PRC Economy and Industry: News and Discussions

ashi · Post by **ashi** » 28 Aug 2011 03:30

VikramS wrote:chola:

Each culture has its own nuances. Let us take the case of an engineer Desi couple bringing in 200-300K/year in the US. How many of them actually go out and buy Pradas and Gucci or any other high end designer brands? Very few.

I took up the example of the Desi couple in the US because they represent Indian values without being constrained financially, and it removes the constraints imposed by India in their value judgement.

This is the same for most of the engineers in the U.S. Be they Desi, Chinese or American.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2011 03:37

It is a function of society. In Chennai there a lot of people who can afford a BMW but will never buy one. My dad for instance still drives a 8 year old Maruti Suzuki. Another industrialist I know collects vintage Rolls Royces but drives to work in a Hyundai.

The key question for Chola is that Chinese are buying status. Would they attach status to any Indian product.

The other thing to note is that many Chinese women will only look at men if they have a certain car or house or bank balance. There is a tremendous shortage of women. There is a relentless social pressure on people to keep up even if they can't afford. Personally I have to say that a BMW is not good value for money. I had to change the shocks on mine after just 4 years for $3200, both the steering joints wore out after 3 years and cost me another $1400. The repair parts are horrendously overpriced. I finally got rid of mine 2 years ago. And will never buy one again. My experience with the Audi A4 was even worse. My Toyota, Honda and Ford purr on with just the occasional oil change.

vina · Post by **vina** » 28 Aug 2011 05:42

India is not just a difficult market, it is more of a potential market than an actual market. Hyundai might be doing comparatively better in India than GM but GM sells 25 times more cars in China than Hyundai does in India. Hyundai itself sells more cars in China

GM and VW experience in China is due to historical reasons. They were the original "maruti suzukis" of China and just like Maruti became dominant in India due to earlier entry barriers and the economies of scale it built up in India, so too did VW and GM in China. India did not have the "Japanese" hangups like the Chinese did and when we wanted to build an auto industry we let a Japanese company in. China on the other hand had a huge Japanese hangup and went and got German and American companies into the market.

In many ways, the Chinese market is quaint. For eg, Buick is a very big brand in China, while it would be incredibly difficult to find anyone under 65 driving a Buick in the US! Does that brand exist at all in the US after the restructuring at GM in the US, I wonder.

Theo_Fidel · Post by **Theo_Fidel** » 28 Aug 2011 06:52

The other thing to note is that all the new boulevards and city streets are built for cars. Once the old cities are razed a car becomes basic for people to get around. Despite public transport.

gakakkad · Post by **gakakkad** » 28 Aug 2011 10:02

It is a function of society. In Chennai there a lot of people who can afford a BMW but will never buy one. My dad for instance still drives a 8 year old Maruti Suzuki. Another industrialist I know collects vintage Rolls Royces but drives to work in a Hyundai.

My dad drives a Tata Indigo , even though he can afford a merc sls or more expensive ones...the problem about servicing is real.. Servicing an audi in Ahemdabad costs 35k-40k INR...Most Indians hoard on property , jewel's etc...
For reason that I ll not disclose but most desi's would understand ,it is not possible to calculate the number of millionaires in India...the present estimate of only 300,000 millionaires is laughable...

I have seen americans spending lifetime of savings on a Ferrari... In India the guy would have simply bought a plot of land or fix deposited the amount at decent interest rates... As soon as the US docs repay their student debt , they ll buy a car...that does not happen in India ...

The average lifetime savings of mango Americans are 27k dollars ...even a lower middle class Mango Indian saves that amount for kids education or daughter's marriage..

disha · Post by **disha** » 28 Aug 2011 10:52

ashi wrote:
VikramS wrote: Each culture has its own nuances. Let us take the case of an engineer Desi couple bringing in 200-300K/year in the US. How many of them actually go out and buy Pradas and Gucci or any other high end designer brands? Very few...
This is the same for most of the engineers in the U.S. Be they Desi, Chinese or American.

Incorrect. I have seen far more mainland Chineese (compared to ones from Taiwan and Hongkong and Indians) that are into BMW/Gucci/Chanel/Prada and Jimmy Choos (basically branding).

I am still trying to understand why several from mainland China are blinged up (there is lot of branding but it does not add up cohesively) vs. non-mainland chinese. It appears that the way they show that they have arrived is to bling up. Desis on the other hand too bling up, but then their blinging is done mostly in gold and diamonds and pearls. Lot of gold though - some wearing more gold than the car they are driving in !!

gakakkad · Post by **gakakkad** » 28 Aug 2011 18:32

I-Pads anyone?

Chinese teenager sells kidney for buying an I-PAD... What might they be selling for buying a merc

?

http://www.oceanofweb.com/news/china-bo ... -ipad.html

chola · Post by **chola** » 29 Aug 2011 01:33

VikramS wrote:chola:

Each culture has its own nuances. Let us take the case of an engineer Desi couple bringing in 200-300K/year in the US. How many of them actually go out and buy Pradas and Gucci or any other high end designer brands? Very few.

Obviously each nation is little different. But the trajectory that you see in China is comparable to what we see in the West and in Japan, Hong Kong and the rest of the developed Far East. China is nowhere near the per capita spending on luxury goods of Hong Kong and Japan. But it is on course. You do not see this yet in India.

From my viewpoint in the US, desis in my circle buy no less Mercedes and Lexus than the white or Asian in the same social bracket. I own a Mercedes and my wife drives a Honda. My father drives a Lexus and his secondary car is a Honda CRV.

That does not make for a very good pitch for an MNC. However discounting the Indian middle class because it is unwilling to suck up to Western labels is also a bit short-sighted.

I don't think anyone is discounting the Indian middle class. Every member of the Fortune 500 has India as a potential market. But right now, the Indian middle class cannot generate the same amount of spending as the Chinese one which for MNC is real and increasingly dominant in their planning.

The lack of success of foreign brands versus Indian brands is perhaps an illustration of the strength of the Indian companies, their understanding of the market, and their ability to compete. It is not a sign that the Indian middle class does not spend.

Without doubt India's brands are far more successful within its own market than the Chinese ones are in theirs. Communists are horrendous at building brand. Communism is a failed brand to start off. That said, the Chinese middle class is tremendously larger than the Indian one and the West and the East are profiting by the billions by attacking this market.

It is just a sign that the Indian today is a lot less enamored of the West compared to other Asians, or even Indians a generation ago. They do mind adopting an Asian brand like Hyundai because it offers value and have no problem in not chasing after the forme greats Honda/Toyota/GM/Ford etc.

This is orthogonal, but perhaps an illustration. I see very few Asian men married to White women; I see a LOT of Asian women married to white men. Within Indians, there is no obvious bias.

The Western Pacific is an American lake. All East Asians, whether they admit it or not, worship the gora. Japan, Hong Kong and Taiwan are outspoken in their love. The mainland chinis less so because they see the US as a rival. In the end, they are no different from the other orientals.

But, as I mentioned before, this love is reciprocated by white Americans. They let Japan and Korea in the past and China in the present get away with mercantile murder. They adopt children from China and Korea by the tens of thousands, they eat their food and watch their movies in Mandarin.

As far as the women, I would know. The attraction goes both ways. Though I hope it is no longer true with my wife. She dated exclusively white before dating me once and for all. Now, when I was dating her, I got far more hostile glares from white men than Asian ones. I still do when I'm out with her. Part of it probably has to do with the fact that she was a volleyball player and a striker at that. But I'm sure the other part is that white males do think Asian females are rightfully theirs.

chola · Post by **chola** » 29 Aug 2011 01:43

disha wrote:
Incorrect. I have seen far more mainland Chineese (compared to ones from Taiwan and Hongkong and Indians) that are into BMW/Gucci/Chanel/Prada and Jimmy Choos (basically branding).

The amount of luxury items bought in Hong Kong in per capita terms is far beyond China. The same would be true of Japan. The top luxury markets outside the US are in Hong Kong and Japan.

Hong Kong and Japan because of the similar cultures are what MNCs use to project the potential market of China. Again, luxury items are just bellwethers for the overall spending power of the middle class.

chola · Post by **chola** » 29 Aug 2011 02:01

Theo_Fidel wrote:
The key question for Chola is that Chinese are buying status. Would they attach status to any Indian product.

Think of this. There are people in China who remember Raj Kapoor from the 1950s. Bollwood had an impact on China before Hollywood.

In an open and generally unsophisticated market, status is what you make it. Korean goods had very little status until recently and yet the South Koreans made massive surpluses off the China market for years and years. The Koreans are also taking over China pop culture. While there is obviously more cultural affinity between the chinis and the Koreans, Indian soft power would be a more than formidable force in this market if it so choose to enter the fray.

It frustrates me that unlike the Koreans, Americans, Japanese, etc. who study and attack markets including those of political rivals like China, Indians are also trailing behind and caught up in jingos and myths that tie our hands.

VikramS · Post by **VikramS** » 29 Aug 2011 02:35

chola:

I agree with everything you say. It is clear that the Indian Middle Class will not offer the Western brands the same returns as the Chinese Middle class will. The Indians will spend where they see value for money and utility. They will continue to spend in hard-assets ( perhaps a lot more than in the past), than in aspirational consumables like clothing, accessories etc.

We have our own sense of style and dressing, and dressing up Western brands is not directly linked to success. Those brands who adopt to India will succeed; not because of their brands but the operational excellence and execution.

I agree with you that Indian brands need to work harder in exploring the Chinese markets. They seem to be more focused in establishing themselves in the rest of the emerging world. Perhaps the language and the lack of historical trade connections has something to do with that.

One factor you should not overlook is the willingness (or the lack thereof) of the Chinese to allow Indian brands in. Business in China requires the approval of the powers and perhaps that approval is not that easy to come for Indian brands. The incident about the diamond traders does come to mind. You would expect India to respond in kind but the pricing power of the Chinese is too much for many to resist.

gakakkad · Post by **gakakkad** » 29 Aug 2011 08:33

^^^ Approval is not really a problem. CCP takes bribes. That the chinese are ready to sell their body parts to buy brands means that China is the best market one can get. Recently in news , Chinese couple sell kids to buy expensive phone. What better market can one get?

Lisa · Post by **Lisa** » 31 Aug 2011 20:52

The worlds first rusting gold discovered in China!

http://www.telegraph.co.uk/news/worldne ... -rust.html

JE Menon · Post by **JE Menon** » 31 Aug 2011 21:59

>>The top luxury markets outside the US are in Hong Kong and Japan.

In per capita terms this would be debatable. Not sure if you have visited the Gulf area, specifically Dubai/Abu Dhabi/Qatar/Riyadh ... It's a total clusterfu(k of high-end brands there...

Purush · Post by **Purush** » 01 Sep 2011 10:45

http://www.upi.com/Odd_News/2011/08/30/ ... t=hs&or=on

Chinese-printed Korans filled with errors

TEHRAN, Aug. 30 (UPI) -- Copies of the Koran printed in China and imported into Iran have been found to be littered with spelling mistakes, an Iranian official says.

Import companies should refuse to bring the error-ridden copies of the Muslim holy book into the country from China, Ahmad Haji-Sharif, director of the Department of Evaluation on Publication of the Holy Koran, said in Tehran Monday.

He said customers should prefer to purchase an Iranian product with better quality and bearing no mistakes, the Mehr news agency reported.

Iran enjoys high-quality printing presses, he said, with almost 1,000 Koran publishers working in the country, "so why should we send our publications outside Iran?"

"I must admit also that the holy Koran has been inscribed with over 60 different types of inscriptions by Iranian masters of calligraphy, which is rare in the world," he said.

"There are also over 100 different translations available inside the country."

Theo_Fidel · Post by **Theo_Fidel** » 07 Sep 2011 18:20

Meanwhile, PRC sets out to buy up the world....

http://blog.foreignpolicy.com/posts/201 ... _land_grab

A Chinese investor's plan to develop a large chunk of northwest Iceland is raising some eyebrows:
Huang Nubo, a real estate investor and former Chinese government official, has struck a provisional deal to acquire 300 square kilometres of wilderness in north-east Iceland where he plans to build an eco-tourism resort and golf course.

Opponents have questioned why such a large amount of land – equal to about 0.3 per cent of Iceland’s total area – is needed to build a hotel. They warned that the project could provide cover for China’s geopolitical interests in the Atlantic island nation and Nato member.
It's actually even a bit more extreme than that. About half of Iceland's land area is a massive volcanic desert and around 10 percent is covered by glacier, so Huang's purchase could actually amount to about 0.75 percent of the country's habitable land -- then again, with only 320,000 people, space isn't really much of an issue in Iceland.

According to the Financial Times, China has been making overtures in Iceland lately, including a $500 million currency-swap deal last year, as part of a broader strategy to secure Arctic shipping lanes.

vina · Post by **vina** » 08 Sep 2011 11:42

What happens when China's President comes home for dinner. Yawn.. As usual , a stage managed circus

Raja Bose · Post by **Raja Bose** » 08 Sep 2011 11:51

^^^from the above article:

According to the cable, Mr Hu offered a potato to the farmer's grand-daughter, who told the leader of 1.3bn people that she was "sick of eating them".

Probably the result of going thru too many dress rehearsals of eating a potato in proper fashion

VikramS · Post by **VikramS** » 10 Sep 2011 07:16

Place Holder for reply to wong
http://forums.bharat-rakshak.com/viewto ... 4#p1161284

1. Yes, I know Apple, Miele & Bosch aren't Chinese companies. I said "Chinese made". I was just listing things off the top of my head around the house that are Chinese made and very high quality. The Chinese made Miele vacuum I own is now 15 years old and still looks and runs like brand-new. So China is capable of making the highest quality goods if you are willing to pay for it.

2. Samsung is Korean (not even sure why you brought up Samsung). Yes, I know. China is following exactly the same path as Korea and Japan. Samsung, LG and Hyundai were all junk brands when I was young.

The point was that in case of many high-tech goods, China is used as an assembly point to exploit cheap labor. Many of the components are made in Korea/Japan/Taiwan etc. and in the manufacturing chain it is these components which have the biggest value add component. China becomes the final focus of assembly of these components simply because it allows the manufacturer to pay the least for the value added.

It is not just a question of junk brands; the fact is that there are very few Chinese brands junk or not.

4. Tata isn't a big name outside of India. Then you named some Indian leverage buy-outs of UK companies like Jaguar and Corus. Obviously a source of great pride that you can borrow heavily to buy the companies of your former masters, I just don't see the relevance. Besides, China pays cash.

If you have been following the script the JLR purchase is what is keeping Tata Motors in the black. The price they paid for the firm ($2B) was a steal for the technology and the brand name.

What is wrong in taking on cheap debt to finance a buy-out?

Your comment about "China pays Cash" is a good give-away. Is it the Chinese companies who buy or China (or the truth is that there is no difference)? How many bad loans are their on the books of Chinese banks?

Most organizations which do "vendor financing" to meet their sales quota do not end up well. China has been doing this for two decades now to meet the GDP numbers; how much are those dollars and Euro worth now? How about the Greek and Portugese bonds the Chinese Central banks have been buying. Incidentally the Euro-USD broke the 1.40 support level which supposedly was being provided by the Chinese banks. Some more of the savings down the drain.

Have the Chinese been allowed to buy any asset with a significant cachet from the West? While China has had some success in buying up resources in Africa, even Australia, your strip-mine, refused to sell their mining companies to China.

5. China is a coolie nation. Well, how does a coolie amass $3.5 Trillion, soon to be $5 Trillion in foreign reserves. The real coolies are in Dubai with their passport taken away slaving 12 hour days in the 120 degree desert heat building modern day pyramids for the Arabs. Not an econ thread, but I will refer you to the latest global competitiveness report for a dose of much needed reality.

http://reports.weforum.org/global-compe ... 2011-2012/

You still do not get it do you? The Foreign Reserves are paper assets whose value is diminishing day by day. The Swiss decided to put a 1.20 floor on the CHF-EUR exchange rate as they too joined the fiat wars of competitive devaluation. The Chinese have been unable to get too many hard-assets for their foreign reserves as the West and even Australia has kept the Chinese companies out.

The savings of the Chinese worker is being inflated away and you just can not get over the CCP circular for the day claiming that those $XX trillion is proof of China's success. It is just proof of how the CCP and the industrialists associated with the CCP are squandering the labor of the Chinese worker. Bank interest rates are still 3-4% when the inflation is 2-3x times that.

Thank God the RBI is increasing interest rates. Yes growth will slow down and the Chinese will get to boast on how their GDP continues to race ahead. But the average Indian would be better off with lower food inflation and cost of living; just like the average Chinese.

Avarachan · Post by **Avarachan** » 10 Sep 2011 18:30

VikramS (or anyone else),
I confess that I don't understand foreign reserves (or, really, how the international financial system works). Do you know of any explanatory article (etc.) that would be understandable for a beginner? Thanks.

Virupaksha · Post by **Virupaksha** » 10 Sep 2011 19:14

Avarachan,

Recommend to take out your personal identification in your post.

Avarachan · Post by **Avarachan** » 10 Sep 2011 19:31

Virupaksha, sure. Thanks for the tip.

I have done some Googling on my own, but a recommendation of a credible source would obviously be better.

ashi · Post by **ashi** » 11 Sep 2011 05:23

China trade growth accelerates in August

BEIJING — China's trade growth accelerated in August despite weakening global demand and its politically sensitive trade surplus narrowed from a more than two-year high.

Export growth for the world's second-largest economy grew to 24.5 percent from July's 20.4 percent, while imports surged to 30.2 percent, up from July's 22.9 percent, customs data showed Saturday.

The unexpectedly strong import growth shows that Chinese demand remained robust in August despite government efforts to steer economic growth to a more sustainable level.

Government curbs on investment in new factories, apartment buildings and other assets have blunted demand for imported iron ore and other raw materials, which could hurt exporters such as Australia and Brazil.

The acceleration in export growth shows the resilience of Chinese exporters and their ability to find opportunities abroad despite the European debt crisis, high unemployment rates in the U.S. and problems elsewhere.

The country's politically sensitive trade surplus narrowed to $17.8 billion from July's 30-month high of $31.5 billion.

Beijing is under pressure from Washington and other trading partners to ease currency controls and other measures that they complain keep the couture's currency, the yuan, undervalued and swell China's trade surplus.

This comes at a time when western governments are under pressure to generate new jobs amid fears of a possible renewed global recession.

China's Communist government has allowed the currency to rise but not as fast as critics want.

ashi · Post by **ashi** » 11 Sep 2011 10:28

Commodity imports shows China economy resilient

SHANGHAI — China's key commodity imports, including crude oil, copper and iron ore, all climbed in August from the previous month, adding to evidence that demand in world's second-largest economy was still going strong despite the economic turmoil in the West.

The wave of buying of oil and industrial commodities suggests that Chinese companies remain confident about the domestic economy and that they would likely see any price corrections as a rare restocking opportunity -- a move which should offer strong support to commodity prices.

With China's inflation having pulled back in August from a three-year high, market watchers also expect the central bank to hold off further tightening measures, which could in turn ease the credit crunch and potentially draw producers and traders to import more raw materials.

China imported 21.04 million tons of crude oil in August, up 1.8 percent from the 20.66 million in the previous month, according to Reuters calculations using the revised July numbers.

Although implied oil demand in August slipped to the lowest rate this year, plant maintenance and accidents were the main reasons behind the dip and traders generally expect demand to improve from September.

"August-arrival crude cargoes were mostly loaded in June and July, when oil prices fluctuated a lot," said a crude oil trader.

Data from the General Administration of Customs also showed China's iron ore imports in August jumped 33 percent from a year ago to a five-month high of 59.09 million tons, thanks to the steel sector's robust production.

However, analysts have cautioned that steel output could decelerate in the coming months amid a seasonal demand slowdown.

Despite slowing export growth due to the economic malaise in the United States and Europe, China's economy has continued to grow at an enviable clip of over 9 percent, thanks in part to the government's construction of over 10 million houses as well as feverish investments in the less-developed mid and western provinces.

These two factors have led Chinese mills to churn out near record amount of steel, cement plants to ramp up production and metal smelters to expand capacity -- bolstering the country's voracious appetite for a raft of commodities.

COPPER DEMAND UP FOR 3rd MONTH

Imports of unwrought copper to China, the world's No. 1 consumer of the metal, posted a third monthly gain of 11.0 percent -- the highest since March -- to 340,398 tons in August, as buyers took advantage of lower prices overseas.

Compared to a year ago, however, copper imports remain down 10.3 percent, with year-to-date shipments down 20.5 percent.

Fu Bin, an analyst at Jinrui Futures, said China had kept on buying spot copper in recent weeks as arbitrage windows continued to surface, a trend which should support import numbers for September and October.

Unwrought aluminum imports posted smaller monthly gains of 0.8 percent, but declined 2.3 percent from year ago.

Soybean was the only laggard of all commodities, falling 15.7 percent from the previous month to 4.5 million tons as high prices overseas led crushers to turn to domestic supplies.

Amid the economic doom and gloom in the eurozone and United States, investors have wondered if China, one of the top buyers, would be able to avoid a hard landing.

However, a series of economic data released over the past few months has suggested that domestic demand was holding up relatively well, although overall economic growth has eased.

Statistics released on Friday showed industrial output moderated only slightly to gain 13.5 percent in August from a year earlier, while fixed-asset investment, a primary driver of the country's economic growth, rose 25.0 percent in the January-August period from a year earlier.

DavidD · Post by **DavidD** » 12 Sep 2011 02:03

Chinese inflation falls in August to 6.2%

China’s consumer inflation slowed in August from a three-year high in July as government attempts to rein in surging prices began to take effect.

Most economists said inflation had likely peaked as the country’s consumer price index rose 6.2 per cent in August from a year earlier, compared with a 6.5 per cent rise in July, according to figures released Friday by the National Bureau of Statistics.

The more moderate rise in prices was accompanied by further signs of a modest slow-down in Chinese economic growth, which is expected to be about 9 per cent for the year, down from a 9.6 per cent rise in the first half

The inflation data will be welcome news to policymakers in Beijing, who have been trying to slow potentially destabilising price rises without stalling the strong growth that underpins the legitimacy of the ruling Communist party.

In a particularly welcome development, food price rises – volatile and politically sensitive – slowed to 13.4 per cent in August compared with a year earlier, and down from a 14.8 per cent rise in July. This was mostly thanks to a slower increase in pork prices.
More
On this story

No miracle cure for Chinese inflation
Britain and China strengthen relations
Chinese strive to secure soft landing
Asian banks hold rates amid growth concerns
Lex China’s growth puzzle

The price of pork rose 1.3 per cent in August from July, well down from the 7.7 per cent month-on-month rise in July and an 11 per cent increase in June.

“The July CPI figure likely marked the peak in the latest inflation upturn and the headline CPI inflation rate is likely to moderate further, especially going into the fourth quarter,” said Grace Ng, an economist at JP Morgan.

“The moderation in global commodity prices, on the back of growing concerns about the global growth outlook, will further reinforce the easing trend in China’s pipeline inflation pressure.”

But the figures suggested that the era in which China enjoyed very high growth coupled with very low inflation is over and Beijing will have to endure higher structural inflation and sacrifice some growth in order to keep the economy going.

Since last October, Beijing has raised interest rates five times and increased the portion of deposits that banks must hold in reserve nine times in an attempt to bring down inflation.

The economy has responded with a moderate slowdown that analysts say has all the hallmarks of a “soft landing”.

In August, annual industrial production growth slowed to 13.5 per cent from 14 per cent in July, while fixed asset investment grew about 23 per cent compared with August last year, down from 25 per cent in July.

Chinese officials are closely watching developments in Europe and the US, its largest export markets, and after nearly a year of monetary tightening Beijing has the ability to loosen policy if it feels it needs to provide a boost to growth.

“As long as inflation is contained they can flick a switch and inject hundreds of billions of Rmb into the economy if they need to,” said Stephen Green, chief economist for greater China at Standard Chartered.

VikramS · Post by **VikramS** » 12 Sep 2011 19:41

Wikipedia has a lot of good stuff which makes for easy reading..
http://en.wikipedia.org/wiki/Balance_of_payments

Theo_Fidel · Post by **Theo_Fidel** » 12 Sep 2011 23:53

5 years later ORDOS remains empty and the construction continues at a feverish pace. 20,000 more apartments annually for an empty city.

Another never heard of bubble city. With a $200 million aquatics center no less.

Yinchuan is a city of about 1 million people. Record low temperature in January was -33C a few years ago. City expects million will move here. Local government debt is now estimated about $15 billion mostly in SPV's. Or about $15000 for every man, woman & child in an area where annual income is $2,000 or so. Debt is rated higher than US treasuries. This is how Pandaland economy works.

http://chovanec.wordpress.com/2011/07/1 ... ocal-debt/

Loudi, a city of 4 million in the rugged foothills of central Hunan, issued RMB 1.2 billion ($185 million) in bonds to finance an Olympic-size gymnasium and swimming complex and other projects intended to transform the town — which lies along a planned high-speed rail line, but would otherwise be considered the boondocks – into a “major transport hub.” Despite sparking a construction frenzy, the city’s investment unit reported RMB 187 million ($30 million) net negative cash flow in the first half of 2010, with no sign of positive cash flow in sight. But local officials (and apparently bond buyers) aren’t concerned, because the debt is guaranteed by 18 tracts of land valued at $1.5 million an acre — four times what a similar plot in Loudi sold for in May, and a price similar to one of Chicago’s wealthiest suburbs, with a per capita income more than 100 times Loudi’s.
In Cangzhou, a city of 7 million along the coast just south of Beijing, Hebei Bohai Investment Co. has issued RMB one billion ($155 million) in bonds to build a mega-port and unspecified “green” projects. The land backing the deal (valued at three times what the government paid for it barely a year ago) is so marginal that officials can’t be bothered to even know where it’s located. “It’s somewhere north of town, I don’t exactly know where,” says one, “It’s like the land outside the city, you know, with the big piles of salt.” The investment company’s total debt of RMB 7 billion ($1.1 billion) before the latest bond issue was greater than the city’s annual revenue of RMB 5 billion — a debt to revenue ratio higher than that of Vallejo, a California town that had to file bankruptcy in 2008. CICC’s assessment: “This issuer’s own profit and cash flow is very little, its cash shortage is extremely big, its debt load is very heavy, and it doesn’t possess the ability to pay this bond … [the local government’s fiscal income] is very limited, there will be a lot of pressure on it to support the payment of this bond.”
Yinchun, a remote forest region along China’s northeast border with Siberia, sold RMB 1.2 billion ($186 million) in bonds backed no collateral at all, just “a pledge from the local government and possible future land sales.” The money is being used to demolish traditional wooden homes to make way for new apartments, as well as building an airport, a reservoir, and parks, “one featuring faux Corinthian columns topped by winged warrior princesses and bronze sculptures of chariot-riding local gods.”

Now here’s the kicker: Dagong, the domestic Chinese rating agency, rates both the Loudi and Yinchun bonds one level higher than U.S. Treasuries. Supposedly, these are a “safe harbor.” In contrast, CICC, the leading Chinese investment bank, takes a much harsher view, rating many of the bonds as junk.

Perhaps we’re all being too cynical and Loudi, with its high-speed rail connection, will live up to its dreams. But the thing that really gave me a knot in the pit of my stomach as I read the article was the casual lack of concern that the officials who were interviewed displayed towards proceeds and repayment, an attitude all too common when playing with OPM — Other People’s Money. Heads, we win. Tails, somebody else loses. For me, the tone itself raises all sorts of red flags.

Pratyush · Post by **Pratyush** » 14 Sep 2011 14:04

Renmin-mumbo-jumbo: the hype about China’s currency

This ekonomy gurus can dissect the article and educate the masses if what is has been written in this article has any relevance.

But first

The only thing bigger than China is the hype about China. In particular, the ceaseless chatter about the rise of Chinese currency and how it will “rule the world” has in recent times acquired high-decibel fever-pitch.

Theo_Fidel · Post by **Theo_Fidel** » 14 Sep 2011 19:38

Harbin Pharmaceuticals Headquarters. 2011 Revenue about $2 Billion & profit about $200 million. Apparently taken loans of about $10 billion. Share price down 50% this year.

And yes that is gold plating on the ceilings. And whats with the Piano. My eyes.. ..my eyes..

Where is Singha when you need him for a spicy comment.

ashi · Post by **ashi** » 14 Sep 2011 21:21

China Bull Still Runs Strong Even If Slower

China remains the beacon of hope for the global economy, the largest and, many times, the “sole engine of the world economy,” BCA Research says. China’s real GDP is forecasted to grow 8.9 percent in 2011 and 7.8 percent in 2012, according to ISI Group. This is a slower rate of growth compared to recent years but “doesn’t look like an economy struggling under tighter credit conditions,” GaveKal research says.

Many of China’s critics, such as Jim Chanos and Hugh Hendry, claim China’s current economic status is a mirage created by government stimulus and relies on exports. However, examination of China’s economic growth over time (see chart) reveals that consumption and gross capital formation are the two pillars lifting China to the top.

In addition, FAI by private companies has outpaced that of state-owned enterprises for 17 consecutive months. Rothman says this is indicative that private firms are financially healthy and anticipate strong demand. This isn’t because the Chinese government doesn’t have the money. Revenue increased more than 21 percent in 2010 and has already jumped more than 31 percent in 2011, CLSA data shows. According to BCA, “China has one of the smallest fiscal deficits and fastest nominal GDP growth rates among major world economies.” Government expenditures for this “socialist” country only account for 23 percent of GDP, well behind other countries such as Brazil and the U.S. (both roughly 40 percent), the United Kingdom (about 43 percent) and Ireland (around 70 percent).

While China’s “ghost cities” have stolen headlines, China’s real estate market sits on a much stronger foundation than China bears would have you believe. In reality, the property market is actually in a much healthier position than it was at the start of the year. CLSA says the government’s focus on keeping housing price growth under control and limiting the availability of mortgages has resulted in “none of the 70 cities monitored by NBS [reporting] price increases of more than 1 percent” on a month-over-month basis in July.

For starters, as GaveKal cleverly points out, the Shanghai province of Pudong was once “the biggest ghost town of them all.” Today, millions of Chinese citizens and China’s largest state-owned and private banks call Pudong home, making it one of the financial centers of the Eastern Hemisphere. Roubini isn’t the first one to get it wrong either. GaveKal says upon visiting Pudong in 1998, legendary economist Milton Friedman lambasted the province as “a statist monument for a dead pharaoh on the level of the pyramids.”

According to GaveKal’s research, China’s cities absorb 20 million new people each year, creating a current shortfall of 75 million housing units. They estimate 40-50 million new urban households will need to be constructed by 2020 in order to meet demand. The chart on the left illustrates that a large portion of China’s urban growth will take place in suburbs as cities with 1 million people or less experiencing the most growth.

sanjaykumar · Post by **sanjaykumar** » 14 Sep 2011 21:25

Theo, that is the nouveau riche architectural style.

I hope India takes its inspiration more from Rajashthan and post modernism, than a garish neo-classicism.

Theo_Fidel · Post by **Theo_Fidel** » 14 Sep 2011 21:54

Can I call BS on the Forbes article. Forbes is a bought out rag that shills for anyone who pays the bills.

Just the numbers are dumb. If there is a shortage of 75 million units why are there 65 million apartments sitting around empty. And I call BS on this 20 million moving every year bit. China has an aging population. Where is this 200 Million people going to come from over the next 10 years!! I mean there has been 20 million moving for over 30 years now by all the articles and yet there is another 200 million young workers to come. BS. Already the pearl delta is experiencing worker numbers dropping as people return to the small towns they came from. Crippling labor shortages have led to spiraling wages. According to reports in Massaland, wage costs in China now exceed Mexico and manufacturers are gradually moving back to the continent.

There is a core 100 million workers in manufacturing who are extremely productive, under paid and export worthy. The rest of China is feasting off their bones.

Vipul · Post by **Vipul** » 14 Sep 2011 23:33

Amid China boom, job search for many grads goes bust.

VikramS · Post by **VikramS** » 15 Sep 2011 02:11

Pratyush wrote:Renmin-mumbo-jumbo: the hype about China’s currency

That article is discounting the attractiveness of the Yuan as a reserve currency. The reasons are well known here. The Chinese economy is a centrally controlled economy where the usual metrics which people use to judge the system do not apply. So while the Yuan may play a greater role in bilateral trade, its role as a reserve is years, if not decades away. It requires a fundamental shift in Chinese way of doing things, and loss of control over the financial system. There is enough poverty and unrest in China for the CCP not to think about that.

One might argue that the actions of the FED, ECB and BOJ also interfere with the market. While that is true, their actions are well publicized and there is a significant amount of transparency. That allows investors and the market to price in the actions of the banks.

When it comes to the Yuan, the transparency is missing, and the element of forced central planning on a huge chunk of the economy makes it harder to make those decisions. This is one reason China is an enigma to many and invokes such conflicting views is this lack of transparency and the significant amount of state control in many aspects of the economy.

===

Regarding the Chinese over construction.

The issue is not the need, the issue is the ability to pay. And going further, whether the debt used to develop these properties and mega-cities can be serviced by the cash flow which will be generated by the people who live in these cities.

Take all the numbers of new units needed with a pinch of salt. Even if 20 million new citi-residents emerge every year, how many can actually afford those expensive apartments where the prices have sky-rocketed over the years. There is the creamy layer in China which has benefited from the labors of the masses. To beat inflation they invest in real-estate and the prices keep on going up. However, this cream layer is not the 20 million new city residents.

But as long as they use Shangai Statistics and Manchurian Math, the game will go on. But a day of reckoning will come, just like the PIIGS or the debt ceiling in the US. How the CCP deals with it is the key. I am afraid that war might be the most convenient way out. Unfortunately Indian leaders are too busy to think about those issues.

Singha · Post by **Singha** » 15 Sep 2011 09:15

that architectural style is called baroque I think.
http://en.wikipedia.org/wiki/Baroque_architecture

they seem to have over-interpreted it to a sickening extent though.

abhischekcc · Post by **abhischekcc** » 15 Sep 2011 12:50

The obsession with China's hardware infects both, their admirers as well as their critics. But one of the most damning things about China's laws is the 'inner passport' or hukou, which allows people to work in the cities.

This is a prized thing and if a person gets this, companies hire them without regard to their qualification. So you have the absurd situation of chemical BComs working in the IT industry, etc. This is not only a waste of people's interests, it is a misallocation of funds (spent in education) in a mass scale. Because each of these people who work jobs they are not educated for, are actually working below potential. So this is a double loss - loss of skills acquired in education as well as people working below peak efficiency.

India is far better in this because not only can people migrate to places they have jobs they are interested in, companies can also migrate to places they want to go.

hnair · Post by **hnair** » 15 Sep 2011 22:49

That Harbin Pharmaceuticals must be some kind of bio-warfare research facility. Looks like the PLA tested a 1 MT gay bomb in there

Hari Seldon · Post by **Hari Seldon** » 17 Sep 2011 08:39

hnair wrote:That Harbin Pharmaceuticals must be some kind of bio-warfare research facility. Looks like the PLA tested a 1 MT gay bomb in there

gjven their sk(r)ewed sex ratio, they could do with 'em gay bums onlee...

Christopher Sidor · Post by **Christopher Sidor** » 17 Sep 2011 20:38

Theo_Fidel wrote:Can I call BS on the Forbes article. Forbes is a bought out rag that shills for anyone who pays the bills.

Just the numbers are dumb. If there is a shortage of 75 million units why are there 65 million apartments sitting around empty. And I call BS on this 20 million moving every year bit.

Actually the numbers are not way off. you see 75 million is the approximately number of low-cost housing units which China requires. I am not sure about the "number" of homes which are empty, they might or might not be 65 million. But by all accounts these homes which are empty are luxury or high-end or middle-income level homes. The same situation which exists in india. Most of the stalled residential homes in NCR region are high-end or luxury variants. Think DLF Ballier on Golf Course road in Gurgaon of EMMAR MGF Palm group of housing again on Golf Course in Gurgaon.

Returning back to China, China needs housing no doubt, but what it does not need is high cost housing or housing bought with speculation in mind. This speculation, leads to higher price and prevents people from actually acquiring homes. The same story in India.

65 million homes, if the figure is accurate or close to accurate, will impact the Chinese buyers badly. The Chinese gentry have sunk in massive amount of money into these houses, their earnings and possibly future earnings too on basis of two beliefs
1) housing prices will continue to nudge higher and
2) there will be buyers who will be willing to pay these high prices when the time comes to offload these houses.

The sad fact is that in a down turn these high end properties are the worst hit. This is the universal rule. There may be house worth, say 10 lakh (1 million) USD or yuan. But if there are no buyers willing to pay for it, at that price, then it is useless. Moreover one has to get rentals from property, for it to retain some value. Otherwise property becomes like gold, no interest-no income-possibly appreciation.

Returning to the Forbes article, forbes is painting a rosy picture. Nothing wrong with that. The issue is that it is not panting the whole picture.

Katare · Post by **Katare** » 21 Sep 2011 03:03

I think low end real estate gets hurt most in down turns. In US, now banks are giving you money ($10-20K) if you take a free house in low cost housing areas. Other option is to bulldoze those houses but in that case banks are still left with the ownership of empty lots.

With 1.4 billion population China needs more houses than it can build at any rate right now. So all this ghost town stories like all other stories of past are built on the examples of "bad investment" and "mistakes" not on the whole picture. To look at the real story that matters you would need to find out gross vacancy rates, affordability and housing ownership rates. Compare these numbers with per capita income of other countries at the same levels in past or at present to see if the market is heated or not.