• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Focusing On (And Profiting From) The Upcoming Chinese Financial Crisis

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Thu, 12/10/2009 - 15:48 | 159284 Daedal
Daedal's picture

Thank you. A co-worker has a property (apartment) in China which he purchased for $900k not a year ago. 9 months hence, he has an offer for $1.5m! The bubble is already there, all that is needed is a pin.

Edit: Prices listed in YUAN, so in dollars it's ~$130k initially and now $220k.

Thu, 12/10/2009 - 16:03 | 159317 Rockfish
Rockfish's picture

Your first offer is your best money. Sell

Thu, 12/10/2009 - 15:52 | 159295 Bam_Man
Bam_Man's picture

What is in the water over there at Societe Generale?

Thu, 12/10/2009 - 16:19 | 159335 pivot
pivot's picture

funny i don't remember writing this...

Thu, 12/10/2009 - 15:58 | 159308 nhsadika
nhsadika's picture

Definitely bubble over there, but they are going to keep on partying one more year, buying everything in sight with their depreciating US $.   They are guiding banks to make another $8-9 trillion yuan in loans this year. Watch out as we get into 2011!

 
For more comedy:

The average annual income is $6546 and apartments go for $182000.

An apartment of 80 sq m costs almost 1.25 million yuan, which would require a household of two wage-earners to repay with half their salaries for 30 years -- without interest. But the popular concept of owning a home as a requirement for marriage is driving many young couples apart as the dream becomes unattainable. Professor Wang Fuzhong, of Beihang University finance department, blames the economic structure in which local governments profit greatly from the property industry, lessening their incentive to curb prices.


http://www.chinadaily.com.cn/bizchina/2009-11/25/content_9050756.htm

Thu, 12/10/2009 - 18:38 | 159537 gatopeich
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"... their salaries for 30 years...

... owning a home as a requirement for marriage".

Sounds like Spain 7 years ago.

Thu, 12/10/2009 - 22:25 | 159727 Anonymous
Anonymous's picture

Australia has gone from 3 x average wage to 8 or more in a lot of cities and they don't think there's a bubble.

Thu, 12/10/2009 - 16:00 | 159310 Cursive
Cursive's picture

So, a prudent investor might want to rethink buying shares of Chinese solar companies?

Thu, 12/10/2009 - 16:11 | 159328 Shameful
Shameful's picture

Good post.  Have to agree that long term China looks good but that they are going to have problems in the shorter run.  Waiting for the pin to pop that bubble.

Thu, 12/10/2009 - 20:49 | 159655 Anonymous
Anonymous's picture

Perhaps long term their problem is a paranoid totalitarian government. Doesn't look so good to me.

Thu, 12/10/2009 - 21:29 | 159684 Shameful
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Paranoid totalitarian government...yeah but that could be anybody!  Look at the US and the Orwell State that is the UK and tell me it's that much different.  There is a shortage of high liberty places in the world.

Thu, 12/10/2009 - 16:26 | 159345 carbonmutant
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Apparently this is why China's State Council is re-imposing a sales tax on homes sold within five years.

China’s property prices rose in November at the fastest pace in 16 months, a government survey showed today, reinforcing concern that record lending and a $586 billion stimulus package may lead to asset bubbles.

http://www.bloomberg.com/apps/news?pid=20601101&sid=abDgz7nibV7M

 

Thu, 12/10/2009 - 16:37 | 159368 Anonymous
Anonymous's picture

heard about chinese real estate market being red hot on BBC this morning, so the thing is really overheated

Thu, 12/10/2009 - 16:40 | 159371 Anonymous
Anonymous's picture

Oh noes, China had a ton of reserves and spent it all rather than sitting in cash (including a lot of depreciating dollars.) Schiff talked about this in a video blog recently. So, where does one invest? Here/US? Nah. Europe? No. Long-term, still Asia.

Amazing to me that people can discuss the China bubble with such nervousness, given that the country at least has some fundamentals going for it, unlike the US. T-Bonds, anyone? Get 'yer 30years...4.5% No? 4.75%...5%??

Thu, 12/10/2009 - 16:44 | 159378 trav777
trav777's picture

China is massively screwed.

They are so overdebted in their economy that they must maintain an inflationary peg.

If they decouple, their currency moonshots and all of this debt crushes everybody.  Profitability is already so low that even a minor currency move would slaughter them wholesale.

Nevermind the empty cities, idle factories, and massive overcapacity in everything.  They built stuff just to show GDP, ok?  40% of their GDP a couple years ago was FDI that was intended to generate more GDP.  IOW, GDP to feed more GDP, a clear ponzi.

Thu, 12/10/2009 - 16:47 | 159384 Oso
Oso's picture

bingo.  +100

Thu, 12/10/2009 - 16:44 | 159379 chumbawamba
chumbawamba's picture

Come on, baby.  Cross that line.  CROSS THAT LINE.

I am Chumbawamba.

Thu, 12/10/2009 - 16:55 | 159403 WaterWings
WaterWings's picture

Haha! I've been more intensely watching lines for over a year now - it's like we're in some kind of suspended animation - nothing ever freaking happens!

Thu, 12/10/2009 - 17:12 | 159428 Anonymous
Anonymous's picture

hey chumba,

do you think the chicoms got pissed about those gold plated tungsten bars that got offloaded on them? its not going to go down easy. they remember the united states interference during the opium wars when we sent our warships into their sovereign lands , supporting the british east india company and its chinese opium operations where many of the old money rich, in the northeast united states made their fortunes long ago. they got some payback coming. the chinese have long memories. they intend on screwing us good and that is not the least of it.

Thu, 12/10/2009 - 18:54 | 159533 delacroix
delacroix's picture

japan, fucked china pretty hard in the past too, payback is a bitch, maybe japan will become china's bitch, it looks like we're kicking them to the curb, like an old whore,unfortunately, we're right behind them.   they've spent all the gold they stole in WW2,and now they're broke. the PTB are looking for new fuckage, the younger, the better.   (indonesia?)  there are several sweet young asian economies, ripe for deflowering.  EVIL never sleeps.

Fri, 12/11/2009 - 02:12 | 159854 Hephasteus
Hephasteus's picture

Over the LINE BITCHES!!

Thu, 12/10/2009 - 16:58 | 159410 nope-1004
nope-1004's picture

Everything their gov't publishes is pulled from a hat, anyway.

Thu, 12/10/2009 - 17:09 | 159425 FoolMeTwice
FoolMeTwice's picture

Sorry, I didn't see any solid case here. Just some tidbits put together. China may very well be in bublle and/or it might burst - but this article fails to highlight it.

And if wind blows the other way -> fiat to gold does any of you geniuses care to wager who has more of it (above or under ground).

I am still watching.

Thu, 12/10/2009 - 18:51 | 159551 whacked
whacked's picture

Agree.

 

China has its own manifesto and can print its own monopoly money to aspire to do what it likes. The amount of monies that they are spending on much needed infrastructure is amazing and they do it because they can! 

 

I do not say they have problems but they seem to be willing to press ahead and hope that the expenditures will increase the available cash resources for internal consumption (to take up the slack in export markets).

 

Time will tell, but to say that they will have a bust is easy, it is the timing of the bust and to that question one must ask, how long is a peice of string?

 

 

Thu, 12/10/2009 - 22:14 | 159717 meh1001
meh1001's picture

That would be the USA and the Eurozone then?

http://en.wikipedia.org/wiki/Gold_reserve

Thu, 12/10/2009 - 23:16 | 159748 FoolMeTwice
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That's just 'officially' reported central bank. What about citinizery and under ground.

 

Fri, 12/11/2009 - 04:03 | 159876 Rick64
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I agree and they have less transparency also they are still a communist country which affords them more control over the people and legislation.

Thu, 12/10/2009 - 22:01 | 159705 Anonymous
Anonymous's picture

With 2 billion people, GDP 1/3 of the USA and no social safety net; China can't stop spending to create jobs or there will be massive civil unrest.

Thu, 12/10/2009 - 22:28 | 159729 ChickenTeriyakiBoy
ChickenTeriyakiBoy's picture

i don't know how sound they are long-term. major demographic issues...they will make baby boomer elder-care deficits look swell by comparison.

 

short-term yeah they will correct, and middle-term they will out-perform as they overtake american economy and begin to innovate not just assemble. but that population pyramid is upside-down and cannot be ignored

Fri, 12/11/2009 - 00:39 | 159810 ThreeTrees
ThreeTrees's picture

Link to article about the NBER study Grice mentions:

http://blogs.ft.com/economistsforum/2009/11/credit-booms-gone-bust/

 

Past credit growth spectacularly improves the forecasting power of an early warning banking crisis model in our data. Using long-run historical data, the growth rate of lending emerges as the single best predictor of future financial instability, a result which is robust to the inclusion of various other nominal and real variables.

Fri, 12/11/2009 - 01:27 | 159827 chindit13
chindit13's picture

Though I cannot prove anything due to the lack of transparency, and am only relying on anecdotal evidence, I'm willing to bet that the Chinese Government Balance Sheet makes anything Bernanke and Geithner have done look Scrooge-ish in comparison.

From my own experience I have seen Chinese SOE's put together the most uneconomic deals imaginable in their voracious acquisition of external natural resources.  I appreciate that this sounds odd and perhaps apocryphal, but it is standard for an SOE to commit to a billion dollar enterprise without doing a feasibility study.  Chinese also have this odd belief that capital gains will always grow faster than underlying value (rent), in other words, there will always be a greater fool.  Japanese thought the same thing until 1990.  No matter how much one has in "reserves", idiocy can eat up a seemingly inexhaustible pile of money in a flash.  I look at China as the Mike Tyson of fiscal restraint, and expect a similar end.  Empty cities, empty apartment blocks, paying a massive premium for commodity extraction, and this year's switch from a cash-paying to a debt-accumulating general population all suggest an unsightly end to this bubble.

Of course things can continue for a while, especially since EM fund managers have enlisted as foot soldiers in this new Hopium War, but it probably will not end well.  A large population makes for impressive figures, but China has always had the world's largest population.  Things can and do go wrong.  Just look at China relative to the rest of the world from 2300 BC to 1990 AD, and in particular 1500 AD to 1990.  Will the real China please stand up.

The finances are turning ugly, the degree of environmental degradation unprecedented, the expectations of the populace are lottery-like, and the demographics (age, gender skewing) are chilling (30 million plus extra marrying-age males by 2020). 

Fri, 12/11/2009 - 05:39 | 159900 Anonymous
Anonymous's picture

Only 30 million surplus males? Last time I went to the park to check the boy girl ratio was 2 to 1. Perhaps these figures are being fiddled as well.

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