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China Admits It Has An Overcapacity Bubble

Tyler Durden's picture




 

Earlier in the year we unveiled the most 'epic' Chinese over-capacity bubble chart. Of course, China bulls shrugged at such inconvenience as demand and supply imbalance (even as Michael Pettis destroyed many of their hopes and dreams as all that debt - to over-build and over-supply - has to be repaid). Fast forward to today, on the eve of the nation's Third Plenum, and Chinese leaders are facing the music. As AP reports, leaders have ordered local officials to stop expanding industries such as steel and cement in which supply outstrips demand. The call, via video conference, saw planning officials warn local leaders to stop ignoring orders to reduce overcapacity in industries including steel, cement, aluminum and glass, "Those who still violate discipline will be heavily punished." One chief engineer exclaimed, "the scale of overcapacity is unprecedented."

 

Via AP,

Chinese leaders have ordered local officials to stop expanding industries such as steel and cement in which supply outstrips demand, a Cabinet statement said Tuesday, in a sign previous orders to cut overcapacity were ignored.

 

...

 

In a video conference on Monday, planning officials warned local leaders to stop ignoring orders to reduce overcapacity in industries including steel, cement, aluminum and glass.

 

"Those who still violate discipline will be heavily punished," said the deputy director of the Cabinet planning agency

 

...

 

Cement manufacturers use only 71.9 percent of their capacity as of the end of 2012, according to the statement. The steel industry used 72 percent while the rate for glass manufacturers was 73.1 percent.

 

The scale of overcapacity is unprecedented, the China Daily said, citing Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology.

 

...

 

Beijing has tried to prod producers in many industries into mergers to reduce output. But lower-level officials in many areas prop up unprofitable local companies with rent-free land and other aid.

 

The conflict is fed by a political system in which Communist Party officials are judged on their role in economic development.

 

...

 

In some places, the Cabinet statement said, local leaders go through the motions of obeying orders to tear down older steel mills, but then replace them with bigger facilities.

 

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Wed, 11/06/2013 - 13:00 | 4127313 NotApplicable
NotApplicable's picture

As Mises always said,

"Malinvestment, bitchez!"

Wed, 11/06/2013 - 13:06 | 4127344 SMG
SMG's picture

More evidence this 8-10 year timeline is correct:

US Dollar Collapse

China Collapse

China/Russia vs US EMP and nuke war.

From chaos, the NWO.

Wed, 11/06/2013 - 13:10 | 4127355 LawsofPhysics
LawsofPhysics's picture

Please, TPTB in China and the U.S. have been on the same page since the early 70's. no corporate taxes and a labor force that works for Chinese wages is a corporatist's wet dream.

Wed, 11/06/2013 - 13:16 | 4127383 Herd Redirectio...
Herd Redirection Committee's picture

US/Russia vs China

Why not? 

Wed, 11/06/2013 - 13:36 | 4127418 LawsofPhysics
LawsofPhysics's picture

< puts on tinfoil hat >  Okay, I'll bite, why?   I do business with people in Russia.  In a nutshell, they are tough motherfuckers who really don't give a shit what China or the U.S. do.

Wed, 11/06/2013 - 13:41 | 4127501 SMG
SMG's picture

Okay, I'll bite, why?

Population reduction, the Luciferian Elite don't like us using their resources.  And the resulting chaos leaves them a clean slate to build whatever kind of state they want.

Here's a good article on the situation if you want to know more:

http://www.worldaffairsbrief.com/keytopics/threats.html

I hope he's wrong, but you pick up little confirmations he's right here and there.

 

 

 

 

Wed, 11/06/2013 - 13:45 | 4127525 LawsofPhysics
LawsofPhysics's picture

That article only re-affirms that the Russian elite will do what's good for Russia.  Thanks for helping.

Wed, 11/06/2013 - 14:23 | 4127704 TBT or not TBT
TBT or not TBT's picture

You meant to say, surely, what's good for the Russian elite? Life expectancy and birthrates in Russia are apocalyptic, and have been for some decades now.

Wed, 11/06/2013 - 14:30 | 4127743 LawsofPhysics
LawsofPhysics's picture

yes yes, of course.

Thu, 11/07/2013 - 18:51 | 4132802 ich1baN
ich1baN's picture

Skousen has an intersting analysis of the world and he makes a great point about the NWO globalists and how we americans are so naive about it and how TPTB will claim they didn't know and were deceived by the Chinese and Russians in the coming attack. 

The Freemasons are at the head of this Illuminati order, but you have to be careful of his analysis as potential disinformation because Mormons are actually co-opted by the Freemasons and he is Mormon from what I found about him. I am not saying he is a faithful Mormon or co-opted by Freemasons but it is good to be a little cautious because soemthing inside me tells me that people that he links to like Alex Jones are part of the NWO deception. 95% truth with the 5% evil hidden from us.

Just my 2 cents. Good analysis but still be cautious. 

Wed, 11/06/2013 - 14:12 | 4127662 DoChenRollingBearing
DoChenRollingBearing's picture

As long as they don't shut down the Chinese bearing plants, we're OK...

Wed, 11/06/2013 - 13:07 | 4127349 ParkAveFlasher
ParkAveFlasher's picture

Maybe they should plan and then build a gigantic city to house millions who would live a Western-like consumerist lifestyle driven by industrial-age prosperity in which they can demonstrate their clear ability to plan and then build a gigantic city to house millions who would live a Western-like consumerist lifestyle driven by industrial-age prosperity.

Wed, 11/06/2013 - 13:09 | 4127362 RSloane
RSloane's picture

...or what happens when a planned controlled economy suddenly becomes out of control. Locals are going to do whatever it takes to keep jobs and money local. So much for central plannng.

Wed, 11/06/2013 - 13:42 | 4127508 LawsofPhysics
LawsofPhysics's picture

Yes, all eCONomies are really local at the end of the day.  However, in many ways, China is to the 21st century what Germany was to the 20th. 

hedge accordingly.

Wed, 11/06/2013 - 14:14 | 4127670 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

Good advice!

Gold, lead, and highly engineered 52100 steel products.

Wed, 11/06/2013 - 13:20 | 4127404 Stoploss
Stoploss's picture

Ah, storm in a tea cup.

 

Wut?

Wed, 11/06/2013 - 14:08 | 4127636 azzhatter
azzhatter's picture

We have an over creation of credit. Wonder if Jamie and Lloyd will be severely punished?

Wed, 11/06/2013 - 13:16 | 4127317 falak pema
falak pema's picture

china PM maintained he needs at least 7.2% real growth to maintain employment % at current levels given the great aspirations of people coming in from western China; ex peasants.

So the trajectory of the Chinese comintern will be to artificially push both exports; via subsidised sales; also push  internal consumption, to meet these social objectives, hoping to absorb this overcapacity by local consumption.  

If the financial bubble due to RE malinvestment and degraded muni budgets becomes insurmountable it means they do the great splits; like first world. Everybody looks to the OTHER guy to generate real organic growth.

Maybe the penguins in the Arctic are our last hope.

Wed, 11/06/2013 - 15:17 | 4127940 TheFourthStooge-ing
TheFourthStooge-ing's picture

Wonderful how Chinese citizenism citizens keep focusing on minor details, due to their paranoia, even when they are pointed their gross mistakes.

In Chinese citizenism, denial has always to be put face to face with admission. Is it more profitable to deny or admit? If more profitable to deny, then the denial course is selected. If more profitable to admit, then admittings course is taken, while pushing blame onto a convenient exterior to avoid self indiction. Always someone else the culprit when a Chinese citizenism citizen is the guilty one.

If Chinese citizenism citizens can ever admittings a roadside overcrapacity bubble newsworthiness will ensue abundantly. This is the most biting issue for Chinese citizenism citizens right now: they are into denying the most obvious fact, the clearest evidence about themselves.

Some countries are in a much better position to push other countries over the train. That is the difference and it does not correspond with fundamentals but rather with the inclusion within the world wideweb of Chinese citizenism propaganda.

It is a hoser hosed situation. Burlesque times.

Wed, 11/06/2013 - 18:27 | 4128538 ebear
ebear's picture

"Maybe the penguins in the Arctic are our last hope.'

or the polar bears in the Antarctic!

Wed, 11/06/2013 - 13:00 | 4127320 Running On Bing...
Running On Bingo Fuel's picture

Are you sure it's China and not Bitcoin that has the overcapacity problem?

Over.

Wed, 11/06/2013 - 13:11 | 4127370 Prisoners_dilemna
Prisoners_dilemna's picture

WTF??
Why were you downvoted?

So what if your comment was off-topic.
So what if your brought absolutely zero value to the discussion.

To all the rest of you;
Stop picking on the retarded commenter. He obviously can not help himself. Even if he proves his idiocy every time he comments we can still use his as a bullet shield, so to speak.

So again I ask you all,
Please stop down voting Running on Bing. It's not his fault he drinks the fluoridated water.

Over and out, wilco, roger roger.

Wed, 11/06/2013 - 13:31 | 4127427 Running On Bing...
Running On Bingo Fuel's picture

I approve this endorsement!

I have an announcement to make and it's a doosy.

I will indeed run for President of the Bitcoin Scammers in 2016 and I need your help mining for votes!

Over.

Anbesol when applied topographically to the nerve that I hit will reduce the pain. It works for teeth but also it work well everywhere else. I don't want you to suffer so much.

Wed, 11/06/2013 - 14:21 | 4127700 Running On Bing...
Running On Bingo Fuel's picture

You know and I know that you got a problem.

Too many people mining Bitcoin and NO ONE is using it as a medium of exchange. That is the textbook definition of over capacity.

Over.

Wed, 11/06/2013 - 13:04 | 4127335 Quinvarius
Quinvarius's picture

The iron ore chart is pretty nuts:

http://www.indexmundi.com/commodities/?commodity=iron-ore&months=360

And people call gold a bubble. 

Wed, 11/06/2013 - 14:55 | 4127864 DoChenRollingBearing
DoChenRollingBearing's picture

An interesting link, thank you for posting it.

Wed, 11/06/2013 - 15:21 | 4127956 DadzMad
DadzMad's picture

Nice chart.  So that's why Gogebic Taconite wants a new iron ore mine on my grouse hunting land.  I was told not to come too close with a weapon as they have armed security from some place called Bulletproof Security in Arizona.  I've been told vests, AR's, the whole 9 yards to fend off a few Sierra Club campers.  All I know is those Arizona boys are in for one motherfuckin' cold winter along Lake Superior.  As my uncle used to say "can't find your cock cold".

The boys here in Madison are gettin' paid real good to look away.

Wed, 11/06/2013 - 13:08 | 4127338 Mercury
Mercury's picture

The call, via video conference, saw planning officials warn local leaders to stop ignoring orders to reduce overcapacity in industries including steel, cement, aluminum and glass, "Those who still violate discipline will be heavily punished."


Because top-down central planning will surely beat the bottom-up market allocation of capital this time!

 

Wed, 11/06/2013 - 13:25 | 4127429 PT
PT's picture

Over-capacity?  Don't you just reduce the prices until demand matches up?

Wed, 11/06/2013 - 14:03 | 4127615 pitz
pitz's picture

I can already buy stuff for less than free from Chinese suppliers when you net out shipping costs.

Its always spectacular to receive a registered packet shipment from DealExtreme or other Chinese companies, with $5 worth of merchandise, $15 for shipping, and pay maybe $6 for the whole thing.  I can't even drive to the mall for such little.

Wed, 11/06/2013 - 14:24 | 4127708 PT
PT's picture

The stuff I bought from China broke within weeks.  Trust my luck to find the dud.

Wed, 11/06/2013 - 16:24 | 4128183 Stuck on Zero
Stuck on Zero's picture

That's the Chinese way of getting rid of toxic wastes.

 

Wed, 11/06/2013 - 13:05 | 4127341 reader2010
reader2010's picture

capitalism is good because not only it just destroys traditional communities and biosphere for accumulation of imaginary wealth, but also it is homogenizing, controlling and dominating social life, while robbing individuals of their freedom, creativity, time and human potentialities.

Wed, 11/06/2013 - 13:10 | 4127367 redd_green
redd_green's picture

Capitalism? The Chinese Government?  heh, what ARE you smoking,  I want some.

Wed, 11/06/2013 - 14:26 | 4127726 PT
PT's picture

"US style Capitalism", "Chinese Communism" - something tells me those two phrases are interchangeable these days.

Wed, 11/06/2013 - 13:10 | 4127368 ParkAveFlasher
ParkAveFlasher's picture

Yes is verbal tenses, destroying biological English True?

Wed, 11/06/2013 - 13:18 | 4127391 redd_green
redd_green's picture

So Gorgonzola is as good as butt cheese as well!

Wed, 11/06/2013 - 13:08 | 4127360 redd_green
redd_green's picture

The Chinese business model hard at work;  keep adding new producers, and each one drops their prices to "compete" until the entire thing collapses.   But, the billionaires sneak away to Canada with their billions, and the peasants suffer the crash.

Wed, 11/06/2013 - 13:24 | 4127421 pitz
pitz's picture

Not seeing any Chinese billionaires in Canada unless you count Li Ka-Shing. 

Wed, 11/06/2013 - 13:39 | 4127485 redd_green
redd_green's picture

You don't see them, pitz, because they are billionaires. 

Wed, 11/06/2013 - 13:40 | 4127493 pitz
pitz's picture

Doubtful, its not possible to have that much money in Canada and fly under the radar. 

Wed, 11/06/2013 - 13:49 | 4127552 redd_green
redd_green's picture

Apparently you don't know where to look.  They have been coming to Canada for ages:  http://www.cnbc.com/id/100324664

 

Wed, 11/06/2013 - 13:58 | 4127598 pitz
pitz's picture

None of the wealth seems to be showing up in Canada.  Only a giant debt bubble.  Particularly in housing.

Wed, 11/06/2013 - 14:25 | 4127719 Herd Redirectio...
Herd Redirection Committee's picture

Well, they have bought a lot of RE in Toronto and Vancouver...

Wed, 11/06/2013 - 16:03 | 4128102 pitz
pitz's picture

Have they?  Data I've seen is mostly on high amounts of credit. 

Wed, 11/06/2013 - 13:13 | 4127374 economessed
economessed's picture

Oh, I see.  China admits that it has gone profoundly overboard in producing tangible goods that have real value.  That's what China does - manufacture goods.

 

I look forward to the day that the Federal Reserve admits that it has gone profoundly overboard in producing debt instruments that have no real value.  That's what the Federal Reserve does - manufacture debt.

 

 

Wed, 11/06/2013 - 13:19 | 4127398 redd_green
redd_green's picture

The Chinese produce garbage that have negative value to consumers, so that a very, very small handful of people can walk away billionaires.   And, they do.

Wed, 11/06/2013 - 13:31 | 4127451 bagehot99
bagehot99's picture

 Most of what China produces doesn't have 'negative' value at all. Most of it is cheaper than can be bought elsewhere, freeing scarce financial resources for other uses.

That is straightforward, and not revelatory. 

Being a party boss in China gives you ownership (effectively) of super-cheap labor, and manufacturing resources to capitalize on this economic advantage.

The problem is when your customers are impoverished by their own Marxist fool, to let 70 year old women have free birth control.

Wed, 11/06/2013 - 13:43 | 4127512 redd_green
redd_green's picture

Sounds like you have it aaaaaallll figured out.  Thanks for clarifying.   Heh. <sarcasm intended>    hehheeeee scarce financial resources!  Heh.    So, central banks don't print.    thanks I needed the laugh.

Wed, 11/06/2013 - 14:59 | 4127880 DoChenRollingBearing
DoChenRollingBearing's picture

Much of what we buy from China (hub & bearings assemblies for car wheels) NO ONE else makes or at very high prices only.  I believe that is almost 100% true that very few of these are made by Timken in the USA.

Wed, 11/06/2013 - 13:39 | 4127489 pitz
pitz's picture

Firms like Huawei have destroyed US firms such as Cisco and Nortel in providing advanced networking gear.  Apparently there isn't even a US company that makes 4G LTE base stations anymore. 

Wed, 11/06/2013 - 14:30 | 4127746 TBT or not TBT
TBT or not TBT's picture

Loads of ex Cisco people zombying around the SF Bay Area. Engineering of all types, not just manufacturing, has gone overseas. Due to Cisco management decisions over time, trying to get their costs competitive with the Asian companies, some of which copied their designs outright, down to labeling them as Cisco products.

Wed, 11/06/2013 - 13:31 | 4127446 Quinvarius
Quinvarius's picture

But if they stop manufacturing more debt to pay interest, all the debt will become worthless.

Wed, 11/06/2013 - 13:44 | 4127521 pitz
pitz's picture

Got gold?  Don't know why people obsess over the US fiscal situation when this is the real story, in China...  And gold demand is exploding.

Wed, 11/06/2013 - 13:26 | 4127431 Bunga Bunga
Bunga Bunga's picture

Especially they have overcapacity of surveillance cameras at the moment:

http://qz.com/143660/china-discovers-that-pollution-makes-it-really-hard...

Wed, 11/06/2013 - 13:29 | 4127438 crakinshot
crakinshot's picture

Mouth Says Stop. Money Says Build...

Wed, 11/06/2013 - 13:39 | 4127491 monad
monad's picture

China can still invest in handicap ramps, signs, parking. Big money building & abusing those.

Wed, 11/06/2013 - 13:54 | 4127575 SmittyinLA
SmittyinLA's picture

Those damn chicom capitalists just aren't following their marching orders, don'ty they know when the state says  "stop working, un-employ your workers, stop making money and die" they're supposed to comply? 

What's wrong with these people? 

How is the state going to make these people commit economic suicide? 

How are they gonna push green energy?

Whatever happened to the "greater good"?

Wed, 11/06/2013 - 13:55 | 4127582 SmittyinLA
SmittyinLA's picture

US steel mills are operating at what 30-40%? 

And energy, we have parked generating plants all over America. 

Wed, 11/06/2013 - 14:00 | 4127610 pitz
pitz's picture

Most are at end-of-life though.  Particularly for the coal and nuclear fleets.  Chinese overcapacity, dramatically newer and harder to liquidate without massive write-downs on the debt. 

Wed, 11/06/2013 - 14:02 | 4127614 pragmatic hobo
pragmatic hobo's picture

as we all learned ... only solution to a bubble is a bigger bubble ...

Wed, 11/06/2013 - 14:24 | 4127709 orangegeek
orangegeek's picture

communist intelligence = oxymoron

Wed, 11/06/2013 - 14:54 | 4127856 AustrianJim
AustrianJim's picture

Maybe they should abandon communism.

Wed, 11/06/2013 - 16:01 | 4128092 Oracle 911
Oracle 911's picture

I see in the future:

when the West asset bubble bursts, lot of angry, jobless and hungry Chinese workers be there.

Wed, 11/06/2013 - 16:15 | 4128149 GreatUncle
GreatUncle's picture

Hmmmm over supply in cemement, steel and glass.

Little question

Was any of this oversupply part of China's quoted growth figures?

If so looks like China to do this would have to go into a future negative growth situation.

Looking uglier as each day passes.

 

 

Wed, 11/06/2013 - 18:40 | 4128588 Bull Bear Nice Pair
Bull Bear Nice Pair's picture

There is really no over-capacity of anything in China on a per capita basis. Even the per capita use of steel and concrete is below that of the U.S. and Japan at their peaks. And we all know domestic debt does not really matter.

Wed, 11/06/2013 - 20:08 | 4128953 Herkimer Jerkimer
Herkimer Jerkimer's picture

'

'

'

'

"Those who still violate discipline will be heavily punished."

This is why centrally planned governments fail, when they try to centrally plan economies, which do not respond to irrational hopes and dreams, but to sound, solid facts and reality.

Those concrete plants were put there because of the party discipline.

You can't have a pseudo-centrally planned eoncomy with captialist fervor or it will fail more spectacularly than just the good ol' creatively destructive captialism.

 

•?•
V-V

Thu, 11/07/2013 - 00:13 | 4129719 malek
malek's picture

 all that debt has to be repaid

What an archaic, to not say barbaric concept!

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