Zero Hedge expresses cautious skepticism on the china growth story. Worthwhile read if only for the perspective a some fresh insights brought into why. Interestingly, he does draw parallels between the 90s Japan and China today which kinda confirms, more or less, that the balance-sheet recession and the odds of a debt-deflation spiral have heightened in the middle kingdom.
China - Economic Catastrophe Unfolding
First, here's somethng BRFites might've long suspected having faced off with repeated barrages from chini drones on this board
Abt the balance sheet recession looming in the people's republic.That is one thing I noticed immediately about China: there is a constant barrage everywhere you turn—-TV, advertisements, magazines, newspapers, billboards, etc.—-that essentially suggests that everything is wonderful and getting more wonderful all the time, and everybody is just happy, happy, happy, and China is getting better and better and stronger and stronger. I was really struck by this. It was like living in a never-ending infomercial. Maybe some go to China and are not very aware of this, but to me it was like a constant din.
Actually, at least some of this data is readily available on the mainland. But it requires digging. The official news agencies like Xinhua and the People’s Daily just keep repeating the same mindless mantra in endlessly varying ways every day: “Everything is good, there are only a few small little problems, but the Motherland is unstoppable and will just get mightier and mightier and mightier.” If the Falun Gong would just chant that mantra, they would get to keep their organs and they would have no more problems in China.
Abt why it is potentially deadly onleeThe news here is actually worse than I realized. One very alarming thing is that the Chinese banks have avoided writing down bad debt. I should have assumed this would happen, since it is hard to see how it could be avoided, given the nature of the Chinese culture. This is NOT a good idea. It is like pretending that defaults and bad debt simply don’t exist, and this is very bad for the financial sector in the long run.
And what that might imply (with apologies to doubters and naysayers and green-shoot optimists bellowing abt why the sjy won't fall tomorrow:And that is exactly what the Shanghai and Shenzhen markets are looking at, since you have the exact same lethal combination in 1989 Japan as you do now in China: dual bubbles in real estate and stocks (one has imploded), and a decided reluctance to face facts and write down bad debt and defaults. In contrast, in the US in March 2000, we had a bubble in the stock market but not the real estate sector. And even though 7 trillion dollars in stock equity disappeared after March 2000, there was an increase in value of the real estate markets of 8 trillion dollars that more than offset those losses. That is a major factor that allowed the economy to expand in subsequent years, but that is not possible in China, just as it was not possible in 1989 Japan.
A tad alarmist, if you ask me. But, but doesn't pay to play ostrich aajkal . Might as well be aware of some extreme possibilities. The cardiac arrest lasting a a few hours that rocked the US financial system in Sept 2008 seemed mighty extreme in July 2008.This is a singularly ominous combination that makes China’s economic future outlook over the next 25 years very grim. And that, in turn, will lead to acceleration of civil unrest. In fact, that has already happened: incidents of violent civil unrest have accelerated markedly all across China over the past year or two. But I think this could well get far more noticeable and disruptive. Some economists have said that in order to avoid disruptive amounts of civil unrest (as opposed to the more manageable baseline levels of unrest that are a constant), China’s economy must grow by 8.5% per year or more, just to keep enough people quiet. I suspect that is probably more or less approximately true in principle, although I don’t know where they came up with that number. But regardless of what that magic number might be, when that economy gets really bad—–watch out. That’s the seeds of civil war, if you ask me. If you have a very large group of desperate people coupled with an extreme polarization of wealth, you have a classic “haves” vs. “have nots” Marxian confrontation that is the underpinning of most if not all major revolutions. Then, the only missing ingredient is a charismatic leader (like Mao, for example…..).
In any case, PRC unrest means trouble for India. military misadventurism and a kargil redux in NEFA can't be ruled out onlee.
More chini propagandus and their modus operandees:
Now, now...might as well *hdge* positions and hburry to submit that PRC should not and cannot be underestimated onlee, that the super-efficient RPC system will beat the cryap outta everyone else in asia and beyond etc.Look at this one - http://www.moneymorning.com/2008/01/09/ ... -projects/, dated January 9, 2008…..
They talk about a book that was “just published” by some hedge fund whiz by the name of Rogers who lives in China now. The book is about as bullish as you can get on China. He says that “even if China’s stock market were to plummet, that country’s economy would remain healthy, and would continue to advance unchecked.” He calls China “the world’s greatest market.”
I don’t know if this is a pump-and-dump scheme, but it sure sounds like one to me. Somebody ought to inform Mr. Rogers that even as his book was being published, the Shanghai and Shenzhen bubbles had already burst, had plummeted 15% in a few months, and were destined to drop far more over the remainder of 2008. And despite the fact that these bubbles lost over 70% in a year, they have NOT seen the bottom yet. And, they won’t see those lofty 6000+ levels again in real dollar (or real RMB) terms for another 30 years at least.
If you ask me, there’s no better short in the world than China. The problem is that the vehicles for shorting anything in China are very limited and not ideal. Well-heeled investors in China can short those markets, but this is a relatively recent development (maybe 2 years ago they changed the regulations). The average retail investor in China still can not short anything in those markets, because there are very stiff capital maintenance requirements with brokers there. And, the average retail investor elsewhere has only a couple of choices.
Bottomline?
Scary onlee. Sri Antony is very right to rush in to rebuild, repair and renovate the ramparts. No saying what may come our way when the next big crash comes around.Well, I think you’ve got the equivalent in China, because both real estate and equity markets have formed frightening bubbles. And, just to add to things, an increasing proportion of both commercial and residential real estate lies vacant, building continues nonetheless, the banking sector’s fortunes are strongly tied to the construction and real estate markets, there is virtually no secondary market for real estate to speak of, and Chinese banks are notoriously reluctant to write down bad debt. Sounds to me a lot like Japan in the late 80s—only worse. The Nikkei even today is trading about 75% below where it was trading at the peak in late 1989. And that doesn’t even consider the change in buying power of the yen over that time. This is a devastating loss that takes at least a full generation to repair.
I think China will recapitulate what happened in Japan, and for all the same reasons. You’ve got precisely the same prerequisites for disaster in China, so why would it be any different this time? Plus, there are some additional reasons why things will be particularly bad there over then next 25 or 30 years. One thing we have learned about bubbles—-once they are fully formed, there is no way to tame them, just like a fully-formed wave at the Wedge when it’s really firing. They just have to expend their explosive energy, and anybody with the common sense God gave gravel will just get out of the way. There is no way to suppress or regulate these things once they begin to gather momentum. No government or regulatory body has ever succeeded in doing so, to the best of my knowledge, and few if any have any motivation to even try. Why would anybody mess with a cash cow that is driving an economy at breakneck speed, after all?
We have not seen the full force of the implosion yet. That is still probably months away. In the meantime, the bull trap sucker’s rally that the Chinese stock market have been in for several months now rather predictably out-suckers even the US sucker’s rally. The Shanghai market is up almost 70% from the lows in November. That one has gone about as far as it can go now, and is really gonna crash and burn.
