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Guest Post: Why The Wheels Are Falling Off China's Boom

Tyler Durden's picture




 

Submitted by Charles Hugh Smith from Of Two Minds

Why The Wheels Are Falling Off China's Boom

The rot in China's economy is deeper than inflation and malinvestment.

Despite their many differences, the economies of China and the U.S. share a number of key traits: both are corrupt, rigged, crony-Capitalist, rely on phony statistics and propaganda and operate with two sets of rules: one for the Elites, and another for the masses.

Given these similarities, it's no wonder that the wheels are falling off both economies.

There are some key differences, of course, which will make the crashing of China's boom all the harder. China's leadership likes to do things in a big way, and so its campaign of "extend and pretend" over the past three years has been unprecedented.

This isn't just the consequence of a Command Economy overseen by a Central State; the "extend and pretend" boom was fueled by stupendous borrowing by local governments and private enterprise as well.

This flood of money has severely distorted China's economy, yet the imbalances are now normalized. The system and players have now become dependent on this level of stimulus, so withdrawing the distortions would have negative consequences. Yet allowing the flood of investment to continue will unleash higher inflation, which is already triggering social unrest: Chinese Street Vendor Dispute Expands into Violent Melee.

Thus China's leadership faces the same impossible conundrum as Bernanke has in the U.S.: Your Pick, Ben, But One Goes Off the Cliff (April 22, 2011).

When a system become this precarious and imbalanced, it can best be modeled by stick/slip destabilization: blaming the last grain of sand that destabilizes the entire pile for the collapse is to ignore the real cause: the entire system is unstable.

Here are a few factors which are widely misunderstood or discounted by the mainstream financial media.

1. Over-reliance on property speculation for profits. What if 60% of IBM's annual profits were earned from real estate speculation? Would this strike you as a sound company and economy? Yet that is the case for Lenovo in China: The Boom And Bust Of China's Rise (Zero Hedge):

Recently Liu Chuanzhi, the Chairman of Lenovo and the iconic figure of Chinese manufacturing, faced a serious dilemma while asked why of Lenovo Group’s profit in 2009 60% came from asset investment and only 40% came from manufacturing. He said “when the typhoons come, even a pig can fly in the sky. Everybody is profiteering from this. Why can’t we?” The typhoons refers to the property frenzy and the easy ways to make money.

2. Over-reliance on investment for GDP growth fuels malinvestment and systemic risk. "Meaningful probability" of a China hard landing: Roubini:

Roubini said investment was already 50 percent of gross domestic product. Sixty years of data had shown that over- investment led to hard landings, he said, citing the Soviet Union in the 1960s and 70s, and East Asia before the 1997 financial crisis.

Add one part unlimited ability to borrow to one part crony capitalism and one part command economy and you have a toxic cocktail of incentives to build things which make little sense financially or functionally.

China's second and third-tier cities are littered with sprawling (and empty) sports facilities, municipal complexes, university campuses, etc. which have been built for two reasons, and two reasons only: so local governments can meet their "growth targets" and local officials and their cronies can reap gargantuan profits.

The photos of empty cities are only the tip of the iceberg in terms of housing:

A Taxonomy of China Housing Market Bad Guys:

In the absence of official statistics, Caijing cites and estimate that an astonishing 50-70% of new apartments sold between 2007-2010 have been purchased by speculators and are now standing empty.

Two factors further distort the West's understanding of Chinese real estate. The markets in Beijing and Shanghai are different from those in second and third tier cities; talking about Beijing real estate is like talking about Manhattan property: extrapolations based on thin slices of Elite real estate are bound to be wrong.

Many know-nothing Western pundits repeat the tropism that China's rural population will soon fill up all those empty towers and cities. What they don't understand is that perhaps 10% of China's population can afford to buy a home, even in third-tier cities nobody in the West has even heard of. Most workers in China make $200 a month or less. Buying a condo for $100,000 is out of the question.

3. The Central Government is a domestic paper tiger. The West marvels at the seemingly powerful grip of the Communist Party and the central government's functionaries on the nation, but this control is akin to a radioactive substance: it decays very quickly with time and distance from Beijing.

When it comes to social compliance issues such as ordering people to wear masks in public and closing down cities threatened with epidemics, the central government's authority functions well.

But when it comes to actually controlling local government, Beijing's level of control is near-zero. This can only be understood by having sources within local government; talking to Chinese yuppies in fancy hotel bars and Beijing officials will never get you close to the way things actually work in China: the real action is all at the local government level.

4. Local governments have an impossible dual mandate: growth at any cost, to maintain employment and social stability, but rein in the financial sources (debt) that fund the quick-and-easy "growth": real estate development and grandiose infrustructure projects.

There is no way out of this double-bind. The Central Government recently took $400 billion of bad debt off local government books, but this is simply more "extend and pretend": the local governments have no other way to meet aggressive growth targets except more malinvestment funded by borrowed money.

China's debt problem not solved

China Lending-Binge Hangover Looms in 2013

China Local-Government Debt Risk Needs ‘Attention,’ Bank of China Says

5. Local government is hopelessly, intrinsically, deeply corrupt. Authorities are constantly claiming to be strengthening the rule of law, but "rule of law" doesn't mean the same thing as in does in the U.S. and Europe: Social Signs Point China to The Rule of Law.

"A focus on stability without the rule of law can turn social management efforts into ingredients for social control and repression. And that can lead to vicious cycles of injustice."

Scrape away the Communist rhetoric and social engineering-speak, and China is culturally still Confucian, meaning that authority trumps any set of rules. The judiciary and courts in China operate only until they become inconvenient to a ruling Elite. At that point the ruling is overturned, the case is buried or dismissed, etc.

As noted above, the rubber hits the road in China not in Central Government edicts but in the opaque machinations of local government, and local government makes up the rules as it goes along, placating various crony Elites and Powers That Be at any given moment.

If anyone thinks the citizenry isn't angry about systemic corruption, then they've been spending way too much time with Chinese yuppies in fancy bars and dissembling officials.

6. Much of the "growth" and profits have come from ruthless exploitation and predation. The civil unrest that is igniting all over China is partly a result of continual, grinding oppression and predation by the local Elites. Thugs push around poor vendors--is this your idea of "rule of law"? How about pushing peasants off their land for luxury condo developments?

This sort of exploitation by local authorities and their cronies draws a ho-hum response from the Western media; corruption and predation has been normalized--unless you're the one being pushed off your land and given a pittance in compensation.

7. Income disparity is extreme in China
. With much ado, high-speed train lines have been constructed at break-neck speed. But as our young Chinese friends complain, the ticket prices are out of reach of the average worker: Bullet train ticket prices set:

There will be two speeds of train, 300 km/h and 250 km/h. The faster train will take 4hr 58min and will charge 555RMB for second class, 935RMB for first class, and a "Business Block" for 1750RMB. The slower train will take 7hr 56min and will cost 410RMB for second class and 650RMB for first class.

It's nice to have all this fancy infrastructure, but at best 10% of the populace can afford to use it.

8. China excels at building new things rapidly, but fails at maintenance
. For the past 30 years, the mindset has been: tear it down and build a replacement. Buildings that are barely 20 years old are routinely torn down in China and replaced with much grander structures.

Unfortunately, this mindset doesn't support the sort of painstaking maintenance required to keep high-speed trains operating over the long-term. In Japan, crews go out daily to inspect the Shinkansen bullet train rail lines, hundreds of kilometers of track.

There is precious little evidence that China has the cultural and institutional infrastructure to maintain the hudnreds of kilometers of high-speed lines that have been built. It all works well when new, but how about in five and ten years?

9. The dilution of truth and fact have poisoned the culture. The same can be said of the U.S., of course. China: Truth, Rumors, and a Basket of Fruit:

But recognizing the true source of the illness-the consistent, deliberate misuse of truth for political purposes—-is out of the question, for the moment. So authorities will continue racing around in an attempt to shore up the existing system, in which “lies will now be accepted as truth and truth be defamed as a lie.

The article quotes Hannah Arendt:

"The absolute refusal to believe the truth of anything, no matter how well it may be established. In other words, the result of a consistent and total substitution of lies for factual truth is not that the lies will now be accepted as truth and truth be defamed as a lie, but that the sense by which we take our bearings in the real world—and the category of truth versus falsehood is among the mental means to this end—is being destroyed."

10. The wealthy Elites are not committed to staying in China to work out a more equitable and sustainable future.

China's 'Wealth Drain': New Signs That Rich Chinese Are Set on Emigrating

Chinese Entrepreneurs Are Leaving China

11. The Central Government's infrastructure projects are increasing the odds of environmental catastrophe.
For example, China's water crisis--canals diverting Yangtze to Yellow River and Beijing.

12. The strange brew of crony Capitalism and Command Economy creates a market nobody believes in
. The distrust in central management and profits based on the current 'extend and pretend" borrowing binge is visible in the Shanghai stock market:


Reforming the Status Quo would require reining in local government and remaking it. There are no mechanisms to do so. That is China's problem in a nutshell, and why the wheels are falling off the "extend and pretend" boom.

 

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Wed, 06/15/2011 - 17:15 | 1372641 kito
kito's picture

Zhè ji?huo shì wúnéng!!!!!

Wed, 06/15/2011 - 19:06 | 1372963 Greeny
Greeny's picture

Yes, China could slow a bit, but what that "slow" very means? Instead of 10% growth, back to 7% or so? I hope someone can attach those falling off Chinese train growth wheels onto US train. Dark site: Bunch of lowlifes actually enjoying every drop in potential US recovery or anything that could be positive in some way.. Cheering up every point DOW drops, even Chinese is now under the target to satisfy total collapse fantasies. You not gonna get it, whatever you're betting on.. Got it? You are betting on World end, collapse, revolution and chaos and you gonna lose, all of you. Fair enough? Just watch and see.. Maybe tomorrow Bernanke will falsify Job Numbers and < 400k will show up? So much for conspiracy.. hah? I love to bet against depression people like most on this board.. Yeah, of course *Junk*.. what else is new.

P.S

Kito, you are probably the only positive person

in this "collapse patriots" club..

Wed, 06/15/2011 - 23:09 | 1373440 Mark Noonan
Mark Noonan's picture

You're ignoring the reality - a cruel and corrupt oligarchy running a dictatorship cannot get it right over the long term.  Heck, even a well-disposed tyranny is bound to blow it.  You can only get economic rationality in a free market - an economic and political free market.  China has neither; utter collapse is certain...the only question is how long it will take.

Wed, 06/15/2011 - 23:13 | 1373444 kito
kito's picture

"cautiously positive"

Thu, 06/16/2011 - 04:57 | 1373742 vato poco
vato poco's picture

you're in a casino. a fine, swank, brand new casino. glittering women, men dressed to the 9's. top hats & spats territory. you walk up to an open spot on the craps table. the dealer warns you, the boxman warns you, everybody losing their butts off warns you: "it's an ice-cold table! beware!" so you watch for awhile, and sure enough they're right: point, 7. crap dice. point, 7. so, not *wanting* to LOSE, you take a sensible strategy when faced with cold dice: you bet the 'don't pass'.

the cold rolls continue, everybody but you at the table loses their ass, but you make money. a lot of it.

then what happens? you're faced with a very hostile table glaring at you for cursing the (already cold) dice, and somehow spoiling the craps juju. so lets recap: you observed a cold table, and used a strategy to take advantage of that fact. does that make you a 'depression junkie'? or just 'a little less dumb than most'?

it appears to most careful observers that our economic titanic's hit an iceberg, and will sink soon. yet according to you, hopping onto a lifeboat is being a 'depression person'? good luck with that, bubba. that water looks COLD.

Wed, 06/15/2011 - 17:22 | 1372649 ZackLo
ZackLo's picture

2 drunks holding each other up and they just got done pounding the last bottle of everclear...and are about to get in a fight..

Wed, 06/15/2011 - 17:18 | 1372650 Djirk
Djirk's picture

when China catches a cold....

Wed, 06/15/2011 - 18:12 | 1372794 Dr. Acula
Dr. Acula's picture

...the rest of the world contracts AIDS?

 

Wed, 06/15/2011 - 19:06 | 1372973 Fed_Printstone
Fed_Printstone's picture

...the rest catch SARS? Bird flu? Melamine milkshakes?

Wed, 06/15/2011 - 17:19 | 1372653 TruthInSunshine
TruthInSunshine's picture

OT -

Either ZeroHedge is getting billions of page views a day (maybe), is the target of DOS or other attacks by some pissed off Sellside ConPigs of Wall Street (but their probably too fat and lazy to initiate such efforts), or is the target of Government Internet Truth Squads (possibly).

In any event, I find Zero Hedge absolutely invaluable, as it has literally broken stories that have turned out to be 100% verifiably accurate, prior to any other source I know of, in any format, anywhere.

So, Zero Hedge, let me know how and where to send my anonymous tribute to further the interests of ensuring you stay online and secure, behind an impenetrable fortress of technological three-steps-ahead-readiness of those in the private and public sector who hate truth tellers.

Wed, 06/15/2011 - 17:27 | 1372662 Shell Game
Wed, 06/15/2011 - 17:54 | 1372719 slewie the pi-rat
slewie the pi-rat's picture

to tell the truth, this is a barely legit use of the OT- tag, comrade TIS. 

Wed, 06/15/2011 - 18:12 | 1372780 TruthInSunshine
TruthInSunshine's picture

Indeed.

Wed, 06/15/2011 - 17:27 | 1372666 Gold Man-Sacks
Gold Man-Sacks's picture

I wonder what Peter Schiff's response to this would be.  He's diehard China all the way.

Wed, 06/15/2011 - 17:50 | 1372698 TruthInSunshine
TruthInSunshine's picture

Advantage Chanos, who's quite the China bear.

I'm not a follower of anyone, but I can't deny Chanos has been far more correct than incorrect on his publicly spoken past predictions and general forecasts than anyone else who comes to mind.

Wed, 06/15/2011 - 17:49 | 1372702 Temporalist
Temporalist's picture

Where's Hugh Hendry to weigh in on this?

Wed, 06/15/2011 - 18:03 | 1372745 redpill
redpill's picture

Not really.  I had Europac put together a small international portofolio for me, and out of ~10 stocks only two were based in Hong Kong.

Just because Schiff sees China as undergoing certain changes (which will ultimately benefit them) does not mean he always sees Chinese companies as the best investments.

Wed, 06/15/2011 - 18:18 | 1372798 Gold Man-Sacks
Gold Man-Sacks's picture

EuroPac may make custom portfolios, but Peter, himself, is extremely bullish on China.  He says it all the time on his show (can you think of another country he's more bullish on?).  Euro Pacific's first (and only at that time) mutual fund is called EP China Fund.  http://www.europac.net/docs/EP_China_Fund_Fact_Sheet_3.31.2011g.pdf

 

 

Wed, 06/15/2011 - 18:25 | 1372833 redpill
redpill's picture

That's true in a broad sense, that doesn't mean it's a blanket approval by him to throw money after companies or assets just because they are Chinese.

 

Whether this boom is turning into a swoon for the time being or not, long term where do you think it is likely more growth would come from if not China?  They have a massive untapped domestic consumer market that will eventually be far superior in terms of growth compared to the ever-declining west.

 

Wed, 06/15/2011 - 18:07 | 1372761 Manthong
Manthong's picture

I don't know what Peter would say but as a business proposition, China likely can keep their ponzi going a lot longer than we can which makes them more of a buy now.

Wed, 06/15/2011 - 18:07 | 1372779 TruthInSunshine
TruthInSunshine's picture

Take all of China's reserves and in consideration of where, how and when they derive their income and current surplus, that pile of money won't last long if there aren't enough jobs being produced to keep up with population growth, let alone a crisis which sees the unemployment rate gap up significantly for any extended period of time.

China is a ticking demographic time bomb.

Wed, 06/15/2011 - 18:41 | 1372899 topcallingtroll
topcallingtroll's picture

This huge set of "reserves" in us treasurys amounts to about 2000 dollars per person in china.  They are poor and eat snakes and rats.  You think they really like to eat snakes and rats?  Beef consumption has been increasing as they get wealthier.

China is still very poor and very desperate and very fragile in spite of  how some people may live in some of the cities.

Wed, 06/15/2011 - 22:32 | 1373347 hedgeless_horseman
hedgeless_horseman's picture

I have seen snakes for sale in Chang An food markets and elsewhere.  Never have I seen a rat for sale in a market.  

I am always impressed by the vegetable farms in the highway medians.  We have much capacity for that type of farming here in the USA.

I wish we could import the 45 minute shampoo for a $1.00, but Super Cuts will never make it at those prices.

 

As a sidebar, in regards to China, I suggest reading at the very least chapter ten of Tom Standage's excellent book, A History of the World in Six Glasses.  

Wed, 06/15/2011 - 22:56 | 1373408 topcallingtroll
topcallingtroll's picture

Good book.

Thu, 06/16/2011 - 07:57 | 1373870 toxic8
toxic8's picture

just bought it thanks will check it out.

Wed, 06/15/2011 - 17:30 | 1372668 MonsterZero
MonsterZero's picture

I think a good US - China conflict will fix all these economic ills.

Wed, 06/15/2011 - 18:02 | 1372746 Sudden Debt
Sudden Debt's picture

5 to 1...

 

even Rambo and Chuck wouldn't like those odds...

 

Wed, 06/15/2011 - 18:18 | 1372809 Dr. Acula
Dr. Acula's picture

Chuck Norris makes onions cry.

Due to a genetic mutation, every cell in Chuck Norris's body has its own beard. 

 

Wed, 06/15/2011 - 20:19 | 1373130 Yen Cross
Yen Cross's picture

 good one!

Wed, 06/15/2011 - 17:33 | 1372673 VyseLegendaire
VyseLegendaire's picture

Good article.  China is as done as the US, haha.

Wed, 06/15/2011 - 17:54 | 1372703 falak pema
falak pema's picture

why you laffing? You will fall with the rest

Wed, 06/15/2011 - 18:08 | 1372770 TruthInSunshine
TruthInSunshine's picture

I'm not laughing at China or the Chinese.

I do not wish them any ill will.

I do not and will not view the Chinese People as my enemy, despite my own government's best propaganda.

I know you weren't addressing your question to me, but I do believe the Chinese economic structure is very diseased, and has been built upon false long-term assumptions and ill-advised capital allocation decisions, and that the Chinese Government will have far less leverage than many believe in terms of dictating terms (for a variety of reasons I won't bother to expound upon here and now).

Wed, 06/15/2011 - 19:46 | 1373069 BigDuke6
BigDuke6's picture

In Australia we observe China very closely and i can tell you predictions of its demise have been going around for about 10 years now.

Its getting closer but it may take a bit longer than many think.

Whether this is due to papering over the cracks par excellance we'll see by the size of their bust... whenever that may be.

Thu, 06/16/2011 - 03:06 | 1373704 luciusfargo
luciusfargo's picture

Our government certainly isn't predicting an imminent demise. In fact, China alone is going to plug that $50b budget hole. Let the good times roll.

Thu, 06/16/2011 - 09:32 | 1374109 laomei
laomei's picture

Ah yes... the thing everyone has been saying for years and finding any excuse to hype up whenever they get the chance... China's not going anywhere.

Wed, 06/15/2011 - 17:37 | 1372675 buzzsaw99
buzzsaw99's picture

emerging. markets. bitchez.

Wed, 06/15/2011 - 18:21 | 1372822 TheFourthStooge-ing
TheFourthStooge-ing's picture

echo "emerging. markets. bitchez." | sed 's/emerging/submerging/'

 

Wed, 06/15/2011 - 17:41 | 1372689 Carl Spackler
Carl Spackler's picture

Throughout history, the kind of global confusion (China, US, Asia all broken) present today has led to significant outbreaks of war.

The next 10 years will be interesting times, to say the least.

 

 

Wed, 06/15/2011 - 18:11 | 1372691 M.B. Drapier
M.B. Drapier's picture

I can't confirm its accuracy, but I found John Garnaut's "Is China Becoming a Mafia State?" talk eye-opening and scary. It features our old friend China Agritech among many other things. But the Fujin land war may be the scariest one, with no happy ending in sight. Talk about the problems of local government in China!

Wed, 06/15/2011 - 18:23 | 1372852 Dr. Acula
Dr. Acula's picture

>Mafia State

Kinda redundant, like "coniferous evergreen".

 

Wed, 06/15/2011 - 19:00 | 1372931 M.B. Drapier
M.B. Drapier's picture

Did you watch the video? It's particularly not-redundant in the case of China.

Wed, 06/15/2011 - 17:47 | 1372693 Atomizer
Atomizer's picture

Universal healthcare and government subsidized nursing homes.

IMF working paper The Aging Population - 2002

http://www.imf.org/external/pubs/cat/longres.cfm?sk=15590.0

Wed, 06/15/2011 - 17:50 | 1372704 Sudden Debt
Sudden Debt's picture

Point 10 is what is going to crash the chinese economy.

China is setting limits on investments on real estate, thus the rich guys are buying real estate outside the country.

Everything in silicon valey is being bought up by the chinese, so in Las Vegas, Florida, New York, Paris, Brussels,...

This capital flight is going to grind the chinese experiment to a halt pretty soon as local real estate markets will plumet down.

 

Wed, 06/15/2011 - 17:57 | 1372717 billsykes
billsykes's picture

I say BS. Yes real estate is easy money, in booming times and building new stuff accomplishes all the gov't is trying to do. But what is really happening is that the Chinese look longer term, this generation may be cooked but down the road they are setting themselves up for a real superpower. Diversified investments all over the globe in resources.

They still have manufacturing, the US does not. The US unemployment numbers are BS, real unemployment is still around 20-25%+. As for china, well I just got back, guess what everyone has a job, I counted 9 bums in a city of 7m, here we have 1m people and 10k bums. Those Chinese bums were all very advanced age and some had no hands. Here, we have 20's early 30's all capable to work but they don't want to.

As per junky stuff, ya you wouldnt catch me on that new shanghai train, just google the NYT article about that, but also think of when "made in Japan" stuff was total crap.

Every rich person diversifies after they have made a certain amount of money, why not in passports?

$400B to go into loans to build stuff, ya sounds like a lot but in america, they just use it to shuffle and bailout financial firms that build nothing, that own nothing. And support new wars.

If I was on the other side of the table I would be more concerned about America getting desperate, desperate people do desperate things. You don't see china starting wars of terror.

 

 

 

Wed, 06/15/2011 - 18:01 | 1372736 Sudden Debt
Sudden Debt's picture

I don't like it a single bit!

 

But I agree with you 100%

 

Even if it does crash, they have the industrial base, and we don't.

Wed, 06/15/2011 - 18:10 | 1372777 Jim B
Jim B's picture

+1

If they are in trouble....  What does that make us....

Wed, 06/15/2011 - 21:00 | 1373199 Sam Clemons
Sam Clemons's picture

And as far as their citizens go, I believe they still actually at least BELIEVE in saving money. 

Thu, 06/16/2011 - 09:44 | 1374135 laomei
laomei's picture

Hahaha, the jinghu train is amazing and I already have my secretary waiting to buy tickets for it for my business trips.  Cheaper than flying and less of a hassle.  These trains represent the highest level of technology in the world and as much as you want to see it fail, it's not gonna do that.  High speed trains run on their own tracks and will relieve congestion on the normal rails while at the same time reducing reliance on flights.  This is a great thing.

 

When will the US get a train system that doesn't suck? Never, you gave all your money to the banks to piss away.  Haters gonna hate.

Wed, 06/15/2011 - 17:57 | 1372718 Sudden Debt
Sudden Debt's picture

China will soon start to price in their inflation on the products they sell as the state subsidising is getting to expensive for their govenrment.

This will bring inflation on a 5% monthly scale to us on imported crap.

Even Benny B. won't be able to hide that one.

 

Wed, 06/15/2011 - 18:16 | 1372790 TruthInSunshine
TruthInSunshine's picture

I couldn't possibly know for sure, but given that Chinese TPTB are already considering outsourcing even more of their manufacturing to even lower wage Asian nations such as Vietnam, Thailand, etc., they are at least making serious contingency plans to try and deal with inflation while maintaining a high trade surplus (at least from a GNP, rather than GDP, perspective).

If the current trends deepen and become more entrenched, this is where the Chinese probably hope to counter Geithner's relentless pressure on currency revaluation, but they will still have to trade off domestic job growth even using this strategy, which is still a very, very high price for them.

Wed, 06/15/2011 - 21:14 | 1373213 IslandMan
IslandMan's picture

Thailand is not a "lower wage" country, by any means.  Vietnam, maybe, but I doubt it's much different from China.

Wed, 06/15/2011 - 22:38 | 1373375 TruthInSunshine
TruthInSunshine's picture

You may be right about Thailand, generally speaking, but given somewhat rising wages and worker anger (inflation does that) in some of the more advaced manufacturing zones/provinces in China, there is a definitely a shift not only by Chinese but multinational corporations to diversify and hedge against further Chinese wage inflation.

Here's but one example of an American multinational that is setting up a major manufacturing plant in Thailand, and it obviously was lured by something that made it more of an attractive option in Thailand than China (this, no small investment):

06-15 19:01: Caterpillar to open manufacturing facility in Thailand

Wed, 06/15/2011 - 17:56 | 1372728 Cynthia
Cynthia's picture

Sounds like China has a lot of the same problems that the US has, but at least China doesn't waste a lot of blood and treasure invading and occupying other countries around the world.

Wed, 06/15/2011 - 18:18 | 1372828 Gold Man-Sacks
Gold Man-Sacks's picture

They don't???  I think the Dalai Lama would disagree.

Thu, 06/16/2011 - 08:04 | 1373884 malikai
malikai's picture

The Dalai Lama may disagree, but I doubt any Tibetans living in Tibet would disagree. In fact, I'd venture to say they quite enjoy their state subsidized TV's, food, free healthcare, and education.

That's one thing about the CCP that we westerners so easily overlook. They know how to buy you off, when they want to.

Wed, 06/15/2011 - 17:59 | 1372729 falak pema
falak pema's picture

No China will fall for five years...not for thirty...like the big one. Being bust in debt is much worse than being gutted with oversupply of housing but with huge credit accumulation.

Wed, 06/15/2011 - 17:56 | 1372732 lawrence1
lawrence1's picture

This article has the ring of truth.  Elites moving away... now that speaks volumnes.

Again, thanks Tyler ....  the gold standard of information and reporting.  May you enjoy a very

extended timeline. 

Wed, 06/15/2011 - 18:02 | 1372737 Yen Cross
Yen Cross's picture

 Is this a trick question?  Wall Mart.

 

    P.S. I like that nice thick (red) wedge.

Wed, 06/15/2011 - 18:20 | 1372815 honestann
honestann's picture

Central planning worked so well in the USSR that now the USSA and China can't get enough of it.

Sheesh.  Predators gone wild.

Wed, 06/15/2011 - 18:25 | 1372842 Tracerfan
Tracerfan's picture

The Chinese are not fat, lazy and tatooed.  Also, they save.

China wil be fine.  The U.S., on the other hand, is doomed.

Wed, 06/15/2011 - 18:24 | 1372858 Smokey1
Smokey1's picture

Unauthenticated specious garbage.

Unsubstantiated rank conjececture.

Pathetically ignorant screed.

The USA has a rendezvous with an economic shitstorm.

China will do just fine now and for the next fifty years.

Wed, 06/15/2011 - 18:26 | 1372865 Miles Kendig
Miles Kendig's picture

5. Local government is hopelessly, intrinsically, deeply corrupt. Authorities are constantly claiming to be strengthening the rule of law, but "rule of law" doesn't mean the same thing as in does in the U.S. and Europe: Social Signs Point China to The Rule of Law.

"A focus on stability without the rule of law can turn social management efforts into ingredients for social control and repression. And that can lead to vicious cycles of injustice."

CHS, the "rule of law" in China is a shining star in the ferment of world governance, especially when compared to the US.

I suggest you try residing off South Main Street USA for a better view.

Cheers

Wed, 06/15/2011 - 18:48 | 1372921 topcallingtroll
topcallingtroll's picture

Nothing like an article about China to get the USA haters all huffy and upset.

Japan was going to take over the world too, around 1980 if I remember.

China ascendancy has been way overblown.  China doesn't have a single neighbor in southeast asia that really likes them except north korea.  The USA is much better liked.  Vietnam is about to invite us back into cam ranh bay to build a new base.  The only decent technology the chinese have has been stolen from the West.

We aren't going to need factories in the traditional sense that china has anyway for all those worried about the USA not having any manufacturing capacity.  Small portable factories like the US army is testing in Afghanistan will custom make any fabricated product imaginable with whatever material is required as a feedstock, at a much lower capital cost, and you won't need a ton of unionized employees either. 

A smokestack industrial base is just about obsolete as a means to maintain world power.

Wed, 06/15/2011 - 20:24 | 1373141 Yen Cross
Yen Cross's picture

 You're on my favorite list TCT. 

Thu, 06/16/2011 - 05:04 | 1373744 falak pema
falak pema's picture

well to the jingoistic club of nut heads.

Thu, 06/16/2011 - 07:33 | 1373829 HangSorosHigh
HangSorosHigh's picture

China is a manufacturing-dependent, export-dependent, property-bubble economy. Sort of like Japan in the 1980s, similar demographics too.

China has the worst of both worlds - the poverty of a poor country but the old'ish population structure of a first-world country.

Wed, 06/15/2011 - 19:10 | 1372980 baby_BLYTHE
baby_BLYTHE's picture

Ron Paul on Cavuto 06/15/11

Bernanke Has A Completely Different Understanding of the Great Depression

http://youtu.be/p9u70DxvP04

Wed, 06/15/2011 - 19:17 | 1373003 alfred b.
alfred b.'s picture

 

    By this time next year, China will be picking up US aircraft carriers @ garage sales for 30 cents on the dollar.....yikes!

 

Wed, 06/15/2011 - 19:24 | 1373020 bid the soldier...
bid the soldiers shoot's picture

So are we all supposed to feel better after reading how shitty the Chinese economy is today, when it is about 1000 leagues ahead of ours?

"But recognizing the true source of the illness-the consistent, deliberate misuse of truth for political purposes—-is out of the question, for the moment. So authorities will continue racing around in an attempt to shore up the existing system, in which “lies will now be accepted as truth and truth be defamed as a lie."
The article quotes Hannah Arendt:

"The absolute refusal to believe the truth of anything, no matter how well it may be established. In other words, the result of a consistent and total substitution of lies for factual truth is not that the lies will now be accepted as truth and truth be defamed as a lie, but that the sense by which we take our bearings in the real world—and the category of truth versus falsehood is among the mental means to this end—is being destroyed."

This quote by Hannah Arendt may apply to China but it applies to the United States 1000 times more.

If you remember, the entire Bush Administration claimed that Iraq had WMD when it was clear that they didn't.

So we invaded a country with the second largest reserves of oil in the world and the media ignores the subject like a radioactive potato.

Our real-estate bubble burst, there's a bank panic and the stock market goes from Dow 6,500 to Dow 12,700. Any bullshit there?

And all the time the Fed is releasing numbers which show inflation to be invisible except on the shelfs of the stores where we all shop.

The Chinese will be eating rice and roast pork long after the Americans, including Charles Hugh Smith, are eating out of garbage cans with a spoon.

Wed, 06/15/2011 - 19:20 | 1373021 Midwest Prepper
Midwest Prepper's picture

Several years ago a big magazine (don't remember which) had a cover story on why the big deal in China was no big deal.  It pointed out how party officials, not good businessmen, were appointed to head companies.  How "achieve your growth target or get a bullet in the head" inflated their real achievements.  That was about 7 years ago, I think, and everything I have seen since has just served to reinforce that.

Wed, 06/15/2011 - 19:38 | 1373022 Greeny
Greeny's picture

Here:

FXI (Ishares FTSE China 25 index fund) 2+ years showing

http://img819.imageshack.us/img819/7893/fxijune15.jpg

Point me to doom and gloom (drop through the support)

on that chart you was referring to?.

I don't see it..

Even few points down still doesn't break uptrend.

P.S: You are not the only one who can read the charts.

Wed, 06/15/2011 - 20:23 | 1373144 Yen Cross
Yen Cross's picture

 Check out (XLF) and Baltic Dry (Greeny) I'm all EARS?

Wed, 06/15/2011 - 21:16 | 1373221 SoNH80
SoNH80's picture

In waking a tiger, use a long stick. 

- Mao Tse-Tung

Wed, 06/15/2011 - 21:18 | 1373223 SoNH80
SoNH80's picture
There is a serious tendency toward capitalism among the well-to-do peasants.

- Mao Tse-Tung

Wed, 06/15/2011 - 21:57 | 1373294 Yen Cross
Yen Cross's picture

 That idea was worth a read.  pump it up!

Wed, 06/15/2011 - 21:25 | 1373224 Leraconteur
Leraconteur's picture

Most workers in China make $200 a month or less. Buying a condo for $100,000 is out of the question.

Most condos in T2 T3 and T4 are not $100,000 USD, they are more likely $35,000 USD. 3 incomes into one 100m2 apartment that costs 200k CNY, and the numbers work out. In China all living arrangements extend around an extended family or group of friends, usually those made in the 8 or 6 to a room dorms of middle school, high school or university.

Few people live alone in China and apartments are arranged like old Hutong neighborhood courtyards with a large central living/dining room, a small kitchen, one or maybe two baths and several bedrooms arrayed around the center. Mom, Dad, the kids and grandparents/uncles/aunts live in the home. 4 to 6 people usually. 3 have jobs.

Figure on 25m2 per person.

3 incomes

1300 per month

12 months

4 X annual income

3 X 1300 CNY X 12 X 4 = 187,000

China has 30 billion excess square feet of RRE, but they need 275 sq ft of modern space for every person in the country. 275 X 1.35 B = 372 Billion needed. Tear down all the old buildings, which they do on an ongoing basis, force people to move into new apartments with 4 friends or relatives, and you have support for this market with a small -20% correction.

 

Wed, 06/15/2011 - 21:28 | 1373240 PulauHantu29
PulauHantu29's picture

Most of "the people" who benefited from the Zillion Dollar China Bailout were either bankers or real estate developers from what I can see. RE is already starting to Fall there and once the Plunge sets in everyone will be rushing to sell all those vacant apartments they bought for several hundred thousand based on the same premise, "house prices never go down."

LMAO! History repeats itself over and over...we never learn.

Wed, 06/15/2011 - 21:55 | 1373282 Baptiste Say
Baptiste Say's picture

China has raised rates half a dozen times this year. They know inflation can and will cause the 1.3 billion population to riot and kick out the oligarchy.

If anyone is going to have the balls and pressure to allow a sharp period of liquidation it will the them, and they'll soon be back to higher growth for it. As an added benefit once they liquidate, natural resources prices will fall and whilst trillions of ponzi loans will be gone they will still have the astronomical manufacturing capacity which no other country can boast.

 

That said if China allows liquidation you can count on Australia entering a depression as coal/iron ore/copper prices plummet and the true scale of it's US level debt become apparent.

Wed, 06/15/2011 - 22:00 | 1373302 williambanzai7
williambanzai7's picture

We can harp about this all we want, but the fact remains 99% of the shit we and the rest of the Western world buy comes from China.

What does this mean?

Given the fact that your average Chinese can subsist on 1/10th of what Americans need to survive, they have much more leeway for cronyism and inefficiency than we do.

So the question is who will crash and burn first?

Wed, 06/15/2011 - 22:14 | 1373333 Baptiste Say
Baptiste Say's picture

http://www.youtube.com/watch?v=NXRl4WbosYY

^Jim Rogers welcome to the Century of China.

 

"When you see setbacks in China, understand that it's a temporary thing."

 

As I said, if they let bad debt liquidate and don't pull a Bernank the ultimate result will be lower resource prices, lower real estate prices, factories will be retooled to maintain rather than build towers, sweat shop workers will move into IT and electronic services, more peasents will fill these sweat shop jobs.

 

Simple fact is China is much more undeveloped than USA, it might have a temporary setback but it has magnitudes less debt and more reserves.

Wed, 06/15/2011 - 22:25 | 1373342 GOSPLAN HERO
GOSPLAN HERO's picture

The Chinese make tasty food from dogs and cats, yummy!

Thu, 06/16/2011 - 03:04 | 1373699 Sudden Debt
Sudden Debt's picture

I'll have 2 lasies with mustard and a Garfield to go please!

 

 

Wed, 06/15/2011 - 22:57 | 1373411 gnomon
gnomon's picture

Who is sipping moonshine tonight!

Seriously, do you really think that when the ponzi in The West really hits the skids, (as it now seems very close to doing), that China will be able to hold their ponzi together?

Get real!  

It won't matter how many Treasuries they have in their back pocket.  How will they collect?  Who will want them? 

Wed, 06/15/2011 - 23:16 | 1373452 AgShaman
AgShaman's picture

Maybe Idaho....as well as some other states that will be first in line to represent the Free Trade Zones.

http://endoftheamericandream.com/archives/china-wants-to-construct-a-50-square-mile-self-sustaining-city-south-of-boise-idaho

Wed, 06/15/2011 - 23:26 | 1373463 TruthInSunshine
TruthInSunshine's picture

The larger problem China will face is who will buy their exports the west and the rest of Asia currently do.

The U.S., alone, consumes approximately 25% of all Chinese exports.

Everything in the world is interwoven now to the point of absolute interdependency.

China is many decades away, if ever, of becoming a nation that has the ability to grow or even maintain its economic growth (let alone grow its economy) based on domestic consumption, assuming that thousands of years of deeply entrenched Chinese propensity towards saving vs consumption can't be somehow magically reversed the literal blink of a historical eye.

To those who assume that the west will ultimately prevail in forcing China to revalue its currency further upwards, the game may not be as straightfoward as it now appears. That assumption is far from a slam dunk wager.

Wed, 06/15/2011 - 23:15 | 1373449 laosuwan
Wed, 06/15/2011 - 23:21 | 1373458 chindit13
chindit13's picture

Here's a story of how China treats the folks whose countries they rape:

http://www.irrawaddy.org/article.php?art_id=21486

Using young ethnic women as human leech farms.

This article is about Palaung girls.  They are doing the same to other ethnic minorities.  The girls end up in tubs in restaurants.  The tubs are filled with leeches, who do what leeches do.  Preferably the girls are virgins.  Customers can choose which girl's leeches they want, and from which body part.  The leeches are stir fried and served.  What it is supposed to do for the diner has not been explained, but since virtually everything in modern Chinese "culture" is geared either towards gaining more wealth or a bigger dick, the choices are limited.

Sadly, this is not the most horrific abuse they girls and children face.  Some are used for body parts.  This is not urban legend.  It is not an apocryphal tale.

Wed, 06/15/2011 - 23:26 | 1373473 laosuwan
laosuwan's picture

longer life.

 

which means, more wealth accumulation.

 

The more indangered the species the better for these chinese.

Thu, 06/16/2011 - 08:57 | 1373996 hedgeless_horseman
hedgeless_horseman's picture

Good for the little brother.

Fri, 06/17/2011 - 07:25 | 1376968 laosuwan
laosuwan's picture

there are no big brothers. except for the cp

Wed, 06/15/2011 - 23:22 | 1373467 laosuwan
laosuwan's picture

from a popular chinese song star

Men without cars or houses thinking we’re unkind and and we’re hurting their feelings? Haha, be more realistic! Because society is realistic like this! A man who makes money is fulfilling his responsibility, whereas a woman earning money adds to her value! Don’t accuse us of worshipping money [or chasing money, gold-digging], there’s no crime in worshiping money!

Lyrics and English translations:

????? ???????
Warm sunshine, shining on your face
??????? ?????
Looking at the young guys all around, every one of them are very girly

????????????
Having a house and a car is what women long for
?????????
Marrying the right person is the biggest wish

????????????
Asking you if you have a car, asking you if you have a house
????????????
My mother will also ask you how much savings you have

?????? ???????
If you have no car, if you also have no house
?????????
Hurry move aside and don’t block my way

???? ????
I also have a car, I also have a house
????????
As well as RMB in the bank

?????????
If you guys aren’t even as capable as me
??????????
Don’t depend on me, I’m not your mother

???? ????
You don’t have a car, you don’t have a house
????????
Don’t expect to get a beauty into bed

???????????
Pretending to be poor, you only drive a lousy BMW
??????????
Don’t pretend you’re a rich guy who can keep me as his mistress

x2

???? ????
You don’t have a car, you don’t have a house
????????
Yet you still want to get married and be a groom

??????????
If your life isn’t well off
?????????
Why should I accompany you in wandering

???????????
You say I am realistic/practical, that I may as well admit
?????????
You can call me a gold-digger and I won’t feel hurt

???????????
A man after all should be like a man
???? ??????
Without a car, without a house, forget about finding a bride

Thu, 06/16/2011 - 01:40 | 1373642 jonjon831983
jonjon831983's picture

#8 re maintenance. so true.

Thu, 06/16/2011 - 02:48 | 1373694 chindit13
chindit13's picture

Let me see….

Thirty percent NPL’s in the banking system, a money supply larger than the US and growing much faster, and a slowing world economy while China remains an export driven land.  So they raise reserve requirements yet again, as if that will help when a 20% loss on merely 12% of the total banking system loan portfolio (remember, 30% NPL’s now) would wipe out all bank equity.

It seems kind of like closing the barn door after the unicorn has left.  Of course, given this is China, if there were any unicorns they undoubtedly would have been slaughtered to get at that horn, which surely must make something grow bigger.

Thu, 06/16/2011 - 09:45 | 1374154 laomei
laomei's picture

Not sure where you get your stats from... NPL percentage in China is 1.1%.  Is there a single non-NPL in the US left? haha

Thu, 06/16/2011 - 12:33 | 1374871 chindit13
chindit13's picture

From a number of investment banks who issued private reports a few weeks back. They seem to be fairly accurate, judging from the Chinese government's recent announcement that it will buy $450 billion of loans made to regional governments.

Your 1.1% figure is patently silly, unless you actually believe that rushing 40% of GDP worth of new loans out of banks in a several month period a year or so ago all went to viable projects.

I notice you are a real champion of China. Their moribund stock market seems to be telling a story quite different from what you seem to believe. Time will tell who is right. Personally, I can never quite figure if the real China is the one post-Deng, or the one that was virtually absent from the time of the Renaissance until sometime in the mid 1990's.

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