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A Contrarian View Of China: Tying It All Together

Tyler Durden's picture


Recently China has once again attained prominent status among the investment community, where while the majority still adheres to the old, permabullish view that Chinese risks are contained, increasingly more fund managers are convinced that the Beijing-based central-planned economy is due for a major pullback. One such one investor, as we pointed out previously, is Jim Chanos, whose exemplary track record means his opinion should never be ignored. Somehow we doubt Chanos is much insulted by Jim Rogers' derogatory remarks of his understanding of the China situation. He who laughs last...

Any discussion of Chinese prospects has major implications on the country FX rate, especially vis-a-vis its peg with the dollar. Here experts again disagree, with one analyst who has set forth a controversial idea is SocGen's Albert Edwards, whose position, against the grain of prevailing opinion, is that China will devalue the yuan in the face of the same headwinds that are forcing the US to do all it can to do the same. Edwards' colleague, Dylan Grice provides another compelling perspective, arguing that the Chinese bubble has no option but to burst in the near term, and any investment overtures should be delayed until at least such time.

And where FX is concerned, one must obviously evaluate the implication on that country's FX reserves, especially if, as in the case of China, said reserves are massive, and amount to over $2.4 trillion. Today, we presented some speculative observations on what may be occurring behind the scenes of the Chinese economy, where a peculiar disconnect has occurred in the last 6 months as Chinese US Treasury holdings have not kept up with the country's aggressive growth in FX reserves. Is China simply diversifying its US debt holdings, or is there something more sinister going on?

Below we present another view, this time of Corriente Advisors, whose report "A Contrarian View of China" comes as close to tying it all together as is possible under the current information (or lack thereof) regime.

The paper's conclusion provides some unique observations:

  • Over the past decade, China has accumulated a massive sum of total FX assets - approximately $2.7 trillion, by our calculations
  • Conventional wisdom suggests that China's accumulation of FX assets is an indication of strength and high savings, and that the RMB will only move higher vs. the USD
  • Our work suggest otherwise. Based on our analysis, we conclude that
    • Because of the peg and the common perception that the RMB is undervalued, the RMB has been in a bubble for several years
    • China's accumulation of FX reserves is the result of extensive monetary expansion
    • A significant and underappreciated source for China's FX reserves has been speculative capital inflows
    • Massive monetary expansion and speculative foreign capital inflows have fueled asset bubbles within China that inevitably will burst
    • The next significant move for the RMB vs the USD is most likely LOWER.

And here are the Corriente-proposed catalysts that could cause the Chinese government to devalue the RMB vs the USD (whether the US will allow such a move, is a totally different topic altogether).

  • Stronger US Dollar: As a net exporter of goods, China has benefited from a weak dollar. If the USD (and, as a result of the peg, the RMB) were to strengthen vs. other major currencies, then Chinese exports would become less competitive, adversely affecting the Chinese economy and hampering job growth. If the USD strengthens vs. other major currencies, we believe it is highly likely that China will devalue the RMB vs. the USD to remain competitive. Further, we believe this to be a highly probable scenario, as global USD-denominated debt deflation reduces the amount of USD outstanding and pressures the USD to strengthen vs. other major currencies
  • Protectionism/Trade War: Rather than China implementing import tariffs of its own, which would heighten trade tensions, protectionist policies by the U.S. could be met with a currency devaluation.
  • Bursting of the Chinese Asset Bubbles: Declining asset prices would cause foreign capital flight out of China, shifting demand to buy USD and sell RMB, especially by speculator who funded their asset purchases with USD-denominated debt. In addition, the resulting wealth destruction and unemployment in the construction sector would likely compel the government to devalue (or allow a depreciation of) the RMB to boost its export sector.
  • Removal of the Peg: Removing the pef and allowing the USD/RMB exchange rate to freely adjust to market forces would eliminate China's primary rool for monetary accommodationm thereby creating a drag on the Chinese economy and asset markets. Paradoxically, unless the PBoX were to compesnate enough through other means of money creation, the ensuing fall in asset prices would result in foreign capital flight and downward pressure on the RMB.

Full Corriente presentation is certainly a must read for anyone interested by China.

Corriente China


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Thu, 01/14/2010 - 21:49 | 194476 Handle with care
Handle with care's picture

Very interesting.


I think its good to remember that for all the talk of massive Chinese trade surpluses, these are pretty much exclusively with the US.  It runs a deficit with the rest of the world.


The point that a rising US dollar could affect its trade with the rest of the world due to the peg is a very good one.  Especially if continuing economic weakness in the US means that the US becomes less important as a market in relation to the rest of the world.


What China may do is renounce the US dollar peg while not fully liberalising capital flows and thus allowing it to manage its currency more flexibly against a basket of currencies 

Thu, 01/14/2010 - 23:41 | 194567 ChickenTeriyakiBoy
ChickenTeriyakiBoy's picture

I run a trade deficit with Safeway

Fri, 01/15/2010 - 13:54 | 195020 Anonymous
Anonymous's picture

It runs a deficit witht the rest of the world? I'd like to seee the facts behind that statement. In 2008 the US accounted for 25 percent of chinas exports. 10 years prior, it was 50 percent..see the trend? 10 to 20 years the US will mean little to china

Fri, 01/15/2010 - 15:39 | 195162 ATG
ATG's picture

Bottom line: SSEC down -47% from highs.

Big4 short emerging markets including China.

Remember the Japanese economic miracle in

1989 before the two lost decades?...

Sat, 01/16/2010 - 10:48 | 195825 Charley
Charley's picture

Suppose China is being turned into a giant, government-run industrial park, complete with an extensive infrastructure and docile government-run unions, created for the purpose of receiving the industrial operations of US companies moving off-shore to reduce labor costs.

How then does this analysis change?

One obvious problem is dollar accumulation on the Chinese side and how this is to be disposed arising from the relationship. This problem is just the flip side of how the US sustains a mounting deficit in light of domestic capacity destruction. As Alford showed, domestic demand is outstripping a sustainable growth rate for the domestic economy.

Thu, 01/14/2010 - 22:14 | 194498 pros
pros's picture


The consensus basically says:


"It can't happen here." and

"This time is different."


But every boom in history has been followed  by a the odds are stacked severely against China.

Fri, 01/15/2010 - 09:21 | 194741 MeTarzanUjane
MeTarzanUjane's picture

I wonder how many 'experts' really understand the full picture.

Imagine a place where people honor their debts. A place where suicide is the preferred option before a declaration of bankruptcy.

A place where people actually buy things with hard earned cash on hand, not dream money envisioned from pie in the sky thoughts of future uber-prosperity.

ZH experts have a proven record after-all, they have been short equities since S&P 666, right??

Fri, 01/15/2010 - 09:33 | 194750 John Bigboote
John Bigboote's picture

How about if we first imagine a world where money is not created as debt by an unconstitutional cabal of unelected bankers.

Then maybe I will commit suicide before declaring bankruptcy if that makes you happy.

Fri, 01/15/2010 - 10:07 | 194777 Anonymous
Anonymous's picture

That imaginary place is absolutely not in China, so where is it exactly - rural India maybe?!

In China it is quite normal for a struggling factory owner to first not pay salaries for months, then strip the factory of any salvageable items during the weekend and leave town. Sometimes an angry mob of former workers even catch and kill the manager.

"guanxi" in practice: Your relations, especially family, comes first and above all others. But you do not do anything for a person not related. They do not count. Thus you can put plastic in their milk. So what, who *are* those people anyway*???

Fri, 01/15/2010 - 12:48 | 194937 chinaguy
chinaguy's picture

Yup, that's pretty much it in a nutshell!

Fri, 01/15/2010 - 23:30 | 195639 MeTarzanUjane
MeTarzanUjane's picture

Where the fuck are you from because I know it's not China, numbnut.

Another one of the ZH shillgang.

Fri, 01/15/2010 - 13:31 | 194997 dnarby
dnarby's picture

They *were* their customers, lol.

E.g. we just bought a coffeemaker that was made in Italy to replace the cheap piece of Chinese re-badged American shit that never worked right to begin with.  It was 70% more expensive and worth twice that.

Expect to see a lot more of this.  Things should just work, goddamnit!

Fri, 01/15/2010 - 13:44 | 195014 WaterWings
WaterWings's picture

It's called Shangri-La, or Shambala. But China isn't really a country - it's an empire with loose control over billions of people that live on a piece of Earth in the shape of China, just like the United States, only that ours is shaped like the United States - with bases in 180 occupied territories, which naive Americans still call "countries". When someone has a military base in your country you're not exactly a sovereign nation. 

So they don't control Shangri-la. Even the Nazis tried to find it:

But I'm not a Buddhist so I don't waste any time thinking about it.

Fri, 01/15/2010 - 11:18 | 194842 Anonymous
Anonymous's picture

Yeah the bankruptcy point goes too far. Debtor-friendly bankruptcy laws made banks adjust by farming subprimes for quick dollars short-term interest inflow on sub-prime loans the banks knew would never be paid off, which led to more debtor-friendly bankruptcy laws (until the GWB BK reform in '05). Just as shit's hitting the fan and just as people have begin relying on easy fresh starts of bankruptcy, the rules of changed and the banks hold all the cards.

People don't like hearing it but violence is really the only solution to this problem

Fri, 01/15/2010 - 16:51 | 195273 Anonymous
Anonymous's picture

Last year I spoke to two different Americans who married Chinese women. Their warning to me...don't believe the news. They were there. And they saw.

Crowded trades - when on the sidelines - are fun to watch unwind. The pending spike in the dollar? Might it be one for the ages?

Thu, 01/14/2010 - 22:18 | 194503 ozziindaus
ozziindaus's picture

I share the same opinions in many areas except the following;

Unpegging may cause the RMB to appreciate leading to retail deflation in China and Inflation in the US based on supply/demand and FX. Unlikely since we'll see many more years of deflation due to outstanding debt servicing and a higher savings rate. Additionally, the US still cannot compete with $2/day wages so unemployment will remain high and demand to continue down.

Protectionism unlikely since this will hurt the heavy corporate US presence in China. Corporate American created China's industrial boom with the help of the US gov. and the taxpayer financed it through low duty's and high US payroll tax, property taxes etc. 

Finally, IMO Australia may be the biggest loser once China's bubble pops. Both the Chinese and Indians are the largest buyers of real estate over $1m and are pure speculative investments only. Reminds me of Japan in the 80's.

Fri, 01/15/2010 - 01:08 | 194610 Anonymous
Anonymous's picture

You have a source for the comment about >$1m homes being purchased by chinese/indians?

Fri, 01/15/2010 - 05:01 | 194681 Anonymous
Anonymous's picture

Are you referring to the Australian real estate market when you said the chinese and indians are the largest buyers of re over $1m?

Fri, 01/15/2010 - 11:49 | 194864 Anonymous
Anonymous's picture

...and are you suggesting that the poster of that comment needs to substantiate his statement? This site has been taken over by tards who make statements that are factually incorrect and/or tin foil hat loony. My advice to you is to stop reading the comments and just read the articles. There has to be some way to stop the idiots posting on here, the junk filter isnt working. Perhaps the owners can implement some kind of "Bleachers" relegation system like on

Marla and Tylers if you are reading this, can you allow us some way to add certain users accounts to 'ignore' so we dont have to read their tin foil hat retard comments? There are some people on here who say stupid shit day after day and its getting tiresome to wade through it all.

I am starting to think this is the lifecycle of a good site. It starts of well with interesting articles and comments and then the gold bugs and conspiracy nuts find the site and start ruining it by repeating the same crap over and over.

Fri, 01/15/2010 - 12:53 | 194942 chinaguy
chinaguy's picture

New financial blogs, used to get about 9 months before the majority of comments were not worth reading, then, after the market crashed, that time dropped to a few months. Zero Hedge, IMO has a somewhat longer timeline because many of the articles are so technical that the common Joe doesn't have the patience to push through them & subsequently bore us with their opinions. 

Fri, 01/15/2010 - 13:55 | 195022 WaterWings
WaterWings's picture


Your entire comment is a waste of space, as well. I'm tired of supposedly "elite posters" that whine instead of actually contributing something. You should realize that the point of junking is to junk, not to ban, delete, or prohibit free speech.

Go start your own blog.

Thu, 01/14/2010 - 22:34 | 194515 Anonymous
Anonymous's picture

other commentators published here have advocated delinking the cny and usd and i whole heartedly is yet another market distortion caused by central planners both in washington and beijing....

the whole idea of floating exchange rates was to let the market find equilibrium....although anyone with a brain knows that justification for fiat currency was just claptrap to fool the masses, the principle is still valid if you adhere to the principles of corrupt fiat currency...(fiat and corrupt are redundant).

once delinking occurs, some badly needed corrections will sort out the capital misallocations and at least clean up that aspect of international capital flows....

unfortunately the likelihood of delinking is only 10-20% at best....

Thu, 01/14/2010 - 22:36 | 194517 Anonymous
Anonymous's picture

Excellente Reporte

Thu, 01/14/2010 - 22:36 | 194518 Anonymous
Anonymous's picture

On slide 23 titled "China's Unreported Debt," them sure are a lot of assumptions whith a lot of different sources.

Thu, 01/14/2010 - 22:46 | 194525 Anonymous
Anonymous's picture

Can anyone point to a primer on how China's dollar-pegged currency actually operates? If a US company buys goods from a factory in France it pays in Euros which they buy ahead of time or a bank converts (trades) for them on the spot. You can't buy yuan in the FX market so to buy Chinese goods priced in yuan you effectively pay in dollars. Does the Chinese factory get the dollars or does a state bank take the dollars and hand over yuan to the factory? If there is no yuan market that means $US held by China must act as currency to buy non-US foreign foods from countries with which they have a trade deficit. Is the yuan basically China's domestic currency and the dollar their foreign currency? Can Chinese citizens hold dollars themselves in any meaningful amount? What are specific risks and advantages of such a system?

Thu, 01/14/2010 - 23:36 | 194553 pros
pros's picture

Look at Chapters 7 and 8 of the Lecture Notes in Roubini's International Macro Course at NYU

The bottom line is that normally currency pegs have been used by weak countries to contain inflation by adopting the rate of the country whose currency is the reference...the intervention support by the central bank is normally to prevent currency depreciation and the risk is that the peg will be hit and foreign currency reserves depleted by the run (Mexico, Argentina, etc.)

But China's peg is unusual--it supports the dollar versus the the risk is overaccumulation of dollar reserves and excessive growth in the domestic money supply connnected with the purchase of dollars and the related flood of Rmb. China attempts to contain the negative effects on its money supply via capital controls, but these controls never work 100%.


The one problem all acknowledge is very high levels of non-performing loans in the Chinese banking system.


Thu, 01/14/2010 - 22:50 | 194530 Anonymous
Anonymous's picture

I really can not abide Jim Rogers. He's one of the great humbugs of our, or any, time. He clearly hates the U.S. Fair enough. He's allowed to, but his smug, superior attitude, and his myopic love of (seemingly) most, if not all things, Asian, to the point of possessing a seemingly willful blindness about the inherent flaws of his newly adopted culture, manages to be both puerile and obnoxious. Jim, since you've decided to bid bye bye to the west, do us all a favor and shut your craw, because your repetitiveness is more annoying than a neighbor's yapping dog.

Fri, 01/15/2010 - 03:29 | 194665 Stevm30
Stevm30's picture

What is "the west" doing to deserve to keep him?

Fri, 01/15/2010 - 06:33 | 194694 Anonymous
Anonymous's picture

Exactly. For someone who "hates" the US, it's
rather odd that he's still a citizen who
pays US taxes. Just because he doesn't
like what he sees in the US doesn't mean he
"hates" it - it just means he has common sense.
Or do you just hate him because
his views (Asia is a lot
more progressive and will be more
successful in the long run) are different than yours?

Fri, 01/15/2010 - 09:08 | 194736 blindfaith
blindfaith's picture

Agreed. I could not put it in better words if I sat and looked each one up, one by one.

My respect for the (if you don't calls me masta, I'll be pissed) Jim Rogers faded like cheap newspaper when he sold his US real estate and hopped on the plane yelling " see ya later suckers!". His big calls on food and water...well any fool can see as the populations grow, and polution prevales, then food and water will be
He loves the things Asian, who else will buy his tea? Starbucks?

Funny how you never hear about all the quarters they these 'experts" put into the slot machine before the got the two cherries and crowed at their success.

Fri, 01/15/2010 - 10:50 | 194809 Anonymous
Anonymous's picture

Do you like what is currently going on in the US?
If you do not, then why is Jim Rogers unable to
have that same opinion?

Fri, 01/15/2010 - 11:22 | 194847 Anonymous
Anonymous's picture

You seem to have willful blindness about the the inherent flaws in the USA. Where do I begin? Terrible public education system? High tax rates? Ponzi scheme financial system? Spending more than we earn on every level; government, corporate and household?

China seems to be doing everything a nation should do to be successful like building infrastructure, high savings rate, quality education system.

I don't know if China is in a bubble or not, but I do know that in 100 years they will be a far more powerful nation than the USA.

Thu, 01/14/2010 - 22:57 | 194536 A tumor named Marla
A tumor named Marla's picture

Not being an economist and not having stayed in a Holiday Inn Express last night, I may be missing something here, but this post fairly screams to me that there is a full-on Currency War taking shape here, and much like the old Cold War the hemispheres are being divided up and forced to choose sides. 

The question is, does our overextended and overdebted state of existence win out over theirs?  We all know that once one or the other trips, everyone falls.  The biggest kids on the block aren't exactly fighting, but everyone is gathered in the playground every day at 3:00 (hmmmm, just about the time Timmy guns the bots).....


Fri, 01/15/2010 - 12:54 | 194945 WaterWings
WaterWings's picture

Everyone knows the world economy is collapsing. Everyone. This is a waiting game. Many exclaim, "But then China would collapse too so they'll never do that!" How naive. It is only a matter of "last man standing" at this point. Since late 2008 everyone has been playing solitaire, waiting, already knowing the outcome. The blame game is just around the corner, and the massive states will do what massive states do best throughout history: make war. Well, it's clear that it's already happening, it's just not "hot" yet.

Promises of world peace only come from the mouths of warmongers.

I will concede that there is someone that doesn't know we are headed for a collapse: the average American.

Nah, it's just severe denial. Everyone knows. No one wants to admit it, however, because stepping forward too early is like a pitbull after a porcupine:

Thu, 01/14/2010 - 23:13 | 194549 Instant Karma
Instant Karma's picture

Time will tell.

Thu, 01/14/2010 - 23:32 | 194564 Anonymous
Anonymous's picture

No doubt China has a lot of problems, but ask yourself this...

Are Chinese leaders stealing everything from their citizens/serfs for the benefit of Goldman Sachs? Are the "leaders" of the US doing the same?

Thu, 01/14/2010 - 23:43 | 194570 Anonymous
Anonymous's picture

China will continue to trend higher. A little bird from william & blair told me they are very bullish on china. Very cheap labor, in bed with every major manufacture in the world. They will own the alt energy market, using reserves to obtain commodities and secure other resources on the cheap. Cash strong, the list goes on and on, they are the u.s.a . late 40's. 1.4 billion population by 2025 as they grow the middle class the businesses will explode.

They may pull back ( and if and when they do the u.s.a equities will drop 2 fold). I'll keep my money on china now and long term.

Fri, 01/15/2010 - 01:03 | 194604 bluebare
bluebare's picture

Overweight China but not over committed.

Fri, 01/15/2010 - 03:56 | 194670 Dont Taze Me Bro
Dont Taze Me Bro's picture


China's cheap labor + massive (and growing) manufacturing base is the key distinction that separates China from current Western economies. China might (and probably will) have a pull back, but it will not implode like the US, because China's GDP is not driven by housing/equity bubbles.

It's hard to believe, but there are actually millions of factory workers in China that go to work every morning and build real tangible things (paid real cheap waves too). This is unlike say in NY, where you have an army of financial "engineers" working at outfits like Goldman, who do nothing but push paper around and are paid millions in bonuses which is basically funded by the government.

Right now, a lot of people are predicting a crash in China, because frankly, they feel dumb for not seeing the crash of 2008 here at home, so they are trying to outsmart everyone else by predicting the next big crash. But they are going to be disappointed, because the key variables that brought down the house of cards here in 2008 (massive debt + deindustrialization) are not an issue in China.


Fri, 01/15/2010 - 09:30 | 194746 Jus7tme
Jus7tme's picture

>>because China's GDP is not driven by housing/equity bubbles.

What makes you say that? China has an off-the-chart housing bubble

Here are some numbers from :

One clear clue (regarding the rising real estate prices in China) is that the average price-to-income ratio in Beijing has reached 27:1, five times the world average, according to data from the Bureau of Statistics of the Beijing Municipality. In addition, the average price-to-rentratio neared 500:1 in the city, far above the international alarm threshold of 300:1, which sends out a clear signal that the foundation of the real estate boom is losing stability.

And the stock equity bubble is not far behind.


Fri, 01/15/2010 - 14:31 | 195067 faustian bargain
faustian bargain's picture

Bubbles matter less in China than they do here. Also, bubble or not, RE is not the foundation, manufacturing is.

Fri, 01/15/2010 - 09:29 | 194745 MeTarzanUjane
MeTarzanUjane's picture

Anonymous, the only voice on ZH that makes sense.

Look at it this way. The US gives $100 million to Haiti for the recent earthquake. China gives $1 million.

They understand ROI.

Fri, 01/15/2010 - 11:35 | 194855 Anonymous
Anonymous's picture

Actually, the USA borrowed $100 million from China to give to Haiti.

Fri, 01/15/2010 - 00:02 | 194585 Anonymous
Anonymous's picture

Help me out, seems to me China is being paid twice for the junk they sell us. Firstly they take our USD, sock it into PBoC FX reserves to the accumulated tune of $2.5T and then secondly they create an equivalent domestic supply of RMB to be spent this a normal part of FX currency markets? Excuse my ignorance if I've missed Capt. Obvious, still learning a complex subject.

Fri, 01/15/2010 - 11:46 | 194863 mikla
mikla's picture

Help me out, seems to me China is being paid twice for the junk they sell us. Firstly they take our USD, sock it into PBoC FX reserves to the accumulated tune of $2.5T and then secondly they create an equivalent domestic supply of RMB to be spent this a normal part of FX currency markets?

Mostly yes.  More specifically, money is printed twice for the stuff they sell us.

China makes something (there was a cost), and sells it to the US for dollars (which the US printed).  China hides the dollars in a mattress.  Then, China prints RMB to offset those dollars to keep the value of the RMB low (so their manufactured goods will continue to be low cost and we will buy more).

This is similar to central bank currency swaps:  You print a bunch of your money, and I print an equal bunch of my money, and we swap.  You are now "richer" by what I printed, and I am now "richer" by what you printed.  However, the funny part of that math is:

  1. Nobody is richer, we just printed, devaluing each other.
  2. The world saw 2x increase in currency for what was printed so that you and I could each think we were 1x richer.

However, by involving the manufactured goods shipped from China to the US, we at least get to keep the Chinese busy and let the Americans think they are wealthy.

Fri, 01/15/2010 - 00:40 | 194588 strike for retu...
strike for return to reality's picture

Just to make sure that I've got all this clear...

1)  China has 2.7 trillion USD that it can use to buy RMB in the event that the RMB starts to weaken.

2)  If I recall correctly, there was a fair bit of speculation about who put up $12 billion USD at about noon yesterday to make sure that the SP500 moved up just a tad.  Leading contender is presumed to be the entity that prints USD.

3) China has been busy buying all the raw materials it can get it's hands on.

4) China has been telling its citizens to buy gold.

5) The US airwaves are filled with adverts telling the American people to sell gold jewelry for cash (USD).

6) The US Mint is busy shipping gold coins to all buyers, not.

7) The US govt and state govts have huge budget surpluses, not.

8) The US is doing a great job with a couple of little territorial wars, not.

9) Running the US Treasury does not require that you have a record of paying your taxes, but it does require that you have a record of delivering for Goldman Sachs.

10) The US federal govt has to print/borrow 4+ billion USD seven days a week just to keep the lights on.

Now, this isn't to say that China is a great place or has any respect for human dignity.  However, the US empire is in a state of collapse.  If the American people don't take back the republic, China will simply pick up the pieces of a broken empire (and send all the lucky ex-employees of Goldman Sachs to a prison camp).

Fri, 01/15/2010 - 00:51 | 194600 Leo Kolivakis
Leo Kolivakis's picture

Jim Chanos is an incredible short-seller. His analysis of Enron, exposing it as a fraud, ranks as a classic. On specific stocks, I listen to him. On China, I prefer listening to the views of Simon Hunt, GaveKal and BCA Research. Read the Economist article, Not just another fake:

The similarities between China today and Japan in the 1980s may look ominous. But China’s boom is unlikely to give way to prolonged slump


Fri, 01/15/2010 - 05:50 | 194688 Anubis
Anubis's picture

Do you have any of BCA's analysis available for reading? Could u please send me these?

I appreciate their high quality work, and would like to see more of their analysis.

Fri, 01/15/2010 - 12:10 | 194884 Leo Kolivakis
Leo Kolivakis's picture

You have to pay for BCA Research but you can read some of their thoughts by clicking on the reports on themain page.

From the Economist article above:

Furthermore, Chinese homes carry much less debt than Japanese properties did 20 years ago. One-quarter of Chinese buyers pay cash. The average mortgage covers only about half of a property’s value. Owner-occupiers must make a minimum deposit of 20%, investors one of 40%. Chinese households’ total debt stands at only 35% of their disposable income, compared with 130% in Japan in 1990.

China’s property boom is being financed mainly by saving, not bank lending. According to Yan Wang, an economist at BCA Research, a Canadian firm, only about one-fifth of the cost of new construction (commercial and residential) is financed by bank lending. Loans to homebuyers and property developers account for only 17% of Chinese banks’ total, against 56% for American banks. A bubble pumped up by saving is much less dangerous than one fuelled by credit. When the market begins to crack, highly leveraged speculators are forced to sell, pushing prices lower, which causes more borrowers to default.

Even if China does not (yet) have a credit-fuelled housing bubble, the fact that property prices in Beijing and Shanghai are beyond the reach of most ordinary people is a serious social problem. The government has not kept its promise to build more low-cost housing, and it is clearly worried about rising prices. In an attempt to thwart speculators, it has reimposed a sales tax on homes sold within five years, has tightened the stricter rules on mortgages for investment properties and is trying to crack down on illegal flows of foreign capital into the property market. The government does not want to come down too hard, as it did in 2007 by cutting off credit, because it needs a lively property sector to support economic recovery. But if it does not tighten policy soon, a full-blown bubble is likely to inflate.

Fri, 01/15/2010 - 06:35 | 194695 Anonymous
Anonymous's picture

Holy shit I actually agree with Leo on something.

Fri, 01/15/2010 - 01:06 | 194609 Anonymous
Anonymous's picture

As someone who has lived and worked in China for almost 15 years, I can tell you ....if you predict a bust long enough eventually it must come true right? So far, all these guys have been spitting in the wind.

Jim Chanos should focus on something he knows.
Come to China and see for yourself.

China's car market is 30% larger than the U.S. now, and 85% of vehicle purchases are done cash-up-front. The min. downpayment on a mortgage is 30%, 40% for a second property. An IPhone costs $850 and you have to get on a waiting list to buy one. This is not a bubble economy, and China is now reiging in credit to prevent any new bubbles, unlike the FED which is printing...printing...printing...

Last night time, a unnamed hedge fund bought 40 billion in 30 year U.S. treasuries. The FED is secretly buying treasuries as the rest of the world cannot soak up the U.S. debt!

The RMB is following the same course and the Yen and Won has those Tiger economies developed and rose from poverty. Its a sure bet the RMB will be 4-1 within 5 years.

Could be much higher and even surpass the dollar when the eventual run on the USD happens.

Fri, 01/15/2010 - 06:25 | 194693 Seer
Seer's picture

As an excersize try this:

a. Set China's FX reserves to zero.

b. Decrease the world's fossil fuel reserves.


The trend would be that energy imports, of which China relies heavily on (as do nearly all other leading countries), would become more expensive.

OK, situation "a." doesn't currently exist, but how long would we figure that it would be before it did?  Keep in mind that situtation "b." is true and is getting truer by the day.  And as energy reserves deplete further it'll only mean that countries will be paying more for energy and less for manufactured goods; this would result in a drop in China's exports.  Yes, that money for energy would go somewhere, but that somewhere is to the oil producers, who, will also have increased energy demands (unless their populations decrease, which isn't their demographic trend).

I'm not seeing China's exports drying up any time soon, but I do not see them increasing.  China's growth can NOT continue: no growth can, and the larger the growth the more likely it is to be short lived.

My forecast is that China will continue to spend internally, and money outflows will be for energy (decreasing their FX reserves), all the while exports flatten out and ultimately go in to decline (as the rest of the world continues to lay flat on its back).

Fri, 01/15/2010 - 09:35 | 194752 Jus7tme
Jus7tme's picture

>>As someone who has lived and worked in China for almost 15 years, I can tell you ....if you predict a bust long enough eventually it must come true right? So far, all these guys have been spitting in the wind.

How do you explain away Beijing residential real-estate at 27:1 price/income ratio?

Tue, 12/07/2010 - 02:53 | 784789 XPolemic
XPolemic's picture

How do you explain away Beijing residential real-estate at 27:1 price/income ratio?

Price/income ratio is a new measure to me. Is that a 3.7% gross yield? If so, that is pretty good considering the deposit rate is only 2.5

I would explain that as intelligent investing, or maybe as investors being forced into risk assets (and away from deposits) by the Central Bank keeping interest rates low.

Rising interest rates would probably pop that bubble, but they would need to rise more than 120bips.


Fri, 01/15/2010 - 09:35 | 194753 blindfaith
blindfaith's picture

all good (and sobering points) however the big unanswered question is HOW can the world resources including food, support this baby?  Everyday the baby sucks in more and more, and at some point the rest of the world will say..woa.  When that happens, as it has always been in the past when there is not enough to go around, war ( the war of all wars) will break out.  ALSO...China needs to keep a close watch and start acting on the same threat that we are facing with terriorism...afterall it IS at THEIR back door  and why they (as well as Russia and France)indirectly fund it with buys from Iran, etc. is not wise or understandable.  You think we have angry citizens?  Well, China has us beat there too.  Go and invest in their counrty, and make sure your children can speak Chinese ( and act like a Chinese) because your "investing" in China is yet another hole drilled into the rusty bucket of America and will advance her demise quicker.  Maybe Jim Rogers can give some real estate tips too, because there will be little reason the remain in the burned out cinder we once called the USA.

Fri, 01/15/2010 - 22:51 | 195615 bluebare
bluebare's picture

Nice pitch for CSR.

Fri, 01/15/2010 - 01:39 | 194626 Apocalypse Now
Apocalypse Now's picture
  • China would like to devalue its currency to help exports, despite external pressure
  • China will not un-peg unless forced to, and I am not sure how we could initiate
    • In sailing, if you are in the lead just adjust the sails to your challenger & win
  • Manufacturing thought it could take advantage of cheap labor and maintain its I.P.
    • News on Google pull back on IP theft shows ambition beyond turnkey mfg
    • Other manufacturers have had problems with IP theft
    • Trade wars are just starting (pipe/tires, etc)
  • If a war was inevitable with China, we would prefer it before they rise
    • Despite the reasons given for war, it is usually over resources
    • This is the logic behind population control - to prevent wars over resources
  • International financial capital flows can destroy/build empires causing volatility
    • The US and China are caught in a confidence game, the prize is capital flows
    • If all the growth was projected in China, US citizens would sell in mass for Asia
    • US competitive advantages: Tech, IP, Military, Food, Health Care, Finance
      • US positioned for influence on global problem themes
        • global terrorism (military/tech/finance)
        • global swine flu (health care/IP)
        • global warming (finance/IP/food)
  • There are many underground bunkers built just in case foreign policy doesn't work out
Fri, 01/15/2010 - 06:40 | 194696 Seer
Seer's picture

If a war was inevitable with China, we would prefer it before they rise

LOL...  The US is quagmired in Iraq and Afghanistan (to add Yemin and possibily Pakistan) and you think that a war would be better NOW?

Why would China have to go to war?  It has money.  Other than Australia (coal), China's other trade partners with which it imports materials from, would back China because it's a paying customer, unlike the US, which, as every day goes by, can only write shakier and shakier IOUs.

Reverting back to the quagmires, these clearly demonstrate the futility of the US's military.  Anymore wars cannot be won militarily.  The ONLY hope, and in the end it'll do no real good, only produce chaos (no real enemy then), is to destabilize the Chinese population, lead them to believe that their leadership is keeping them from the American Dream (which, in essence, is what the Chinese leadership has promised, though not under those words- requiring huge levels of growth, which is more than unsustatainable).  No, the US strategy it to push China to overheat and collapse.  A collapsed state isn't going to be collecting on its debts...

Fri, 01/15/2010 - 16:53 | 194980 WaterWings
WaterWings's picture

The US and China have a yin-yang relationship. The only reason China is where they are now is because of the American delusional attitude and insatiable appetite. Americans want to have their cake and eat it, too, and the Chinese, like any good mercantilist, is always glad to see big spenders.

Everyone knows it's unsustainable. Everyone knows there isn't a happy ending to this story - they just don't know how it ends.

There are many underground bunkers built just in case foreign policy doesn't work out

That's the only reason to be in public office these days - use your appointed resources to get there and seal the door before everyone else. Otherwise you pull the Neil Kashandcarry and buy yourself a home in the wilderness, somewhere in the West.

Fri, 01/15/2010 - 01:53 | 194631 darkpool2
darkpool2's picture

When it comes to a decision on whether a currency realignment v-a-v USD/RNB should be made, I believe Chinese domestic imperatives will trump international relations all the time. ( and the incredibly weak deck the US is now holding doesnt hurt either)


Fri, 01/15/2010 - 04:08 | 194672 Anonymous
Anonymous's picture

In this globalized world, everything is relative. It all depends on how the US leadership performs compared with China's.

Given the current crew in Washington, I wouldn't bet on the US.

Should high integrity new management take over in 2012, outperforming China wouldn't be that hard.

Fri, 01/15/2010 - 04:21 | 194674 Anonymous
Anonymous's picture

Do you need to do anything other than look at page 22 of the report?

Fri, 01/15/2010 - 04:48 | 194680 Anonymous
Anonymous's picture

China its exciting but at the end of the day they have massive problems also.

if we get another leg down the tariffs will start to come to balance out the undervalued currency.

Also the property boom in China is like nothing you have ever seen the prices could come down 5x and still be too expensive.

my friends in china earn european wages and contract in the UK and france ergo they are pretty elite by local standards can they afford apartments nope, nobody can and they are all empty bought like gold bars by the top 3% and the administration themselves.

no freedom of speach is just no freedom to see the wholesale theft going on. At least eventually in th USA and UK we do the right thing there you will be surprised whose wearing shorts when the tide goes out.

The chinease are not classy winners (just see the attitude at the climate conference) its not personal but we have to bite the bullet somtime and take the wind out of them as we are making a monster which will eat us one day.

Fri, 01/15/2010 - 07:10 | 194699 Anonymous
Anonymous's picture

China will not fail on its own accord. Their contemporary leaders are more than well equipped to hold an even keel across the stormy seas of finance, so to speak. Sooo, it clearly needs help. US will gladly provide that free of charge. The usual plan of pump and dump is just unfolding, very similar in its flavor in fact to that applied to Russia a few years back - take a look at MICEX index. It will be at least a year however before the dump part takes hold in China.

Fri, 01/15/2010 - 07:20 | 194701 Anonymous
Anonymous's picture

When one steps back and looks at the Big Picture what you see is some one or some group taking every possible side of every thing.

As evidenced by this board, which is primarily inhabited by bears or every type vis a vis the disUnited States, there are other boards cheerfully pointing in the bullish direction.

Global warming? There's tons of folks who write papers denouncing it.

Taxes? Both too high and too low are abundant.

China? Now we have filled the gap with this study predicting a devaluation of the RMB.

You name it, there is every possible argument posited for and against it.

Consensus views are gradually eroded so that what results when all views are taken into account is the resounding affirmation of chaos theory: a coin toss is then more accurate at prediction than any paper could ever purport to be.

All the rest of this is just heated conversation,sound and fury signifying, in the end, nothing.

Fri, 01/15/2010 - 09:32 | 194747 Seer
Seer's picture

Men argue...nature acts.  - Voltaire

What men seem to be missing is the force of nature.  Like a skipping record, I'll repeat it once more: NO growth can continue indefinitely.  Climate change, taxes, China, US, etc. etc., nothing can negate this fact.  So, in the end there is in fact clarity, just not the clarity that many would like to see...  So, I'm bearish on consumption; this is the side of mother nature.

Fri, 01/15/2010 - 11:05 | 194825 Winisk
Winisk's picture

Thank you.  For something that is so obvious an irrefutable, this is ignored by almost everyone.  Growth is going to end when the environment can no longer support it.  Period.  The forces of Nature will squeeze the life out of growth strategies like a boa constrictor. 

Fri, 01/15/2010 - 15:29 | 195143 WaterWings
WaterWings's picture

NO growth can continue indefinitely.

NO fiat-based economy can grow indefinitely. Fiat-currencies are a means to an end: to "misallocate" the tangible wealth of all the citizens into the hands of those privy to the scam.

With gold-backed currencies growth is slower because there are no bubbles - everyone is suddenly very wise in their allocation of resources because it's their own wealth they are investing. 

Fri, 01/15/2010 - 07:50 | 194711 pros
pros's picture

Why did Google suddenly depart from China---

there is no conceivable interpretation which is positive for China:

see a list of conspiracy theories here:

a pretty negative view

the US=China proxy war view

Fri, 01/15/2010 - 07:56 | 194713 Anonymous
Anonymous's picture

A fantastic report....

The battle of the FIATS....IS ON....


This is simply just another example which only
discloses more of OUR ignornace.....

Fri, 01/15/2010 - 08:32 | 194724 Anonymous
Anonymous's picture

I don't like their housing stats - HP pers SQM in China is surely affected by the population desnity. There are, quite simply, less SQMs to go round everyone.

Further, with 43% of the population urbanised versus 82% for the US there is obviously an argument for "if you build it, they will come". This is not an apples and apples comparison.

One of the problems of China now being labelled the saviour of the world economy is that people seem to expect it to morph into the US overnight which isn't going to happen.

Fri, 01/15/2010 - 09:26 | 194743 Anonymous
Anonymous's picture

Very Interesting! China is not going to pull us out of this recession. Quite the contrary. The devaluation of RMB is the biggest and ugliest black swan one can imagine. To me it looks inevitable that it's going to happen.

Fri, 01/15/2010 - 09:45 | 194760 pros
pros's picture

Beware ZH:

from National Law Journal

U.S. law firm that sued China reports cyber attack

January 14, 2010

A Los Angeles law firm that recently filed a $2.2 billion copyright infringement suit against the People's Republic of China said that it has become the target of cyber attacks originating in China. 

"I was the first one to get one of these e-mails," said Gregory Fayer, a lawyer at Gipson Hoffman & Pancione, which began receiving unsolicited e-mails on its firm computers on Jan. 11. 

"Something about it didn't seem right. It didn't seem quite in the manner in which the person who was supposedly sending it to me would put something, and so I called up the other attorney and said: 'Did you just send me an e-mail?' That person said, 'No.' That's how we discovered the first one." 

Fayer, who is handling the suit, could not say whether the attacks on the firm were related to it but noted, "It is difficult to believe that the timing is merely coincidental." 

The e-mails came the same week that Google Inc. declared that it would stop complying with Chinese censorship requirements for the Internet following reports that several of its computer systems had drawn cyber attacks believed to originate in China. Some of the attacks were aimed at Chinese human rights activists' Gmail accounts. 

The firm has contacted the FBI and U.S. Rep. Anna Eshoo, D-Calif., a senior member of the House Permanent Select Committee on Intelligence, who on Jan. 12 urged companies to come forward about suspected cyber attacks in light of the Google revelation. 

Fayer said that he and his colleagues already were on "high alert" when the firm filed a $2.2 billion copyright infringement suit on Jan. 5 on behalf of a software firm in Santa Barbara, Calif., against the Chinese government, two Chinese software makers and seven major computer manufacturers that helped distribute Green Dam Youth Escort software. 

The Chinese government announced last year that it would require manufacturers to bundle Green Dam with any computer sold in the country after July 1, 2009. The mandate was lifted after critics accused the Chinese government of using the software to block citizens from political and religious Web sites that the government deemed objectionable. 

In its lawsuit, Solid Oak Software Inc. claimed that the defendants illegally copied 3,000 lines of code from its CYBERsitter software to create Green Dam. Solid Oak Software created and sells CYBERsitter, which is designed to block children from viewing pornographic or violent content on the Internet. 

In addition to copyright infringement, Solid Oak alleged misappropriation of trade secrets and unfair competition under California law, as well as trade-secret theft under the federal Economic Espionage Act. 

Fayer said that previous cyber attacks on his client had prepared his firm for handling the recent disruptions. 

"The CYBERsitter underwent a series of attacks, one of which is by way of Trojan e-mails, which is what Gipson Hoffman & Pancione has been experiencing," he said. 

Trojan e-mails are meant to look like they were sent by someone the recipient knows; they often contain links or attachments that allow the sender to gain access to servers. The ones sent to Gipson Hoffman bore the return address of members of the firm, he said. 

It was unclear whether the Trojan e-mails sent to Gipson Hoffman were successful. 

"We have every reason to believe they're coming out of China," he said. "We have solid indications. We can say the payloads of these Trojan e-mails were located within China and the ISP routing bears out the connections with China. But what we don't know is specifically who they were sent by, where they were sent from, and why they were sent." 

Fri, 01/15/2010 - 10:10 | 194778 MeTarzanUjane
MeTarzanUjane's picture

"We have every reason to believe they're coming out of China," he said. "We have solid indications. We can say the payloads of these Trojan e-mails were located within China and the ISP routing bears out the connections with China. But what we don't know is specifically who they were sent by, where they were sent from, and why they were sent."

Even Tyler Durden knows how to spoof an emails origin. If you've ever received an email from Team Tyler (back when they were at Blogspot) and checked the emails header to see where it originates from, the header displayed (non-routable local loopback).

So how do you expect anyone to believe this? Are you that naive?

Mon, 01/18/2010 - 01:58 | 197012 Anonymous
Anonymous's picture

Because, when 95% of the spam and vira comes out of China, the odds are that this particular one does too.

Related? Maybe, Maybe not?

Fri, 01/15/2010 - 10:48 | 194803 pros
pros's picture

For Fitch this is a little downbeat:

Fitch Affirms China at 'A+'; Outlook Stable 
13 Jan 2010 10:13 PM (EST)
Fitch Ratings-Hong Kong-14 January 2010: Fitch Ratings has today affirmed China's Long-term foreign currency and local currency Issuer Default Ratings (IDRs) at 'A+' and 'AA-', respectively. The Outlook on the ratings is Stable. At the same time, the agency has affirmed the country's Short-term foreign currency IDR at 'F1' and the Country Ceiling at 'A+'.

China's sovereign creditworthiness is supported by the country's exceptional external financial position, its recent macroeconomic performance and low levels of central government debt. Even with global recession taking hold in 2009, Fitch estimates that China, which is among the world's largest exporters, ran a current account surplus of 5.5% of GDP, allowing for a USD366bn addition to official foreign exchange reserves. The agency estimates China's end-2009 net external credit position amounted to USD2.5trn (51% of GDP). The country has very limited short-term external debt repayment and liquidity risks.

With government debt at only 24% of GDP at end-2009 (including restructuring bonds issued by government-owned bank asset management companies), compared to the 'A' median of 37%, China's fiscal position compares favourably with its rating peer group. The USD585bn economic stimulus plan announced in late 2008 contributed to an increase in the fiscal deficit from 0.4% of GDP in 2008 to an estimated 2.9% of GDP in 2009, with the latter also being below the 'A' median of 6%.

Fitch notes that while China's estimated 2009 GDP growth of 8.4% is impressive against the backdrop of global recession, current economic conditions in China exacerbate a number of economic imbalances and risks surrounding the banking system. Fitch estimates the investment/GDP ratio reached 47% in 2009 - an all-time high - and annual credit growth was 30%, which is very high for a country with banking system assets well in excess of 100% of GDP. The agency believes the surges in both investment spending and credit growth are unsustainable. If unaddressed, this could lead to serious financial distress in the medium-term with sovereign rating implications.

An economic rebalancing to rely more on consumption and services for growth, and less on investment and industry, has been a stated policy priority for several years. In Fitch's view, recent economic policy, including the stimulus package focused on infrastructure investment and the return to an exchange rate effectively pegged to the US dollar, has been a setback for China's rebalancing. The agency forecasts GDP growth of 9.3% in 2010, but cautions that similar growth rates could be difficult to achieve in the medium-term without either a resumption of strong export growth or a meaningful increase in domestic consumption.

China's banking system is a large contingent sovereign liability, and Fitch is concerned about an eventual deterioration in banks' asset quality amid the loan growth acceleration in 2009 and the growing popularity of unreported loan transactions, such as those related to outright sales of loans and re-packaging of loans into wealth management products. In the agency's view, falling non-performing loans do not indicate that banks' asset quality is improving, as some new loans have been used to roll over delinquent obligations, and the predominance of bullet-oriented repayment structures means that any problems associated with recent lending are unlikely to be evident until the loans mature.

High investment spending, particularly in the real estate sector, also carries the risk of asset price misalignments. A marked correction in Chinese property prices would immediately affect the banks, as their direct exposure to real estate (including loans to construction companies, developers and mortgages) accounts for approximately one-fourth of their loan portfolios, while indirect exposure to real estate investments of state-owned enterprises is also sizeable. Moreover, local governments rely heavily on sales of land and land rights, meaning their fiscal positions would be directly affected by a property market correction. Fitch notes that local government finances are not transparent, and their debt liabilities and guarantees extended to state enterprises are unknown. Given the significant role of local governments in implementing the massive economic stimulus, this unknown element of China's public finance position is of increasing concern from a rating perspective.

Applicable criteria available on Fitch's website at '': 'Sovereign Rating Methodology', dated 16 October 2009.

Mon, 01/18/2010 - 02:10 | 197017 Anonymous
Anonymous's picture

I cannot really cannot understand the obsession with quoting and discussing statistics produced by a hard-line communist regime that meticulously controls and censors ALL channels of information!

It is meaningless. Since the numbers cannot be independently verified the only thing one can assume is that they pretty much match the performance targets from the latest 5-year plan. Whether they match reality is a religious issue.

I think they are mostly made up - maybe not the "1984-way", maybe rather in the same way that f.ex. KPI figures are created in private businesses; those unfortunates having to work with Key Performance Indicators knows the gaming that goes on, bonuses depend on delivering the right *numbers* (not on *results*), and as a result the information that reaches the top levels are so heavily filtered that it is garbage - that important decision are made from. Whee!

Fri, 01/15/2010 - 11:05 | 194823 gmak
gmak's picture

Regarding the below, I don't beleive that there is free capital movement in and out of China. dear PBOC, please take these Yuan and give me USD so that I can get out of this (future) collapsing economy.....

I don't think that it will sell.



Bursting of the Chinese Asset Bubbles: Declining asset prices would cause foreign capital flight out of China, shifting demand to buy USD and sell RMB, especially by speculator who funded their asset purchases with USD-denominated debt. In addition, the resulting wealth destruction and unemployment in the construction sector would likely compel the government to devalue (or allow a depreciation of) the RMB to boost its export sector.

<end quote>

Fri, 01/15/2010 - 11:26 | 194852 dan22
dan22's picture


China Bluff Exposed, Regime Overthrown- China's communist regime continued to print money, lending it to everybody that wanted and didn't want it. The giant housing, infrastructure, and manufacturing bubble came to a violent crash when the debts where not paid and inflation forced the authorities to tighten despite massive unemployment. The combination of high inflation and high unemployment in the urban centers took the people to the streets. The Chinese citizens refused to accept state intervention in the economy and their personal life demanding more personal and economic freedom resulting in prolonged civil unrest which almost reached a full scaled civil war. The collapse of the Chinese regime and economy resulted in a colossal bust for commodity prices, albeit temporarily and caused a severe recession in Australia, Brazil, Russia, Argentina, and the Gulf States.

Fri, 01/15/2010 - 12:21 | 194911 Anonymous
Anonymous's picture

Perhaps that is the surprise of 2020; however, today is 2010.

Hopefully all totalitarian states collapse, and the sooner the better. China isn't the only totalitarian state and others that aren't yet are leaning strongly in the totalitarian direction. One of the costs of an empire is the loss of liberty in the home country (at least per writers such as Chalmers Johnson in "Nemesis").

Fri, 01/15/2010 - 12:55 | 194947 the grateful un...
the grateful unemployed's picture

The Chinese people see Bejing leaders in the death grip of US Capitalist warlords, back new hardline regime. Google pulls out of China, amid wave of street demonstrations which call for more US corporations to pack up and leave. US is blamed for weak RMB, people lose jobs, blame Wall Street, and point to average Americans who also distrust their own financial oligarchs. China pulls back into itself, discourages travel and tourism. (Check the history books, this may have happened before).

Efforts to revive the export industry continue, behind the Great Wall of secrecy. Hong Kong thrives once more, as the middle man between Chinese manufacturing, and distribution and marketing.

As the hardliners take over, the Democracy movement gains momentum, but slowly, until the people reach their Tehran moment, the second shoe to drop after Tieneneman Square, and years in the future probably. Jim Rogers once predicted the Euro currency would never work, his long view of China gets tested, and ultimately he will be proven correct about China too, but it will take twenty years for that to happen as well. Meanwhile a new cold war is set into motion, which consumes US economic policy, and further impoverishes our already strapped economy.

Somewhere in the future a politician calls for China to tear down their cyberwalls, and allow porn, gambling and cyber-drugs, the latest thing, to be downloaded by average Chinese citizens. Cigarette companies market (legal) marijuana to China, despite reports of increased lung cancer rates and the anecdotal evidence that it results in diminished mental acuity. Chinese banks become the vehicle of a currency carry trade, keep rates low, with their lost decades behind them, but with food shelter and transportation all ridiculously cheap, their citizens finally enjoy the marvels of modern technology, and internet porn..



Fri, 01/15/2010 - 12:06 | 194883 Anonymous
Anonymous's picture

The global markets remain tightly correlated 1:1, so if
you think the US is ridiculously overpriced, being long
China isn't going to save you. The global recovery sham is
all about liquidity rather than fundamentals.....look at the chart of the FTSE if you doubt this. Who is bullish on the UK? Anybody? The rising tide has lifted all boats,
but all boats have been punctured.

Fri, 01/15/2010 - 12:13 | 194897 Anonymous
Anonymous's picture

Would love to see Jim Rogers humiliated. He's spent 3 years telling us how great he is because he moved to China.

Fri, 01/15/2010 - 22:56 | 195620 bluebare
bluebare's picture

Well, I'll credit Rogers for this, at least his property value has gone in a positive direction.

Fri, 01/15/2010 - 12:25 | 194914 Leo Kolivakis
Leo Kolivakis's picture

Read Keith Porter's latest comments on China on the Sceptical Market Observer blog, All Shook Up!

Fri, 01/15/2010 - 12:41 | 194927 chinaguy
chinaguy's picture

This is an excellent read, Probably the most coherent I've read in years. While I can not abide their used of Beijing's provided stats, their conclusions and overviews are spot on, IMO.

I would only add that, if any single sector collapses in China, it means the shit is really about to hit the fan.

The Chinese would not only have saved their version of GM, there would never have been a single item of press suggesting anything other than it had always been doing great.

(the Chinese version) of Lehman would never have collapsed, and there would never have been the slightest hint it was in trouble.

Again, China is centrally planned, decisions are made behind closed doors and are never audited. The press prints only what it is told. The Party has free hand to allocate assets (in secret) to support whatever sector of the economy it wishes.

Chinese policy IMO has the following priorities a) preservation of the Kingdom b) keep the farmers from revolution c) neuter the world's ability to control China.

Read Sun Tzu to understand how China pursues these goals.

....and again, if any single sector in China fails, or a single large company fails there, get the horses in the barn because it's an epic Black Swan in the making.





Fri, 01/15/2010 - 12:48 | 194936 strike for retu...
strike for return to reality's picture

Would anybody care to comment on the following musing?

India was able to buy 200+ tons of gold in front of China from the IMF because the western powers would rather see the gold in India's hands.  Hence India would get a tip-off as to what it would need to bid to win an auction.

The remaining gold IMF gold is being held for China.  The actual price that China pays isn't all that important.  However, China would like to buy as much gold as possible prior to the IMF purchase.  Why?  There will be no more official sales after China's 200 ton purchase.  With no more official sales, the upper limit on the price of gold will be hard to imagine.

Fri, 01/15/2010 - 13:33 | 195003 WaterWings
WaterWings's picture


Read Sun Tzu to understand how China pursues these goals.

Anyone imagining that China's goal is world peace needs to wake up. Everyone always wants to be #1.

I wonder how many derivative contracts are being ignored by Chinese banks at this very moment. M$M is neutered we'll never know. The only reason I know what a derivative contract is because of blogs like ZH. It's a great subject to get a room full of shrugged shoulders and confused looks at a party here in America - we're too busy thinking about next weeks party to really care - "we're decadent, baby".   

Fri, 01/15/2010 - 23:39 | 195647 MeTarzanUjane
MeTarzanUjane's picture


You're not believable. Should have known when Miles started stroking your balls a few weeks ago.

Sat, 01/16/2010 - 06:22 | 195759 Anonymous
Anonymous's picture

Usually i don't comment on articles focusing on China - there are too many Sino-haters out there to make it worthwhile. But from time to time one gets the itchy finger to write something.

"Chinese policy IMO has the following priorities a) preservation of the Kingdom b) keep the farmers from revolution c) neuter the world's ability to control China."

Finally, a ?? ("lao wai") on ZH who gets it! Although, to paraphrase more accurately...

a) Preservation of a unified China
b) Keep the masses pacified by raising living standards
c) Safeguard China's sovereignty. In other words, never again will there be another unequal treaty.

Everything else which detract from these overriding, historically inherited objectives, are merely courtesies.
That goes for Copenhagen, google, japan, what-have-you's.

Oh, and to those who constantly tout resource constraints: unlike westerners, China has no qualms about pursuing nuclear power, or genetically modified foods, or even cloning. Most chinese aren't monotheists/creationists, lest anyone forgets.

Fri, 01/15/2010 - 13:00 | 194955 Leo Kolivakis
Leo Kolivakis's picture

If China collapses - a big IF - then the world is heading towards a lost decade of debt deflation. They're going to be exporting goods deflation for years...

Fri, 01/15/2010 - 22:48 | 195610 Anonymous
Anonymous's picture

The Corriente presentation is gone.. Where can I get it?

Thu, 01/21/2010 - 20:50 | 201577 Anonymous
Anonymous's picture

can anyone upload or post a link to the presentation again. It seems to have vanished from

Thu, 01/21/2010 - 20:57 | 201589 Anonymous
Anonymous's picture removed the slides. Could someone please post or upload the presentation again - thanks.

Wed, 02/24/2010 - 14:41 | 243552 Anonymous
Anonymous's picture

I would sell my left arm to get this sometime. if anyone has this or saved it and emails it to me I'll happily paypal them some cash!

Tue, 03/09/2010 - 16:24 | 259470 Anonymous
Anonymous's picture

did you hvae any luck finding this presentation? if so, r u willing to share?

Do NOT follow this link or you will be banned from the site!