules in Massa. What happened was that these assets were kept in trading accounts where the banksters could book profits and take bonuses every year. They were then moved to held to maturity accounts since a broken market will discount good assets also.

It is something like this: You have a car loan. Because of rising unemployment the default rate on car loans go up, and hence they are sold for less. However, for the 90% people who are employed, the loans continued to be paid. If kept in a trading account, the banks would have to mark them to market (say 85c to the dollar).

Doesnt work like that..Assets cannot be parked in "trading accounts" at the whims and fancies of a bank...There are specified assets that can be put on trading books..Assets booked in banking books cannot be transferred easily to trading books...

Typially, loans (car, house, personal, anything) are not in trading books, they are banking loans, provisioned for according to norms..The issue was when these loans got packaged as CLOs and CDOs, tranched out and sold out...This is when it gets into trading books of banks, and into the balance sheet of insurance companies, mutual funds and the like...Which is where the issue lies...Trading assets need to be MTM-ed, and in an illiquid market it can cause stress...

Shyam' point, on changes in MTM norms, is technically correct. In 2009, FASB brought out new norms on MTM that gave more leeway to banks in valuations..However, it wasnt a realy big deal at the end...Leeways in MTM models cant help if the underlying assets themsleves are going bad @ a rate not anticipated, unless the bank has adequate capital provisioned..And the last bit, "capital", is what was/is important...Which is where the govts bailed out the banks, and new BASEL norms prescribe new capital norms..

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Re: PRC Economy and Industry: News and Discussions

Postby somnath » 06 Jul 2011 06:44

RamaY wrote:This infra and industry is like a short-term treasure (30-40 years). If the commoners of china can use it before it deteriorates, it is a better investment than the near-zero yield bonds (taking inflation into consideration).

somehwat correct...People have short memories - 12 years back, they said all the tech infra companies (bandwidth, routers et al) built useless phantom capacities in the aftermath of the tech crash...But, it is the same capacities that triggered the new boom in tech, including India's services boom, as well as richer connectivity devices..A lot of it was because of cheap bandwidth available as companies went bankrupt...

Chinses infra can play a similar role...The question is whether the Chinese system has the in-built mechanism (bankruptcies, capital norms etc) to be able to do it...

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Re: PRC Economy and Industry: News and Discussions

Postby VikramS » 06 Jul 2011 06:50

wong:

That article in Forbes is trash, an example of what people in BR have observed about the Chinese influence on US media. It tries to poke holes at Roubini, without addressing the fundamental issues he raises. Interesting to note that the comments are also favorable, very likely the CCP drone army at work. I have seen those in WSJ also, and they tend to rehash the same half-truths.

The fact that HSRs are under-utilized has been discussed here before, and it does not take a lot of thinking to figure that out why. The issue is not the need for the infra but the ROI. The argument that the infra will be used for generations ahead is bogus since all infra requires maintenance. The construction quality is also questionable; the HSRs train no longer run at their design-speeds. If the infrastructure is not financially viable who will pay for the upkeep and maintenance?

The bigger issue is what will happen to Chinese GDP/employment once the massive investment in infrastructure tapers off.

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Re: PRC Economy and Industry: News and Discussions

Postby VikramS » 06 Jul 2011 06:56

somnath:

It does not work like that normally, but it did work like that during the crisis.

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Re: PRC Economy and Industry: News and Discussions

Postby wong » 06 Jul 2011 07:54

^^^^
Banks have a trading book (stocks, bonds & derivatives), a commercial loan book (CRE, commercial & syndicated loans, LOC, etc) and a retail book (credit cards, auto loans, residential mortgages, etc). The demarcation between each book was clear 20 years ago, but it hasn't been that way for the last 10 to 15 years.

Let's say I have a commercial loan that is provisioned but I also hedge it with a fx and a credit derivative. Technically, it's still part of the commercial book but it has two derivative MTM components. I can create a similar example for the trading book when I extend a commercial loan to the same counterparty. For a simple CLO, it's off the balance sheet and loan book unless it doesn't perform. Then it comes back on to the bank's balance sheet again but on the trading book side.

Moody's Analytics is advocating a simple portfolio approach for the bank's entire book. Makes sense to me, but it will probably never happen. Such transparency hurts profits/fees and more importantly salaries.

As for China going bust, who knows?? Long term (20 to 30 years), I tend the to agree with Jim Rogers. The interesting thing is Rogers is shorting India as his China hedge.


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