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Stephen Roach "Unlike The US Which Lets Bubbles Get Out Of Hand, That's Not The Case In China"
The chairman of Morgan Stanley Asia Stephen Roach blasts China skeptics, "The idea that [China] is an overheated economy is very much overblown," in this Bloomberg TV interview. Roach, who despite his global skepticism, continues to see China as a source of growth despite the numerous flashing warning signs. One area of ongoing concern - protectionism "As we go toward the mid-term elections in the US, the protectionist drumbeat is something to take seriously." When looking purely at China, Roach notes that "the dynamic needs to shift from the export sector to 1.3 billion Chinese consumers. They need to build a safety net, they have to come up with new sources of job creation, and they have to provide stimulus to their rural population which numbers roughly 850 million people. Since 2000 between 15 and 20 million rural citizens have moved into urban settings, that's like two New York cities per year. The lack of a safety net is a profound drag on Chinese consumption." Good luck with creating a safety net that big. Yet despite that Roach takes a direct stab at Chanos, and concludes that the "fears of a bubble are vastly overblown, in China. The demand for shelter, the demand for office space in a nation that does rural-urban migration 15-20 million people per year, that demand is there. No country has such demand for urban dwellings and urban office space... The Chinese authorities are on top of it. Unlike the US, which lets bubbles get out of hand, and distorts the economy, that's not the case in China." Of course, if inflation in China continues at the current pace, all those villagers may just say no to Beijing and decide to stay put.
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Roach is a sharp dude but China doesn't distort its economy!? Okay...
Exactly. Just like every other number coming out of China, it cannot be believed. The UN Food and Agriculture Org found that the amount of fish caught in the oceans kept going up and up. They found this amazing seeing how most of the varying ocean's catch was on the decline. Looking deeper, two researchers Reg Watson and Daniel Pauly from U of British Columbia, found that China was reporting catches that were most likely DOUBLE what was biologically possible - The reason, officials get promoted only if catches increase - so production miraculously increases! [this info is from the book, "The End of The Line" about overfishing].
Without real numbers - China drags the whole world down the path of ignorance when we have really large problems to tackle. Not to be outdone by the U.S. of course...
This reminds me of an old joke my father told me regarding the times under Communists in Romania:
In a remote village a sow gives birth to one piglet.
However to make things look better, the district official reports that two piglets were born.
As the report moves to the regional office, it also makes the numbers look better by reporting higher up that four piglets were born.
All this repeats itself as the number goes up the chain all the way to the Dictator Nicolae Ceau?escu, to whom it is reported that in some remote village a sow has given birth to 12 piglets.
Eager to demonstrate his concern for the people, the dictator decrees: "One single piglet for export, and the rest are for our people!".
ha ha ha Sounds like every statistic fostered by the USA — can't believe a damn one of them.
It's a command economy, of course it's distorted.
Take it from someone trying to find a decent apartment in central Beijing that the inflation is absolutely horrific, but the job market is excellent and wages (at least for skilled workers) is doing a good job keeping pace.
The banks don't run roughshod over the government here like they do in the US. Quite the opposite. If the housing market gets completely out of hand the CCP can and will put an immediate stop to it as it has many times before, property rights be damned.
Misery loves company, and I know Americans would love to believe that China is in the same boat but it just isn't so. The economic hardship China is experiencing is the sort experienced by industrial economies undergoing rapid expansion, like London during the industrial revolution. China is still growing.
I just had lunch with a director over at iSoftStone (a major Chinese outsourcing outfit) and he told me they are on track to expand their staff by 50% (4000 people) over the next 6 months. The worse things get in America and Europe the more jobs they send overseas. It's not just manufacturing anymore, the Chinese are now also doing much of the product design for Apple, IBM, WindowsMobile, British Telecom, Nokia, Ericsson, et al.
Have you asked how much of that expansion is coming from acquisitions and how much is actually relating to iSoftStone organically growing its business? From what I have observed about this company, it has mainly if not exclusively been growing through acquisitions, i.e. those jobs are not new and therefore do not represent market growth.
It is sound bites like this which we are exposed to every second of the day and which wily market participants use to spin their stories.
However, I agree with you on the increasing transfer of jobs from North America and Europe to China. As long as short-term profit thinking and greed rules western capitalist systems, people in the west will concentrate on short-term targets, sacrificing long-term communal interests in favor of individual short-term benefits (which in the case of transferring operations to China often turn out to be a mirage). The inability of opting for immediate relative hardship or loss of opportunity in the interest of long-term benefits or even only survival is one of the big short-comings of our western liberal and democratic political structures. China knows that and plays its cards accordingly.
Roach is a sharp dude....
The true unemployment rate in the United States is actually higher than we think -- at 11.5 percent, said Stephen Roach, Asia chairman of Morgan Stanley.
http://www.cnbc.com/id/35758582
I agree with Roach's assessment. Skeptics abound on China, but they are not as stupid as people think.
Leo, you are a great guy. I like you. I will always be grateful for your MS article regarding iron in the brain and the surgery now available. I have passed that on to 4 people I know with the disease. I have also always appreciated your perspectives on Canada when I have asked you for them. I haven't responded to one of your posts in a great while since I find you are in a state that seeks positive feedback for your solar plays, etc, or just happy you are making money. I am happy for you in that regard as well.
You are so rountinely junked (which really pisses me off because as a serious contributor you should not suffer the new turds on the block here) that I feel I must say that I support you even when I totally disagree with you. Newbies--take note--junking Leo serves no purpose. Let him say what he wants. ZH is supposed to allow all of us to express our opinions, right, left, wrong, or right. As the old saying goes, opinions are like assholes, everyone has one.
I personally believe that China is 20-40 years away from becoming a nation independent of exports. I also believe that China will fall off a cliff when the European debt crisis accelerates and our own banking CRE/prime mortgage crisis takes down the banks from myth to market--we are Japan here, on STEROIDS. It's just inevitable--no way around it--no printing press to fix it.
Simply put, if you think oil will keep rising and that China is so on the ball that they will suffer no peril as an early growing industrial nation, hang on to your solars. But that has never happened to any new industrial nation. In fact, fits and starts are the name of the game. And with their huge population, the Chinese mafia, and a banking system that didn't even have checking accounts 12 years ago--I would hope you would take some money off the table soon.
Stephen Roach Is Clueless
March 13 (Bloomberg) -- China may be forced to bail out banks that made loans for local-government projects under the unprecedented stimulus program unleashed in 2008, according to Citigroup Inc. and Northwestern University’s Victor Shih.
In a “worst-case scenario,” the non-performing loans of local-government investment vehicles could climb to 2.4 trillion yuan ($350 billion) by 2011, Shen Minggao, Citigroup’s Hong Kong-based chief economist for greater China, said yesterday.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIylss..voRM&pos=6
Is Roach now one of those Chinese-sponsored "conultants" like hoary old Henry Kissinger? Roach was off the reservation for a long time and then he suddenly started towing the party line like a good little boy.
I love how all of the press releases out of China in regard to banking and finance are taken at face value by nearly everyone as if it were the actual news.
"Yeah, see? They have no interest in gold. They just said so. They must have made that purchase on a lark"
Sure they have confidence inspiring totalitarianism, but at the end of the day a closed central banking system is a closed central banking system and an IOU for 800 billion is still just an IOU.
Police State is such a great thing!
Chinese bubbles are well in hand!
Since when did a cockroach start dishing out financial advice ? But thats okay..anything goes these days. If we have 20% UE here and if cut back on our purchases severely (again) who will support the millions of Chinese jobs that depend on our rampant consumerism - which is dying by the day check www.dailyjobcuts.com !!!
Oh my GOD! if we aren't borrowing money from the Chinese to consume their goods, whatever will they do!
Maybe consume the goods themselves? Oh wait, they wouldn't do that... America's too important and all...
/sarcasm
Reggie Middleton > Stephen Roach
Well Reggie actually does his homework....Steven Roach could get stuck in a roach motel. Bullshit goes in and it doesn't come out.
Create a safety net to try and get your citizens to start saving less and spending more on consumption. Brilliant fucking plan, Roach, that worked out really well in the United States.
Sorry for being a financial noob but I would think savings make a great safety net one that covers all expenses. It also really cuts down on bureaucracy. As an added bonus, it cannot be financed like a ponzi scheme like the safety nets in the west.
Roach is wrong - it happens sometimes. You don't get 30% money growth without bubbles. You don't build empty cities without bubbles.
Yeah, I mean GOD FORBID they actually move people that have poor homes in rural areas into them.
China may be in a bubble, but they can stay in one for a long time. People who think that they are in trouble even in the next couple of years need to lay off the hopium.
China is the biggest portion of his territory. What else would we expect from his brief?
Hang around in the koolaid bar long enough, and you will eventually order a drink.
I see. Because he's an expert he's self-deluded. That's excellent logic.
Not deluded at all. Just immersed in his environment. It's psychologically improbable that you won't be influenced by your own press. Plus, at the end of the day, he's assessed on the business that he's developed and as such, he will tend to embellish. It's natural. My intent is not to impune his brief, just take everything with a grain of salt, considering his motivations.
I just want to say that koolaid is the biggest annoying cliche of the recent 21st century.
Fuck, does everybody say "drinking the koolaid?"
"April is the year ?"
Roach is toast
That currency needs revalued, and export levels need a massive re-set, meanwhile buildings are empty, tax rolls stagnant, people are repressed- consumption fell to 35%, world protectionism is growing
BK countries everywhere--bullish for exports?
export to consumerism transition in China will take a few months/years--RIGHT!!!!
yeah china!
Rurals dont spend and consume,once they join the city --in forced labor camps, they are a form of SLAVES! They eat and work. until no work, then they move back to farmland.
I think China will have its own version of our great 1920-1930's depression/crash once the music ends.
What is the catalyst? lets see how the next year goes.
Perhaps this time the SPX will jump to new highs leading FXI. $tran has already made new highs with the 20 day crossing above the 50 day MA. SPX 20 day MA will likely cross above 50 day MA next week leading to the breakout above 1150.
This Cockroach needs to take the Wang out of his mouth. Or ass. Or wherever they're paying him to put it.
Those who have never lived in a real socialist state (as opposed to "obama-socialist" or "euro-socialist" states) will never "get it."
Those who have not experienced 5-year plans successfully "completed" in 4 years will never have a clue.
Those who have not experienced "And what if The Party going to ask of you to complete the 5-yr plan in 3.5 years?" - "If The Party requests this from us - we will do it in 3.5 years" will not see the depression until it hits them like a ton of bricks.
"And what if the Dear Leader will ask of you to do it all in 3 years?" - "For the Dear General Secretary, we'll complete it in 2 years and 6 months!"
Remember, the very same people who created "5 year plans", those who pretended that it was completed in 4 years, and those who pretended that they "accept" the "accomplishments of the Socialist Workers" are now running the factories, banks, and sure as heck government statistics!
Mr. Roach worked for years and years as the sell-side promoter/cheerleader for MS. Old habits don't die overnight.
ZH duck out early this friday? Wheres happy hour...
we are doing the thing over at Ten's tonight.
Of course it helps if the penalty for creating a bubble in China is a bullet and a shallow grave. Here in the USA it's selling the Palm Beach bungalow to maintain the standard out at the Hamptons.
Magaret,
I would like to interview you...privately !
Come on it Friday, people.
I guess everyone has forgotten that the Shanghai index fell 80% a couple of years ago.
Fucktards.
China doesnt let bubbles out of hand? how does he explain the half a trillion NPL portfolio the Chinese are still trying to digest? Just because a massive Chinese recession had minimal effect on the US doesnt mean it didnt happen...
I a bit disagree on the Chinese pushed global growth. I also do not agree with the ease of making the soft lending for their economy a reality. The site below has some stat's on the Chinese economy:
http://www.uschina.org/statistics/economy.html
Retail sales growth from 2007 to 2009 : 16.8, 21.6, 15.5 (%). While the 15% annual growth is impressive number, the trend is slowing without the Gov stimuli.
Fixed Asset Investment Growth (2007 t0 2009) : 24.8, 25.9 & 30.1 (%). A clear indication that OVERPRODUCTION orgy is raging at full speed ahead and does not reflect the trend in the local demand.
Now for the bubble to pop, there must be a certain invisible catalyst - a loss of confidence in the RE prices going only north, a bad gov policy, a trade war or even smaller combination of those three.
It might not happen tomorrow, or this year however with our mid election and protectionism talks looming on horizon plus EU exporters blues, we are getting close.
p.s. there is some interesting data on the Chinese consumers as well, disposable income per year:
Urban consumers average 17.1K/6.8 = $(per capita )
Rural consumer average 5.13K/6.8 = &(per capita)
Now we have in our possession most of the data needed to judge the capability of an average Chinese consumer to spend and pick the global economy up?
In addition the data on their M2 growth vs inflation and their reserves makes one wonder, how the f. someone can claim to re-orient their economy into consumption while printing so much money in order to keep the value of local currency down?
The talk about their measures to increase the local consumption is just an empty air that contradicts even fudged up official data.
Basically what the roach is saying is that China too should adopt the mindless and wasteful consumerist ways of the US. I do not see why this should be good for China or the rest of the world.
p.s. II (yet another case for bubble)
foreign direct investment into the China, growth over the 2008 year
Total: - 14.8%
RE: + 25.9 %
Banking: + 108 %
(wonder if any of the TARP & Co financing went right across the pacific lake )
source: http://www.stats.gov.cn/english/newsandcomingevents/t20100226_402623115.htm
China rides the brake and the gas simultaneously. I would hardly look to them as a bulwark of financial stability. They get away with it internally because of oppressive internal controls and externally because they have huge forex reserves due to winning trade war strategies.
BTW, I get that Roach is probably bashing usa policy moreso than praising China.
Basically what the roach is saying is that China too should adopt the mindless and wasteful consumerist ways of the US. I do not see why this should be good for China or the rest of the world.
When discussing Chinese rural-urban migration and real estate development, it seems most pundits forget that trusty old saying: correlation isn't necessarily causation.
The idea that real estate development in China today is driven by the influx of migrant workers reeks of, at best, intellectual laziness, and at worst agenda-driven blindness. It doesn't take a genius to see the disconnect here:
Most recent urban construction= high end residential developments and commercial office space.
Most migrant workers=dirt poor and not shopping for luxury condos or office space. Live either on construction sites temporarily or in peripheral semi-urban "villages". Lucky to get paid half the time due to gov't/developer corruption and collusion.
Dynamics of Chinese real estate are driven by the investment preferences of the urban wealthy and not the "needs" of rural arrivals- they are just there to build the glitz and clean it, not live in it.
It's like saying that Dubai's real estate boom was justified because there were so many South Asians migrant workers moving there and the city had to grow to accommodate them.
I think that's an accurate observation, Dubai real estate was frequently sold on the premise of fast population growth of 7% or so, which included growth of low-paid slaves from South Asia. Of course this argument DID work, but only until prices came crashing and it became all too obvious there were no fundamentals to support the market, or in other words, fundamentals had little to do with a population growth. Likewise, the main driver was investment demand from wealthy with the only one difference from China - those wealthy were mostly foreigners.
Even Citi's Hong Kong Chief Economist has joined Vic Shih in raising concerns about the possibility of a massive bank bailout. He's not as bearish but the point remains. It's funny, this stuff hardly ever makes the MSM in Australia. You reckon your MSM is only a good news channel, it's nothing on the tripe served up as economic analysis here!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIylss..voRM&pos=1
"The Chinese authorities are on top of it."
Please add this to the list of the stupidest statements of all time.
Thanks.
Stephen Roach is trying to win more business in China. And trying hard to top the League Tables.
http://dealbook.blogs.nytimes.com/2009/12/18/goldman-morgan-stanley-vie-...
Yes, Steve's talking up his book. Buyer beware ...
"Since 2000 between 15 and 20 million rural citizens have moved into urban settings".. to seek employment in export-oriented industries!
Roach is 90% salesman and 10% economist.
"The lack of a safety net is a profound drag on Chinese consumption."
He says that as though consumption were the primary goal of an economy. It is precisely this fallacy that is causing all of today's economic problems.
what is the primary goal of an economy?
"The lack of a safety net is a profound drag on Chinese consumption."
He says that as though consumption were the primary goal of an economy. It is precisely this fallacy that is causing all of today's economic problems.
A "safety net" for people that are considered property of the State, like cattle? What planet is Roach from?
He criticises the US for "protectionism" when China manipulates its exchange rate. I call "Bullshit" on that.
But I think he's right that the lack of a social safety net causes a lot of the "excess savings" which, in turn, enables very high rates of investment in China. We will see if this investment ends up being "mal-investment".
He is certainly talking his book. But he could still be right that China could avoid a crash. We need more data on the real-estate markets there. All we get is a lot of anecdotes. Can we interview some RE people on the ground?
Yes, I never understood how the Chinese government can set their exchange rate wherever they want to help exports and that's "free trade" but if the US government set the RMB to USD at 4:1, that would be "protectionism"
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