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China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered

Tyler Durden's picture




 

China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this "data." Although in retrospect, based on China's bottom up GDP goalseeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just announced stunners about the Chinese economy. The first comes from Fitch, which in a report released today titled Informal Securitisation Increasingly Distorting Credit Data, uncovers that China has in fact been massively underrepresenting the actual amount of new loans in the first half of 2010, courtesy of precisely the kinds of securitization deals that blew up half of our own banking system: "Adjusted for informal securitisation activity, Fitch estimates that the net amount of new CNY loans extended in H110 was closer to CNY5.9trn, or 28% above the official figure of CNY4.6trn...on a flow basis the volume of credit being shifted off balance sheets in recent times has been large and rising. Activity also is largely concentrated among just a few dozen banks, and institution?specific exposure is often much higher." And some are wondering why China's AgBank was scrambling to raise $20 billion via a hurried IPO... Yet this data pales in comparison with disclosure from a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country! This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently. Forget Stephen Roach - China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States. We leave it up to you to imagine the consequences of that particular bubble's bursting...

The Fitch report is pretty self-explanatory (presented below) but here is a section that highlights that China's banks are increasingly becoming more opaque in data presentation, which one can assume is due to their unwillingness to reveal the true state of affairs. Of course the same tactic worked very well for our own subprime sector... until virtually every company in the space went bankrupt in the span of 3 weeks in 2007.

Already Weak Disclosure is Getting Even Worse

Data on the sale and re-packaging of loans into CWMPs has always been sparse, but, historically, observers have been able to track activity by the number of CWMPs issued each month using information collected by small third-party data providers. However, as public scrutiny of informal securitisation has risen, Fitch has observed a noticeable worsening of Chinese banks’ already poor disclosure of this activity.

Some banks very actively engaged in transactions last year are showing up in 2010 data as minimally involved, yet the bank’s own salespeople (responding to Fitch’s enquiries) state that business remains as strong as ever. Meanwhile, private placements of products to institutional investors are becoming more commonplace, most of which are never disclosed to any entity but the CBRC. Because of this worsening in disclosure, data from third-party providers is capturing less and less transaction flow, with as much as 40% of deals in H110 going uncaptured, versus less than 10% prior to end?2009.

As for actual issuance metrics, as Fitch says, the "volume of credit being re?packaged on the rise."

Data on the number of outstanding CWMPs and CTPs shows net issuance accelerating in H209 as credit conditions tightened, followed by a flattening out in H110 (Chart 3). While the recent moderation in part reflects the looser credit environment in H110, the significant worsening in disclosure in 2010 also has been a major factor distorting recent data. Indeed, when historical figures are adjusted to strip out the entity that most conspicuously dropped out of issuance figures in 2010, net product issuance swings from −7% to +1% in H110.

There is much more in the full report, presented below.

Yet the real shocker of the day comes from the following article in the South China Morning Post, presented below in its entirety, and without comments. None are needed.

64.5 million mainland houses lying vacant: economist

Mainland’s property market remains dangerously overheated and failing to tame the speculative bubble could threaten financial and social stability, a prominent economist said in an official newspaper on Friday.

Yi Xianrong, an economist at the Chinese Academy of Social Sciences, a government think tank in Beijing, noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country, many of them bought up by people wagering on a constantly rising property market.

In the overseas edition of the People’s Daily, Yi said the ”shocking” level of empty housing showed the dangers brought by the country’s property boom, which the central government has been trying to cool.

“If this outsized property bubble does not burst, it will hurt residents’ well-being, and also affect national financial security and co-ordinated national economic development,” wrote Yi.

He wrote that the overheated property market was creating ”misallocation of resources, price distortions, squandering of wealth … and is magnifying national financial risks, so that the economic structure cannot be adjusted, ultimately leading to overall social instability.

The People’s Daily’s overseas edition is a small-circulation offshoot that tends to be more forthright than the main, domestic edition. While the paper is not an unerring mirror of official policy, Yi’s commentary suggests that the real estate market remains a worry for policy-makers.

Beijing announced a slew of measures in past months to cool the property market, including raising down-payments and mortgage rates, and that has already caused deal volumes to drop and property inflation to slow in many cities.

Nationwide, property prices rose 0.2 per cent in May from a month earlier, and were 12.4 per cent higher than a year earlier. The increases were smaller than in April.

Property prices will fall within a few months as government steps to cool the real estate market bite deeper, Xu Shaoshi, the minister of land and resources, said on Sunday.

Yi suggested that more robust steps are needed to beat back property price rises fuelled by speculation.

“The problem now is that investment in the domestic property market has completely overturned China’s traditional concepts of wealth management and investment and its price formation system,” he wrote.

Full Fitch report:

 

h/t Cheeky

 

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Thu, 07/15/2010 - 00:16 | 470228 Muir
Muir's picture

Now that's a bubble!

"noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country, many of them bought up by people wagering on a constantly rising property market."

A misallocation of resources, yea, I'd think so.

Thu, 07/15/2010 - 01:17 | 470334 AssFire
AssFire's picture

YES!, Whatever you said maa'm.

Thu, 07/15/2010 - 02:16 | 470376 Sudden Debt
Sudden Debt's picture

It was not the oversupply that killed the American housing market. It was the Mcmansion behavior that did it. Some people have 2 or 3 houses. No problem there.

The chinese bubble will not explode as fast as you think. The hedging loans like in America don't exist there.

When your sitting to your neck in shit, I don't think you need to search for other that seem to stuck in the shit like you. You'd better concentrate on getting out of the shit.

Thu, 07/15/2010 - 03:46 | 470425 dnarby
dnarby's picture

You mean China will explode at a mere 4000 m/s as opposed to 6000 m/s?

Thu, 07/15/2010 - 06:51 | 470504 Sudden Debt
Sudden Debt's picture

No, I say China won't explode because their planned economy works a heck of a lot better then ours.

Thu, 07/15/2010 - 07:37 | 470536 kaiten
kaiten's picture

China may have 5 times as many unsold houses than US, but China also have 4 times as much population. (1,3 billion vs 300 million) And most importantly: China´s urbanisation rate is 46%, western is above 80%. All in all, China´s housing "buble" is manageable, imho.

Thu, 07/15/2010 - 10:04 | 470818 Winston Smith 2009
Winston Smith 2009's picture

No, I've seen several articles that descibe how apartments that are beyond the means of the vast majority of Chinese are being built and purchased simply as an investment in a market where property prices (not values) are rapidly rising.  That should sound familiar.

Thu, 07/15/2010 - 13:11 | 471386 dnarby
dnarby's picture

Oh, now you'll start going on about how there's enough commercial real estate space to provide a 5x5 cubicle for every man, woman and child in all of China...

http://www.businessinsider.com/interview-with-chinese-commercial-real-es...

 

Sun, 07/25/2010 - 00:19 | 487268 steve from virginia
steve from virginia's picture

I'm wondering whether there is a misallocation of resources or a misreading of electric meters?

Thu, 07/15/2010 - 12:24 | 470557 El Hosel
El Hosel's picture

Great,

US credit and housing bubble appears isolated and contained... sovern debt crisis appears isolated and contained... chinese realestate bubble appears isolated  and contained... worldwide unfunded liabilities and multi trillion dollar shortfalls appear isolated and contained... BP gulf oil gusher appears isolated and contained...

   Its all good.

Thu, 07/15/2010 - 10:03 | 470815 trav7777
trav7777's picture

works better at WHAT, blowing even HUGER bubbles?

This evidence, which is corroborated by other sources, seems to suggest that China's magical centrally planned economy run by slanty-eyed chinese men who are just smarter than roundeyes because China is 1000s of years old, is complete and utter bullshit, a ponzi.

Nevermind the black lung and people selling their kidneys to make interest payments

Thu, 07/15/2010 - 08:42 | 470589 gmak
gmak's picture

Did you read the article? Have you done any research on the topic? There is an issue because the ownership is concentrated. Apparently owning 2 - 4 vacant apartments or houses is the norm. True that there is a higher down paymet required - but that does not obliviate the fact that there is more inventory than demand for productive use of these houses. All of that capital is tied up in non-productive assets.

Secondly, read the article carefully and you will notice that your "hedging loans" [sic] do exist in China - that there has been the same securitization of those loans as happened in the Western World.

As to the Chinese economy being better managed = wait until all is said and one. Every decade has seen one region of the world or another touted as the new economic giant with a new model / paradigm that will take over the world. We are still waiting.

Thu, 07/15/2010 - 10:11 | 470862 gringo28
gringo28's picture

china bears also conveniently omit the fact that spec housing is one fo the few alternatives mainlanders have to store wealth. in other words, if you think your currency is going to rally, owning RE makes sense. as it stands, the yuan has rallied 80bps against the USD since they relaxed benchmarking. today's action is almost humorous: FX markets are undeniably in favor of a rally in equities here, but b/c of options expiration, you have a bunch of selling going on. once the put writers get done, they'll run it up into tomorrow. betting on a housing implosion in china is kind of like running in Pamplona: thrilling to be sure, but why risk getting gored?

Thu, 07/15/2010 - 00:13 | 470229 Caviar Emptor
Caviar Emptor's picture

Where did all the chuppies go? 

Thu, 07/15/2010 - 01:27 | 470349 Johnny Bravo
Johnny Bravo's picture

Tomorrow, they're gonna buy 

V-X-X... ride or die... arf arf... whatcha'll niggaz want... arf arf... VXX.
(sung to the DMX song)

By the way, if the SPX breaks 1088, initiate long VXX position and short FAS or long FAZ position.

Stops at 1102.

Thu, 07/15/2010 - 08:39 | 470585 CPL
CPL's picture

Yup yup.

 

Buggers went and did a reverse split on the Direxion shares.  I liked buying FAZ and TZA under 10 bucks in 10k blocks.  I'lll have to rework all my spreadsheets now too to determine the spread pattern relative to the RIFIN.X.  Grrrrrr

Takes a day to rejig them.

Thu, 07/15/2010 - 00:18 | 470239 Boilermaker
Boilermaker's picture

If anybody wants a great laugh, check out cnbc.com...

Headline..."China economic growth slows, as Beijing intended".

I don't care who you are, that's some funny shit right there!

Thu, 07/15/2010 - 00:25 | 470250 NOTW777
NOTW777's picture

they just turned the dial down to 10.3 - no problem.  just like a thermostat

Thu, 07/15/2010 - 00:38 | 470267 drwells
drwells's picture

Yep. Just like the nimrods who told us in 2005 that Bernokio's rate increases had brought the economy to a perfect three-point landing.

I look at my cat and think, "if your species was this stupid, you'd be extinct".

Thu, 07/15/2010 - 00:19 | 470243 poopdeville
poopdeville's picture

Is China planning on building nice things on our dime, and then nationalizing them after Chinese capitalism "fails"?  People are running to invest in China, with little idea that it is nominally a socialist country...

Thu, 07/15/2010 - 00:35 | 470262 reader2010
reader2010's picture

China is not *socialistic* country. China is a Fascist country where big money sleeps with the state.

Thu, 07/15/2010 - 00:50 | 470286 poopdeville
poopdeville's picture

Unfortunately, this minor quibble does not negate my suggestion of impending nationalization and reform to Maoist ideals.  "Big money" can go pound sand against a large, powerful state.  Especially if their money and labor are already stolen.  And there is already little difference between public and private ownership of industry in a fascist state, as fascism is a means of state control over industry.

 

Thu, 07/15/2010 - 05:07 | 470458 fajensen
fajensen's picture

Yes, Why Not?

There exists probably both maoist and capitalist factions within the government. It could be a plan by the maoists to lend the capitalists all the rope they need to hang themselves with, at fixed low rates and no downpayment, then, when the whole thing goes tits-up, the maoists can step in save the people from the chaos created by the foreign influences and demonstrate that western-style capitalism is wrong.

The Chinese can play political and power games for decades, generations even ... not like here, where everyone gets impatient when they are not rich or president after six months.

The losing faction will then go to a 10 year re-education trip in the rice paddies to repent and recant before they are accepted back (something we should absolutely do to everyone associated with Wall Street ;-)

As an aside, the Chinese want to pay the Americans back in kind for all those great investments they got stuck with - in China you NEVER advise a friend - and they saw the US as friends up to that point - to invest in somthing that loses him money; that is a major, major loss of "face". 

Thu, 07/15/2010 - 14:48 | 471738 Cigarette Smoki...
Cigarette Smoking Man's picture

I'm sure they've thought about it! Even if the government doesn't, "private" companies now are. 

The west came in and "expoited" China for years. Those dumb Chinese, letting us have all their cheap labor while we pour money into factories, training, technology, and R&D for them.

Oh, you mean now they all know how to build the same stuff and want to cut out the businesses that started them? How can this be?

You mean they don't need HQ to do all the R&D for them now? They can do it themselves? All they need in the USA is a sales force? Wow, how did that happen?

 

Not to be too snide, but I see this happening all the time now. Lenovo is a great example. The Chinese saved up their money, learned everything they could, and invested in productive assets. Now they don't need some USA HQ to tell them how to do things anymore. Even if they just leave and start their own company doing the same thing, the end result will be the same. Game over for multi-nationals.

I'm sure the profits were great while it lasted!

Thu, 07/15/2010 - 00:20 | 470245 LePetomane
LePetomane's picture

Wow. I feel small.

Thu, 07/15/2010 - 14:07 | 471612 Brutlstrudl
Brutlstrudl's picture

Blow it out yer ass

Thu, 07/15/2010 - 00:26 | 470251 NOTW777
NOTW777's picture

hope Yi gets out of the country safely

Thu, 07/15/2010 - 00:32 | 470258 Caviar Emptor
Caviar Emptor's picture

64.5 million mainland houses lying vacant:

An alternative interpretation: US planning to outsource retirement. China provides vacant homes to US retirees in return for direct payment of entitlement program liabilities into PBOC. It's a win-win. 

 

Thu, 07/15/2010 - 01:12 | 470324 Spitzer
Spitzer's picture

good idea man.

seriously. They could get cheaper drugs and healthcare there too.

Thu, 07/15/2010 - 23:40 | 472874 sullymandias
sullymandias's picture

more likely its the chinese buying vacant homes in america

Thu, 07/15/2010 - 00:33 | 470259 RobotTrader
RobotTrader's picture

China just foisted off the biggest IPO in history to it's millions of sheeple investors.

And just to think that bank was INSOLVENT just 3 years ago....

http://noir.bloomberg.com/apps/news?pid=20601087&sid=ap_ZMOUoqB_Y&pos=3

 

Thu, 07/15/2010 - 00:40 | 470270 drwells
drwells's picture

Thank God insolvency is illegal now, along with inflation, deflation, failure, corruption, and incompetence.

Thu, 07/15/2010 - 07:21 | 470510 The Rock
The Rock's picture

Speaking of INSOLVENT, does anyone here remember that during the height of the banking "crisis" (aka "taxpayer wealth transfer scam"), Shittybank, Bank of America, and JP Morgan were shipping our FUCKING TARP money overseas?

Citigroup: 8 BILLION U.S. dollars (our TARP money!) to Dubai

Bank of America: 7 BILLION U.S. dollars (our TARP money!) to China Construction Bank (largest residential mortgage lender in China)

JPM: 1 BILLION U.S. dollars (our TARP money!) to India to expand operations there!

Of course our fucking sheeple probably have no memory of that!!

Thu, 07/15/2010 - 07:18 | 470523 The Rock
The Rock's picture

Meanwhile, back at the ranch, wealthy Chinese families have been buying up residential properties in the Pasadena/Arcadia ("Arcasia") area for the past decade or two. I suspect "laundering" (no, not the dry cleaning kind) is rampant. How many fucking bridal shops in a row are really necessary?

Thu, 07/15/2010 - 00:39 | 470269 reader2010
reader2010's picture

Asian Times reported more serious problems in China's credit boom.

http://www.atimes.com/atimes/China_Business/LG14Cb02.html

Thu, 07/15/2010 - 00:49 | 470273 Renfield
Renfield's picture

With so many empty cities and empty houses in China, why are there not enormous populations of squatters taking them over?

I know this: if I were jobless and couldn't afford rent, I'd break in and move into an empty house (or commercial space) and just stay in it, especially if it were surrounded by an empty city. Grow a small kitchen garden outside...pick one near a stream or brook or fountain if possible.

How tight can the security possibly be in such a gargantuan wasteland?

I'll be honest, I think we're moving back to the days of 'squatters' anyway. And more power to them. I used to have deep convictions about property theft but let's just say, in a lawless country, why the hell should our Lordships reap all the benefits of crime and we just acquiesce to having our livelihoods stolen, to waste like this? Where are the lines separating crime, from civil disobedience, from survival?

My husband is very honourable and would never think of such a thing. He won't even listen to my musings along these lines. I can't decide which of us is the 'crazy' one in these terms, especially when I read stuff like this story.

Thu, 07/15/2010 - 02:20 | 470379 Sudden Debt
Sudden Debt's picture

Somehow, I don't think it's a good idea to squat a house in the democracy of China where you become a volunteering organ donor for spitting on the ground in 1,2,3 seconds :)

Thu, 07/15/2010 - 02:40 | 470397 Renfield
Renfield's picture

heh good point

Thu, 07/15/2010 - 07:50 | 470540 BoeingSpaceliner797
BoeingSpaceliner797's picture

Renfield,

I agree with SuddenDebt that squatting in the PRC doesn't sound like such a good idea.  With regard to you and your husband, you are the sane one.

Thu, 07/15/2010 - 09:14 | 470680 Renfield
Renfield's picture

797

I am sort of the 'survivor' of the two of us. :-) But it's difficult for me to draw the line between pragmatism, necessity, and integrity. I was really wondering this so it's good to hear there's someone else who sees it my way out there.

I hate even thinking about that kind of thing, but that's the downside of living through a Depression. I wonder how many other people, back in the '30s, wondered what moral standards they could afford to hold onto. And I wonder how many of the criminals of that time were that way out of compulsion rather than personal choice. (And I'm not talking about the white-collar criminals at the top.)

Thu, 07/15/2010 - 09:21 | 470697 Timmay-Jimmay
Timmay-Jimmay's picture

Renfield:

When you’re a single dad with three young children and no meaningful work for the last two years, YES, pulling a squat is a damn good idea.

I’ve been doing it with a bank owned (Deutsche) house for a year now. The neighbors love me. I’ve had to do some fancy dancing to keep the charade up, but I can tell you that I’m not losing any sleep over the moral issue of living rent free on the banks dime.

The house is also in a high-brow area of Orange County CA. There is also an empty bank-owned (former Countrywide – you know the rest) McMansion across the street from me that went back to them for 1.4 million. Point is, you can do this in just about any neighborhood.

Thu, 07/15/2010 - 12:08 | 470788 Renfield
Renfield's picture

TJ

Well, good for you taking care of your family.

Morality is not the simplistic standard that we are 'used to', in a Depression.

- Conventional morality: pay your debts, fulfil your contract, be upfront, disclose, don't take what's not yours.

This makes you a walking talking patsy for the banksters these days, or your family is living on a shoestring and if you screw up on the debt thing, you and yours are on the street. Good luck going to the government or banks for help, regardless of what the 'contract' was.

- Conventional morality: preventing 'illegal immigration' is artificial bureaucratic and selfish, and our grandparents were 'illegals'.

Wreaks havoc in an era of high unemployment and wages falling past the cost of living due to 'globalisation', as well as exploited illegals further eroding domestic wage/working standards.

And so on.

I'm glad you and your family are doing well. Survival comes first. I'm double-minded about this since it is not so easy for me to figure out 'right' and 'wrong' these days. I think we should start being more selective with our moral principles and give careful thought to them now, since we may not be able to afford as many of them as we used to.

Thu, 07/15/2010 - 15:06 | 471811 Cathartes Aura
Cathartes Aura's picture

good for you Timmay-Jimmay!  ++ resilience & creativity points!

it's heartening to hear that amrkns can overcome their aversion to usefully occupying vacant properties. . . if they're bank owned, and sitting vacant - then put them to use!!

Renfield, (you "sound" familiar, I'm sure I've read your posts ages ago, Guardian Cif? *wink*) I moved to London late 70's to be a part of the music punk-DIY scene, and squatted some amazing properties in Notting Hill, Bayswater & Camden. . . there were certain "rules" to follow as to access & occupation, but nothing all that hard to learn. . . certainly a valid response to Thatcher's unleashing the "move every 6 months" nonsense. . . she was on the side of the landlords, who, faced with sitting tenant's rights, could not raise rents substantially until the current tenant was displaced. . . by making rentals (and we're talking mostly "rooms" here, amrkn readers - weekly rents) 6 month maximum tenancy (or tenant rights kick in), landlords were able to rent to the "highest bidder" as queues for rooms advertised were often over 30+ people long. . . and the rents went up with every tenancy vacated, rinse, repeat. . . I lived in some nightmares when I first landed, luckily I was in my early 20's, so it seemed "adventurous" - but when I finally hooked up with the people squatting, well, never looked back, hehe. . .

if there are people homeless, and empty properties waiting for market rates to go up - well, it's not rocket science. . .

Fri, 07/16/2010 - 02:49 | 472974 Renfield
Renfield's picture

Cathartes

You may have seen me here & there, I've been around the 'net since the '90s (you might remember the usenet days...?)

LAWL at the punk squat story, why does this make me think of Sid & Nancy? We have week-to-week here in Sydney, too, home of the tenant serf.

It was indeed the empty properties that made me start thinking about squatting in a whole new light. (I hate people messing with my stuff so before I have not been much of a squat fan until lately.) But this is not the same issue as some wrecker moving into your vacation house and changing the locks on you.

These bank-owned properties, sitting empty, many not even on the market, these 'shadow inventory' houses, are in effect abandoned. So why shouldn't the homeless live in and take care of abandoned property. It's better than the alternative, both ways, it's not hurting anyone and it's actually making things better. It's not much different from taking couches etc left on the street or eating discarded food. And when it comes to the people in question, it's a big big difference when it's about their survival....

Thu, 07/15/2010 - 00:43 | 470277 Oh regional Indian
Oh regional Indian's picture

The Chinese enigma, the Indian Enigma, the Japanese enigma.

The east is just so enigmatic. Look look, we come from a tradition of truth speaking! Hah! We learnt our lessons all too well it seems?

Believing Chinese official stats is almost as stupid as believing official US .gov stats.

By the way, Bangalore, where I live is having it's own, under-reported property bubble. Apartment buildings coming up like warts on the landscape.

To house a "booming" IT workforce.

Whose jobs are totally dependent on a healthy US/Europe.

I smell something starting to burn.
And it does not smell good.

ORI

http://aadivaahan.wordpress.com

Thu, 07/15/2010 - 02:22 | 470380 Sudden Debt
Sudden Debt's picture

That might be your cooking, maybe you should set asside the laptop and check the grill ;)

Thu, 07/15/2010 - 04:07 | 470437 Oh regional Indian
Oh regional Indian's picture

:-)

Nope, it's the smell of mort gauges burning!

ori

http://aadivaahan.wordpress.com

Thu, 07/15/2010 - 05:45 | 470479 GoldBricker
GoldBricker's picture

Yo Oh,

Lovely blog.

I went to grad school in CompSci in the 90s with a clutch of Indians, all from Hyderabad, who suggested that I try Bangalore after leaving school. I felt that I was too old (being already over 40 at the time), but the romance of the idea (plus a love of south-Indian cuisine) was strong. Your blog helps me to put things into a realistic perspective.

Thu, 07/15/2010 - 10:01 | 470802 Oh regional Indian
Oh regional Indian's picture

Hi Goldbricker,

Nice to hear the Hyderabad connect. And you know what, back then Bangalore was still an awesome city. Not anymore. It is a mess, all capital letters.

Have you visited yet? Still lot's of magic, but it's fading back into the mix.

Thanks for the Blompliment! ;-)

ORI

http://aadivaahan.wordpress.com

Thu, 07/15/2010 - 00:53 | 470293 dhussey
dhussey's picture

This is the least surprising news I have heard in a while!

BOC raising 20b, now this... and boom goes the dynamite...

Thu, 07/15/2010 - 01:10 | 470321 element115
element115's picture

I don't get some of these numbers lately, and how they relate to China.

The BDI is down, some say do to a lack of shipping containers (makes no sense to me) yet the Port of Los Angeles just posted a huge YoY monthly gain in June (+32%) and also had a +53% jump in empty container volume.

How does that add up? And where have all these shipping containers gone? Are they being used to house products that have no market to sell?

Thu, 07/15/2010 - 01:29 | 470351 Paladin en passant
Paladin en passant's picture

Vessels measured by the BDI don't use containers. Google or Bing are your friends.

Thu, 07/15/2010 - 01:16 | 470331 Sir_Gresham
Sir_Gresham's picture

Let the currency wars begin. Looks like every one is lying...well except gold

Thu, 07/15/2010 - 01:20 | 470337 Nolsgrad
Nolsgrad's picture

$ bitches

Thu, 07/15/2010 - 01:23 | 470340 Pooh-Bah
Pooh-Bah's picture

You are very fortunate to have an honourable husband.

Thu, 07/15/2010 - 10:01 | 470660 Renfield
Renfield's picture

If this was directed to me, then you are right. He is very, very much my 'better half'. :-)

Six years we have been together and he is the best blessing I've ever had in my life. So I always value his opinion highly.

I do not always think he is realistic. But there is more to life than pragmatism. I can never smile down my nose at people in bad relationships who do things and face consequences in that situation, because I just got very, very lucky; and maybe that's true in more than relationships as well. Those of us with good fortune - good marriage, or wealth, or education, or intelligence - should remember that most are not as lucky.

I appreciate this reminder.

Thu, 07/15/2010 - 11:37 | 471085 hangemhigh
hangemhigh's picture

Renfield:

in a strong, lasting relationships the partners can change roles many times over the years.  the ability to do that is one of the things that makes such a lasting bond. 

in the near future, things will get very confusing.  always trust your own judgement first and never exclude your partner from critical decisions. you may have to act alone sometimes but always leave an avenue of reconciliation open; you want options rather than absolutes.

in closing, i agree with you about doing what you have to do to survive; what we have been used to in the past will probably not be what we encounter in the future

 

 

Thu, 07/15/2010 - 11:58 | 471137 Renfield
Renfield's picture

heh - it's hard to imagine him being the pragmatic one and me the idealist! But I look forward to changing the roles. :-) That's good advice, to seek options rather than absolutes. Not easy given economic pressure and so I suppose even more important.

They say when poverty walks in the door love flies out the window. Probably because of what you said: that the past we are used to is not the future we will encounter...I hope that in the 'west', our families and marriages can hold together and make us stronger to get through this Depression. We will need them to be strong, now more than ever.

Thu, 07/15/2010 - 15:12 | 471827 Karmically Alco...
Karmically Alcoholic....'s picture

A person who deliberates on morality, to my knowledge is more apt to be a moral human being himself/herself. So I hope , pragmatist or idealist, thick or thin, good or bad times, you try to stick to your morals irrespective!!

i hope you never have to face that difficult a time ever anyways to find your delibarations turned into a realistic and might I add nightmarish a situation.

ciao!!

Thu, 07/15/2010 - 01:23 | 470341 DanielH
DanielH's picture

Just got back from China. Visited five cities including Shanghai and Beijing. The environment and atmosphere are completely different from here in the US. The economy is booming. Restaurants are crowed. Shops are full of buyers. People are very optimistic and willing to spend money.

People here are over concerned about the crash of housing market in China.

- The population in China is 5~6 larger than the US. Unlike the US where the urban population is rather stable, a large portion of the population in China is migrating every year from the countryside to cities at very fast rate. The demand for housing will be strong in the next 10~20 years.
- Housing price is high only in a few large cities.
- The requirement of the down payment is very high. 30% for the first purchase. 50% for the second purchase, etc.
- Traditionally, Chinese are quite conservative. Saving rates are rather high. People have money in banks.
- Traditionally, face and reputation are important in China. People will not take "strategic default" with their loans. The court system favors banks, and will not allow such strategic default.

Thu, 07/15/2010 - 01:37 | 470356 reader2010
reader2010's picture

So you don't think asset prices are set at margin in China? Maybe this time is different in China. But every credit binge eventually ended up in tears in the history of finance. I bet there is no exception to the current Chinese credit binge.

Thu, 07/15/2010 - 04:43 | 470449 qussl3
qussl3's picture

Then the question would be how far along are we down the credit road wouldn't it?

Compared to the overleveraged american middle class, the Chinese in aggregate are still underleveraged by comparison.

The key would be a successful transition from an export economy to one supportted by domestic consumption.

As it stands the transition doesn't seem to be going to plan though.

But when Chinese experiences demographic inversion - which it undoubtedly will in 20 years time all bets are off.

Thu, 07/15/2010 - 02:30 | 470388 Sudden Debt
Sudden Debt's picture

You make the most sence here Daniel.

I was there in oktober last year to, and all I could think was:

MY GOD, WE'RE FUCKED!

And with that I mean the rate their cities grow and the size, their tech levels, their organisation...

Give them another 5 to 10 years and the chinese will watch discovery channel to watch a documentairy about America and say: How do these people live? Can't we adopt one and send them money?

 

Thu, 07/15/2010 - 07:59 | 470545 Vendetta
Vendetta's picture

Matt Lauer on 'Good morning moron America' was on his 'where-in-the-fuck-is-matt-lauer' world paid vacation a few years ago and basically said the same thing right on the air.

However, beyond the backdrop of Shanghai and Bejeing are cities like this:

China's empty city

http://www.youtube.com/watch?v=0h7V3Twb-Qk

I don't think its on the menu for tourists

Thu, 07/15/2010 - 10:39 | 470935 trav7777
trav7777's picture

Potemkin Villages are so convincing.

Venture out into the non-tourist cities next time

Thu, 07/15/2010 - 08:57 | 470626 FrankIvy
FrankIvy's picture

Sounds like DC housing circa 05.  Looked great.

Thu, 07/15/2010 - 15:25 | 471838 Cigarette Smoki...
Cigarette Smoking Man's picture

As someone who lived there for two years, 04-06, and still spends 4 months out of the year there, I can tell you have only seen the "New Yorks" of China. Sure, Beijing and Shanghai are booming. So was every major US city at the height of the bubble, but get out of those places, talk to some real factory owners, and you get a totally different picture.

Chinese are starting to worry. They believe that the government won't let anything bad happen, but this has been going on so long they are starting to get concerned.

I know multiple Chinese who own empty property. They have it as an "investment". One factory owner I know bought an apartment, just a mid level one, in Shenzhen for 1.4 Million US dollars! He rents it out for $1500 a month. This isn't even in the high priced part of town. Half the building doesn't even bother renting. It's just more speculators.

So of course it looks like boom times. They haven't popped their bubble yet. So, looking at your points.

1. Yes, there are way more Chinese, but the number moving to the city has fallen off drastically in the past year as people from the country know there is now way they can afford the "Chinese Dream". Just last year at Chinese New Year, I saw an entire tent city of what the paper said was 50,000 in JinAn trying to move back to the country side. The factories in Jan 09 had laid off an estimated 20-30 Million people. So the Chinese spent a boat load on infrastructure to bring them back.

2. Housing prices are high in every 1st, 2nd, and 3rd tier city. Even in Qingdao, Xiaman, and Jinan (all nice 2nd tier cities) prices are higher than the USA. A friend of mine who owns a factory in Qingdao just bought a house in Orange County, CA and commented that he couldn't even come close to that price in Qingdao. That's just messed up.

3. This is true, but Chinese know how to game the system much better than most. They take out loans buy things, turn it into cash and then invest with "real money down". Don't get me wrong, many do plop that much money down in real terms, but that doesn't mean it can't all go away when property goes down. Another trick is to use savings to buy an apartment, then use the apartment as collateral for other loans. Still just as dangerous if housing drops, the bank gets a crappy apartment back.

4. Chinese are conservative. They believe investing in property is better than having money in a bank or even stocks. That is a large part of what's going on. They are dumping all their savings into the property bubble because they believe it is the safest investment there is over there. That doesn't make it true, and even adds to the problem of a growing bubble. People are willing to put super high percentages of their savings into property.

5. You are very right about face. This is why the bubble will pop so hard. I have dealt with many vendors in the past year who tell you everything is fine. They do everything they can to borrow, beg, and even steal to keep things looking "normal" so they don't lose face. When it does "blow up" on them, they just disappear and lock the factory doors. Do just a little looking into this and you'll find it's quite common these days.

 

So sure, China looks good, but like all things made in China, take a closer look. All things shiny aren't gold.

 

Thu, 07/15/2010 - 01:24 | 470345 Tom Servo
Tom Servo's picture

This is bullish, right?

 

Thu, 07/15/2010 - 01:26 | 470347 DrLamer
DrLamer's picture

No problem here. China can confiscate/bailout those houses any time (China is a socialistic people's country, officially) and give them as a gift to poor chinese people.

Thu, 07/15/2010 - 01:51 | 470364 Tic tock
Tic tock's picture

 Housing for 5% of the population, discount rural-urban migration, yes it's a very large overcapacity - but there is fantastic house-price/rent inflation. In itself, without the effect on trends in accomodation costs, this is a reach. Possible factor is that the current generation is still coming out of communism, where the state was expected to display overcapacity as a function of successful planning. ..what's the agrarian situation like in China after all these rains? -I would have thought the story would be at the income base of the Rice bowls.

Thu, 07/15/2010 - 02:06 | 470370 Troy Ounce
Troy Ounce's picture

Me thinks:

"that if the Chines government decides to demolish 50 million

empty houses, the bubble is gone".

Ok, a few hundred thousand Chinese investors might jump off

the roof but, hey, would that really be a concern?

What I am saying is that we haven't seen everything yet of a "command economy".

 

 

Thu, 07/15/2010 - 03:58 | 470432 Kimo
Kimo's picture

"Ok, a few hundred thousand Chinese investors might jump off the roof but, hey, would that really be a concern?"

As long as they don't all jump at the same time.

Thu, 07/15/2010 - 02:12 | 470372 Gordon_Gekko
Gordon_Gekko's picture

So much for [the OBSESSION with] GDP "growth". More like metastasizing cancerous tumor if you ask me. The GDP growth percentage only tells us the rate at which the cancerous tumor [that is the fiat-money based world economy] is growing.

Like Pavlov's dog, we have been taught by our masters to believe:

Higher GDP = good. Lower GDP = bad.

If only an enterprise as complex as the human economy could be expressed in terms of a single meaningless BULLSHIT number.

Thu, 07/15/2010 - 05:49 | 470482 GoldBricker
GoldBricker's picture

++

That's metrics for you, GG. Make up a measure and then pretend that it means something.

Some English guy (I wish I could remember his name) said something to the effect that measuring things is OK, but as soon as that measure becomes the criterion for something else, then it becomes worthless. The temptation to manipulate the measure is too strong to resist.

Thu, 07/15/2010 - 02:23 | 470383 The Deacon
The Deacon's picture

KUDO's to Fitch.  I am surprised no one picked up on it.

Having learned SO MUCH from helping and enabling the blowing up of the US mortgage market (Is a AAA rating on crap mortgages Fraud or not?) Fitch is now the cracked investigative team that exposes CHINA's property bubble.  Way to go guys!

This report comes out what, 2 days after China announces its OWN rating agency which effectively downgrades the US?

I thought the red phone in the oval office was connected to NORAD.  Apparently the new wars are waged on Wall Street and the offices of the 3 Credit Ratings Agencies.

Let the economic/currency wars and propoganda continue.

Thu, 07/15/2010 - 06:41 | 470496 Tense INDIAN
Tense INDIAN's picture

KUDO's to Fitch.  I am surprised no one picked up on it............

 

May be they are tring to avoid being downgraded by Moodys

Thu, 07/15/2010 - 02:34 | 470392 RobinHoodrat
RobinHoodrat's picture

China's population is also 5x bigger than US, what's the big deal?

Thu, 07/15/2010 - 02:38 | 470395 bluewarrior
bluewarrior's picture

Comparisons are dangerous. Consider the e.g. of India. Supposedly a lot of flats in the city of Mumbai (which has very high land rates) are vacant. But most of these are owned by people of means who have bought them using 100% cash (for investment, money laundering etc)...they don't need to sell the house if things turn bad. Unlike the US, in India there is very little cost of owning a home. My guess would be that China would witness a somewhat similar situation (only exxagerated because of a richer economy).

 

So though there might be a bubble in CHina, I doubt it is going to be as big as what is being claimed here.

Thu, 07/15/2010 - 02:47 | 470399 MonkeyTrader
MonkeyTrader's picture

I agree with those taking this data with care. It's a big number indeed but the cause of all US malease was excess leverage at any level. That's not precisely what's happening in China and do not forget China is facing epochal changes becoming an industrialised country from a rural one. Can anyone tell me what's the inflow to cities from rural villages in China right now?

Thu, 07/15/2010 - 03:03 | 470402 dan22
dan22's picture
This is how this ponzi scheme works: Local governmental officials, that are demanded from the government to produce double digit GDP growth numbers give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurastiction. some of them are active partners in shark loan businesses. For example, a party secretary of legal affairs, that controls the public security bureau, which is a court and prosecutor division of government in yongkang city, in zhe jiang province tired to run abroad using a passport in 2009 after he found out he can’t repay 60million Yuan. In li Every scheme has a ring leader who's job is to collect money from all the participants in the ponzi scheme. When some of these ponzi schemes blow up, the party leaders always get bailed out first, and some even ask local business owners to lend them money, and then bail out their own personal fund. After that the ring leader turns himself in and gets protection from the local government. Most of the funds that are collected in this classic ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game. . Source" . China’s Shark Loan Ponzi Finance- As Chinese Banks Tighten Lending Standards, More Real Estate Developers and Households Take on Shark Loans
Thu, 07/15/2010 - 03:54 | 470430 dnarby
dnarby's picture

...Nahhh!  That can't be!  The Chinese gov't would never allow that sort of malinvestment (not like they have a billion or so people they need to keep occupied).

Everyone knows housing production and pricing in China reflects an organic demand of 3x annual earnings.  Just ask the people who posted before you!

Thu, 07/15/2010 - 03:47 | 470426 dan22
dan22's picture

Make no mistake these 1.3 trillion CNY, or 2.6 trillion annualized are not CDO stile products flooded the Western banking system during the boom years of 2002-2007, it is much worse. These are investment products that are sold and/or managed by trust companies that are basically shark loan operations that raise and lend money at rates that range between 15% and 100% annual rates. These loans are made on short term basis, between 1-6 months and are totally dependent on raising asset prices. With a rise in housing prices, not only will all Chinese banks collapse immediately, but thousands of such ponzi schemes will collapse across the country, potentially causing massive civil unrest.

 Source:

China's Shark Loan Ponzi Finance

Thu, 07/15/2010 - 04:07 | 470438 Troy Ounce
Troy Ounce's picture
...tick...tock...tick...tock.... Beijing starts gating, locking migrant villages

http://news.yahoo.com/s/ap/20100714/ap_on_re_as/as_china_fenced_in;_ylt=...

 

Thu, 07/15/2010 - 04:24 | 470441 robertocarlos
robertocarlos's picture

"So sorry, this is my garden now." That's from a poem about Chinese gardeners.

Thu, 07/15/2010 - 04:46 | 470450 Privatus
Privatus's picture

Safe as houses...

Thu, 07/15/2010 - 06:26 | 470491 Ned Zeppelin
Ned Zeppelin's picture

No leverage on those homes, so not as bad as you might think, and don't believe a word of Chinese "data."

Thu, 07/15/2010 - 06:29 | 470492 fiftybagger
fiftybagger's picture

Yeah,

The China bashers(just like the gold bashers) keep on bashing, year after year, with nothing but egg on their faces to show for it.  Year after year they grow by ten percent without a blip.  Once they decide to stop lending us the money to buy their stuff, they will float a navy that will make our fleet look like a bathtub ducky

Thu, 07/15/2010 - 06:40 | 470493 badgerman67
badgerman67's picture

Good News.  The construction quality sucks in Asia, looks good from a distance or on a piece of paper, but upon closer inspection it is really quite marginal.  Thats what you get with less than $4-5 day unskilled  labor.  So the good news is they can build them all over again in 15-20 years and ramp up GDP again.

The over development/vacancy issue is not just China its all over Asia.
Still amazing how people will post comments rationalizing excessive over development.  So its ok in China because they are forward thinking and the farmers are moving into the city.  Are you F ing joking?  The people coming into the city are not coming for high paying jobs they're coming to earn less than $5 a day.  What does 40% of an annualized income at $5 day buy you?  Not much and certainly not a new condo.  10 Guys in a room targeting GDP will never get it right.  NEVER.

The increased downpayment requirements are new and meant to cool housing.  They were put in place this year.  In addition, if these buyers did not leverage into the RE speculation its likely they leveraged something else (e.g. their business).  The ramp in loan growth found a home somewhere.   So they will have all this DEAD EQUITY sitting there, and unless China continues to pump credit it will be painful.  Unless of course you believe this time is different.

Thu, 07/15/2010 - 07:00 | 470509 Mako
Mako's picture

The skeltons in the closet over there is going to make what happen over here look like daisies.

Thu, 07/15/2010 - 14:51 | 471747 Karmically Alco...
Karmically Alcoholic....'s picture

hey

...new to the site. my first post. So heres hoping to a decent conversation over a bite your head off kind

anyways I aint from economics background. So dont know too much . but speaking like an average common man, If you stay at place X, where it takes a 100 bucks for a coffe/house/whatever, whereas I live in Place Y, where it takes 10 bucks for the same, then how is it a problem if i earn 100 a month while you may earn a 1000. of course we can talk quality here. But overall it seems to me that our earning levels when brought down to a comparative level of pure dollar terms, it doesnt reflect the full truth since while one dollar may get you X in one place, in the other place it might fetch you 10X, depending on prices/inflation. Until saturation point comes into play, like for US right now, inflation will tend to bring all places into a common mean point ( thus playing out more so nowadays in the developing ecnomies, while developed economies face deflation more so, as of now). Thus at if to produce ( manufacturing etc) and consume (retail, sales etc) in one place is one tenth the cost of doing the same thing in another place, then the former place citizen/employee earning one tenth of the latter place doesnt seem to me such a bad deal... Am I making any sense ? I am 30 years old and I earn five times what my Father used to earn when he was 30. Yet I would be classified as an average middle class person, maybe a bit higher than average... So while in absolute terms of figures, my per generations per capita maybe 10 dollars, while my Dad's was 2 dollars, in real terms it is not so much of a difference. The Curse of Inflationary Fiat money and the accursed Banking philosophy of Superloansharkstinker rate of interest for money and credit. My point being if expenses level for common items are not the same, then how can per capita a lower per capita seem so negative!

how do they calculate this per capita thingy for various countries in just one absolute dollar terms, when the cost of living is so drastically different for each!

Fri, 07/16/2010 - 02:55 | 472977 Renfield
Renfield's picture

KA

Welcome to Zero Hedge! This is definitely the place for good conversation. I hate to tell you that you'll also get a lot of bite-your-head off comments - this is Fight Club after all - but don't worry about it when (not if) it happens. All part of the fun.

I should let you know that when a thread is 'hot', it'll run very quickly to hundreds (sometimes) of comments and then go 'dead'. But when a thread moves to, say, the second page of the site then it is pretty much dead after that. So if no-one replies to your comment, that's probably why. Site gets really active during the New York market hours and for a few hours after, kind of hums along during the European hours pre-New York, and just ambles slowly during the Tokyo hours. Much like the markets.

Anyway. Just putting this on here so you'll have someone saying hello on your inaugural comment. :-)

Thu, 07/15/2010 - 06:59 | 470506 Mako
Mako's picture

The decoupling idiots will be shown exactly why they are idiots.  All China can do is expand until it hits it's peak and then implode with the rest.  At the top is the US consumer, one problem, the US consumer maxed out in 2007. 

Which is why Asian markets look just like the rest of the worlds.  There is no separate China system, it's global credit system that is lead by the US consumer talking on more and more to fund all the little China men moving from the rice patties to the city factories. 

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$ssec,pltawanrbo[pa][d][f1!3!!!2!20]&pnf=y

Thu, 07/15/2010 - 09:03 | 470638 Renfield
Renfield's picture

Mako

Where do you think the Chinese elite stand in all this?

I agree there is no such thing as decoupling. Which is a shame - I am against 'globalisation' but it's happened anyway and we must all pay the price. So if there is no decoupling then we must think in terms of global 'cui bono'.

Do you think the Chinese elite are co-operative with any other power? Genuinely co-operative, with aligned interests.

I've been picturing sort of a 'West against the rest of the world' scenario, where the Chinese elite, the Russians and Middle East are sort of working to take down the western empire, together, then they'll sort it out afterward who will take over from them. And all this 'globalisation' is the battleground amongst those elite camps.

Sorry if this sounds tinfoil hat. But it's what I think.

Thu, 07/15/2010 - 12:12 | 471170 hangemhigh
hangemhigh's picture

Renfield:

your tin foil hat is working well i see.  the chinese the, russians, the opec oil boys, yes they all have a common interest because the west, lead by the wall street crime cartel, failed them so miserably by leading the global economy down truly ruinous paths.  

the real end game will be played out in central asia/chaostan and the great prize will be energy and natural resources. 

i believe germany and russia are already planning a currency coup d'etat that may be no more than weeks away.  

google jim rickards / paper gold vs the dollar for more info.....................

 

 

Thu, 07/15/2010 - 07:12 | 470516 purple
purple's picture

Of course China is booming. Export numbers don't lie.

The only problem is China has no Navy and the US very well may cut off the spigot via tariffs.

 

Another problem. The rest of Asia does not want to beocme part of Greater China whereas elite Chinese believe they do, or should.

Thu, 07/15/2010 - 08:35 | 470582 dpr10
dpr10's picture

who says export numbers dont lie;;))chinese data is mostly fabricated data my friend..

Thu, 07/15/2010 - 07:28 | 470525 mliu_01
mliu_01's picture

Looks like so many americans simply don't understand how china works. Are they funding the bubble? yes they are. But they are not funding it through the j6p borrowers. They are doing it through the builders. So if the builders fail. The build and the banks will lose. But they really don't care. They can eat the bad loans like they have done in the past 50 years.

 

This is not "this time is different" or "we are different" joke. The matter of fact is it is different. True there is a massive unused apartments in China. But most of these apartments do not BELONG to those who took a loan. Most belong to RICH people who have 3 to 5 or even 10 apartments. These people don't need a loan, they DON'T HAVE TO RENT IT OUT to collect money to pay interests because they don't have a loan.  You have to go to china to see what is really going on. 

People here know this problem, but they simply can't find a better way to save their money.

Thu, 07/15/2010 - 07:24 | 470527 mliu_01
mliu_01's picture

Those believe US consumer are at the top are idiots. We are slowly sweep under the rag. If you think americans are rich. Why don't you come to China and stay for a month and see how many chinese really care about your dollars. Dollar can't buy much anymore. China is becoming a weird animal. It is a country that Indian and Americans living side by side. There are super rich and poor wage makers.   Totally strange.

Thu, 07/15/2010 - 11:10 | 471011 Menelaus
Menelaus's picture

First learn to spell and construct proper sentences in English before insulting Americans.

Next get ready to lose what ever savings you might have tied up in the PRC as your "government" crumbles over the next decade and prepares for war.

Anyone who does business in China can attest to the unbelievable amount of corruption there...which even in today's US  speaks volumes.

Thu, 07/15/2010 - 15:24 | 471845 Cathartes Aura
Cathartes Aura's picture

First learn to spell and construct proper sentences in English before insulting Americans.

priceless. . . given that many amrkns, including some who post here, can barely speak or write their OWN language, it is laughable that you require someone to become proficient in a second or third language before posting. . .

I assume you speak & write Mandarin? 

Thu, 07/15/2010 - 07:31 | 470530 chindit13
chindit13's picture

A few comments from the front line.....

Re Data:  I have no doubt the latest GDP figure could just as easily have been released in April.  It is a tribute to the growing maturity and patience of the CP that they can wait until 14 July.  I recall a decade ago they released the 4th Quarter GDP number a week before Christmas.  Such is the advantage of central planning.

Re Housing:  Two things at work here, at least for a portion of those 65 million empty residences.  First, Chinese don't like "used", so an owner may not want some tenant messing up his place while it awaits use or resale.  Second, everybody is a firm believer in ever-rising prices, so they will give up rent expecting instead big capital gains.

Housing II:  Not all purchases are cash, even if it looks to be so.  Some buyers borrow for their business, then use the funds to purchase property for their own account.  Even downpayments are borrowed, though usually from a relative who either has the cash or access to credit.  There is exposure to price decline.

Re Appearance of Growth:  A few posters who have recent experience visiting China are impressed by the look of boom.  As one who has had a front row seat to several Bubble Tops, I can say anyone visiting Tokyo in early 1990 would have seen a city ringed by construction cranes, crowded restaurants, and busy shopping centers/stores.  Sometimes what looks good is just a bad debt waiting to happen, and when the prime measure of wealth (land) starts to tumble, discretionary spending soons follows.  One needs to look at other figures to surmise whether the robust activity is meaningful or potentially delusional.

Growth II:  Anecdotally, I have noticed a pickup in Chinese lending activity since March.  In a recent jade auction in Yangon, Burma---restricted to Chinese buyers by the Burmese Government---buying was robust and generated $100 million in sales in this 4x per year event.  The previous one had been disappointing, as the peasants-turned-business-mogols had had difficulty getting the financing they use to purchase the jade.  The cash was back this time for folks who cannot use major Chinese banks but instead borrow from companies who can access the big banks (this is how credit filters down to the masses in China).  Seems the addicts have been given another fix.

External Resource Acquisition:  At least in the case of neighboring Burma, China has secured control over almost all of the natural resources of the country.  Copper, iron ore, tin, nickel, gold, molybdenum, antimony and strategic metals---plus natural gas and hydroelectric power---are being exploited by Chinese public and private firms, usually with no concern of costs or the economics of the activity.  As a curious aside, China is also in a major import phase of women to be used as potential brides for the 30 million extra men of marrying age (a result of the One Child Policy and the preference for male heirs).  The means of extraction for metals such as gold are cyanide and mercury, the environment be damned.  For brides, the means of extraction is chloroform.  Not all of the Pacific Century is pretty.

Stock Market:  Odd that a continuous 10%+ growth rate can occur in spite of an equity market 50% off its all time high and clearly now in bear market territory.  If China's equity market is "predictive", then it is predicting a slowdown.

China may be inscrutable, but they're still human and subject to the same foibles any other emerging nation is or has been subject to in the past.  In China's case, they also have more to lose.

Thu, 07/15/2010 - 08:40 | 470583 pan-the-ist
pan-the-ist's picture

Why do I feel like I am reading a letter from Uncle Travelling Mat ? :)

Thu, 07/15/2010 - 08:47 | 470606 Renfield
Renfield's picture

Chindit

I appreciate your on-the-ground perspective. Keep 'em coming.

First, Chinese don't like "used", so an owner may not want some tenant messing up his place while it awaits use or resale.  Second, everybody is a firm believer in ever-rising prices, so they will give up rent expecting instead big capital gains.

Isn't this a problem for those who are buying betting on price appreciation? I don't know the debt-income ratio although I think it's something like 25:1 on apartments there, but if new units are preferred, then it means that no-one can sell (at a higher price) until allllll the empty units have been snapped up. Not very feasible if construction is still going on and there are empty cities.

One would have to wait a few years before they could sell.

Are most Chinese speculators solvent enough that they could afford to hang on through a few more years, including maintenance security, interest, expenses and other carrying costs, while all the new units are bought?

It sounds very illiquid to me. I would have thought this would be an obvious problem but I never see it addressed.

Thu, 07/15/2010 - 08:49 | 470610 gmak
gmak's picture

Exactly! <Thumbsup>.

 

Very good insight. Thank you!

Thu, 07/15/2010 - 07:31 | 470531 MrTrader
MrTrader's picture

Zerohedge : "Mr. Chanos, do you have a comment on this piece of news ?"

Jim Chanos : "KABOOM!"

 

:=)))

Thu, 07/15/2010 - 07:36 | 470534 Instant Karma
Instant Karma's picture

Are you saying that Chinese developers and real estate speculators own 64 million units that are unoccupied awaiting sale and habitation? And that in the event of a decline in real estate prices in China these developers and real estate speculators will be under water, and, potentially walk away from their property loans? And are you inferring that if they walk away from their property loans the banks that made those loans will be in deep do do?

 

Seriously though, the Chinese need to stop building housing units forthwith. And what are the investment implications of that?

It's a strange world. Banks make billions/trillions in bad loans, all over the world. Countries issue billions/trillions in bonds they may not be able to repay. The world keeps turning. And when the shit hits the fan, governements step in and paper over the problem with new money. The source of the money is the Central Bank. As long as everyone still values the new money as much as the old money, the scheme seems to work.

The only time the system seemed to seize up was when it was unclear the Central Banks would not come in and paper over the problems of bad bank debt or bad soverign debt with new money. But now that they're all pretty much on board (Japan style), the downside risks occur only intermittantly in that period of time between when the shit starts hitting the fan and the Central Banks step in.

Kind of a cyclical thing. Freak out the people and then bail 'em out. Oddly enough this behavior seems to lead to deflation in some ways, because all this new money gets fed into the system to bail out bad loans that were used to build homes or build new office buildings of build new manufacturing plants, all of which leads to oversupply of real estate or other goods.

So the money being created by Central Banks is force fed into the banks which is fed into the economy as loans to create more capacity and goods that are not needed by end demand, causing over supply and declining prices. Interesting. Causing deflation, at least at first.

And we're seeing that. So you don't want to invest in anything that is being over produced by bad loans, like real estate. Commercial or residential. And profit margins not too good all around for commodity products. Technology is by its nature deflationary too.

Commodities may not fare so well in this environment because end demand is limping along. If people lose faith in this system you have bank runs and soaring precious metal prices, as people choose to store wealth in hard assets as opposed to paper.

I think that's one reason stocks have done so poorly for the past decade. Companies issue too many stock options and increase their floats too much, diluting earnings per share and current stock holders. I knew that tech bubble was toast in the 1990s when I heard about the way even the best tech companies issued stock options like toilet paper. Still do.

Thu, 07/15/2010 - 08:12 | 470554 badgerman67
badgerman67's picture

Good points Chindit.

In my little corner of Asia the purchase of the first 30% (aprx) of the units typical go to the developers "friends" while the remaining are sold retail off plan at the launch.  The more affluent buyers apparently like to hold these spec units like a commodity, however as the market has evolved in this cycle, the participation rate has increased.  I am seeing more purchases based on assumed cash flow and appreciation.  There buyers are not fully capable of underwriting so their proforma assumptions often prove grossly optimistic and seemingly ignore additions to supply.  Developers will build until there is a crash.  Its what they do, everywhere.  China is no exception.

So while Wang, or Li, or Woo may have purchased his first condo all cash (or even with some leverage), he has no doubt refinanced the condo to pull out equity to buy the next two, or three.  And so it goes.  The leverage is there.

Thu, 07/15/2010 - 08:13 | 470556 Vendetta
Vendetta's picture

tick tock  its all good, the chinese know what they are doing .. tick tock ... look how awesome Shanghai and Beijing are (artificially inseminated with US industrial sperm) ... tick tock ...  they are creditors of US debt ... tick tock with 2 tril .... tick tock

Thu, 07/15/2010 - 09:15 | 470608 Canis Lupus
Canis Lupus's picture

Its no different in China than anywhere else.  They could just print up the money and give it to everyone and sing kum by ah in Mandarin.  It makes no difference how the money is spent i.e., by giving it (lending it) to contstruction companies or giving it to states as loans to make roads or hire new goverment employees.  The end result is the same, that is, it is a distortion of the real market, and distortion of capital flows.

Won't work.  I just think their system allows them more flexibility to screw (kill) the people than ours.

Thu, 07/15/2010 - 09:44 | 470722 Anarchist
Anarchist's picture

The goal of the Chinese government is to raise the standard of living of the majority of their people. The goal of Western economies is to lower the standard of living for the majority of their people. Both have accomplished their goals.

The huge amount of hot money being force fed into China must be spent before it becomes worthless. The Chinese are presently losing the battle of holding down their foreign currency reserves. What appears to be foolish spending is not all what it seems. The Chinese must manage the billions of dollars flooding into the country AND must increase employment by huge amounts AND must pay increasing wages and benefits AND provide housing and jobs to hundreds of millions of peasants they must move toward urban centers. The amount of infrastructure that must be built in the next 20 years is staggering and has NEVER been done before.

The Chinese have accomplished things NO Western nation has EVER done in a fraction of the time. There are and will be huge mistakes but in the end they will have a semi functional economy and massive amounts of modern infrastructure to help them into the future. The Western countries will have decaying infrastructure, crippling debt , masive un-employment and incensed populations looking forward to a declining standard of living.

The only question is when the decaying Western countries will start a global war to forstall the developing nations from growing. Iraq and Afghanistan alone will not do it. When the West starts placing much larger military bases in South America and Africa and starts intercepting the shipping and aircraft of the developing countries then we will have a war. Look for AFRICOM to eventually be located to Somolia and resource wars to break out in Africa.

Going to be an interesting twenty years. The Western powers killing millions in the developing world. I would not want to live near a major urban center in any of the agressor nations in the West.

Thu, 07/15/2010 - 11:51 | 471041 chindit13
chindit13's picture

There's a little hyperbole here.  While China has developed quickly, one must remember that buying/stealing off the shelf is a bit easier than having to go through all the trouble of inventing things.  Inventing the light bulb is a more noteworthy accomplishment---albeit far more time consuming---than going to Home Depot and buying a 100 watt GE.  Also, when one needn't worry about recovering R&D costs---since technology was purloined---a lot of cash is freed up for other purposes.  I would say that like Roger Maris' 61 in '61, China's development should carry an asterisk.

Given where the country was and claims to have been 3000 years ago, one has to wonder what the heck happened and why it is only now, after most of the heavy lifting (invention and discovery) has been done that they are finally "emerging".

As a 25 year resident in Asia, I have found that the most overused word is:  miracle.

Thu, 07/15/2010 - 15:05 | 471804 Karmically Alco...
Karmically Alcoholic....'s picture

enslavement happened...

when you lose your own individual and national independence and freedom, the capacity to think and question the norm is also subdued over time. and this is turned back/ rectified only with at least one complete generation living in rediscovered pride and affluence.

similar to morality actually...read renfield's post (which i can empathise with). Morality seems to be inversely proportional to affluence and riches...it is easier to be magninimous / law abiding with a full stomach than in a an empty one, dont u agree! maybe the poor homeless sod has no manners ( in the least worst..) because he is too preoccupied to grab that chance for some food/or something else...maybe , just maybe! who knows how I would have acted if i had been in so very desperate a situation,though hoping i never have to find that out!

and when you dont have hopes even after trying and trying and trying and finally give up on it, the only thing left is a miracle, isnt it!

Thu, 07/15/2010 - 09:47 | 470769 Menelaus
Menelaus's picture

Yeah, Japan Inc. was "different" or "better"

 

China will crash in a huge fireball, all of you Sinophiles will be embarrassed and broke.

FXP baby.

Thu, 07/15/2010 - 10:53 | 470971 Anarchist
Anarchist's picture

So Japan is a broke smoking husk? You are clueless. The Japanese are in debt to themselves. Everyone will be forced to take a haircut and there will be much pain but they will move on. The average Japnese has a flush bank account they will be forced to rely on. The Japanese have huge investments all over the world that are still producing good profits. The Japanese can also export themselves out of some of their problems.

The US has problems that will not be solved so easily.

Thu, 07/15/2010 - 11:14 | 471025 chindit13
chindit13's picture

Oh I don't think it is quite so pretty as you suggest.  This year in particular, bank accounts are not so flush as getting flushed.  Years of ZIRP and an aging population will do that.  The country's savings rate went from 17-20% in 1989 to probably below 0% this year.  Also, debt is debt, no matter whom one owes it to.  In a sense, the US may be better because it always has the option of repudiation to foreigners, at least one time.

Compared to what Japan was from 1960-1988, it is kind of a broke smoking husk.  It's not bad as broke smoking husks go, but I have noticed that even the wealthy in Japan are feeling the pinch.  One can pick up all sorts of luxury goods from once wealthy Japanese who need cash.  This has come as quite a shock to me, having lived 10 years there and having had a thirty year on and off association with the land.

For fun, calculate the rise in JGB rates that would lead to the government paying 100% of total revenue just to service the debt. (Hint:  it's about 150-180 bp from current levels).  In other words, at near current US medium to long term i levels, Japan would have revenues that would be tapped out just servicing existing debt.

I'm not sure whose future looks more potentially dire, the US or Japan.

Thu, 07/15/2010 - 11:16 | 471030 Menelaus
Menelaus's picture

Anarchist, I guess you are seller of Japanese CDSs then...lets see:

5 year US swaps priced around 37, Japan 84.

But the market is clueless like me.

Thu, 07/15/2010 - 12:43 | 471274 mtguy
mtguy's picture

"The average Japnese has a flush bank account they will be forced to rely on."

Not so sure on that Anarchist. Last figures I saw show their savings rate going from double-digits at the beginning of their lost decade x 2, into low single digits. Makes sense, given their aging population and the need to create income in retirement. Other factors are involved as well, but personal savings, which saved them early on as they bought their Treasuries and kept rates low has slowly been taken over by business gross saving and investment. Japan seem quite vulnerable going forward if exports weaken and/or JPY strengthens.

Thu, 07/15/2010 - 10:08 | 470835 Grand Supercycle
Grand Supercycle's picture

 

As warned about for some time... EURUSD daily chart is bullish.

http://stockmarket618.wordpress.com/about

Thu, 07/15/2010 - 10:59 | 470985 Übermensch
Übermensch's picture

It's all part of the communist plot to suck in the shorts.

Thu, 07/15/2010 - 11:54 | 471127 DosZap
DosZap's picture

This is old news, posted this 2 weeks ago.

Pictures of blocks and blocks, and blocks, of BRAND new homes/Condo's,VACANT, with Locked gates into the Sub divisions...............

Unreal.

Also, OT a bit,the MIGRANT workers are now being LOCKED UP at night, because they outnumber the Urban residents 10-1, and the crime rates are going up.

Look for this to be a flash point SOON................have not's, v.s. haves.

The Reds even have Troops on the streets as a precaution

Thu, 07/15/2010 - 15:41 | 471882 kleeee
kleeee's picture

1) Current Chinese bank performance I believe is giving a signal that these chinese banks need capitals as they loan too much last year.

2) I think it is important to seperate housing into two different purpose, investment and self use.  There are houses who built only for investment purposes and they are only to build for the rich to purchase.  Last year, the chinese government had printed trillion of dollars to these rich people.  They have difficulty to move those money out of China, so they can only invest in property or stocks.  I am not surprised that these people spend alot of this money into buying property just to preserve their wealth, just like what gold bugs do with gold.  Therefore you would see phenomenon like 1 family would own 5 houses within an area while in some other areas you would see 3-4 families live under the same roof.

3) Majority of the people have a place to stay, if it is too expensive to live in the city, they can always move back to the rural area with their parents and lower living standard.  Housing price is more a political issue rather than a economical issue, I will not be surprise if people in China complaint more about the lack of increase in house pricing than having affordable housing price.  I would suggest if house price drop 50%, no one would purchase house as people are uncertain of its value, but if house prices continue to go up, people will continue to buy house AS LONG AS their salary continue to increase as well.

Sat, 08/14/2010 - 10:29 | 521572 herry
herry's picture

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Fri, 01/28/2011 - 07:02 | 912342 paragshah12
paragshah12's picture

The Chinese market declined 21 per cent from the previous three months to 11.9 billion US dollars because of the steps taken by the government in Beijing to deflate the country's property bubble.

http://www.financemetrics.com/chinese-investment-in-property-causes-a-flutter/

Wed, 02/23/2011 - 02:24 | 987772 shawnlee
shawnlee's picture

So Japan is a broke smoking husk? You are clueless. The Japanese are in debt to themselves. Everyone will be forced to take a haircut and there will be much pain but they will move on. The average Japnese has a flush bank account they will be forced to rely on. The Japanese have huge investments all over the world that are still producing good profits. The Japanese can also export themselves out of some of their problems.

The US has problems that will not be solved so easily.

makes sense,

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Wed, 04/20/2011 - 05:49 | 1187239 shawnlee
shawnlee's picture

For fun, calculate the rise in JGB rates that would lead to the government paying 100% of total revenue just to service the debt. (Hint: it's about 150-180 bp from current levels). In other words, at near current US medium to long term i levels, Japan would have revenues that would be tapped out just servicing existing debt.

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kummar's picture

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