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Beijing, We Have A Problem
Submitted by Jim Quinn via The Burning Platform blog,
The Chinese stock market hit a four year high today at 3,020. This is up 53% since the middle of 2013 low and up 48% in the last six months. I guess this must mean the Chinese economy is operating on all cylinders. If you think so, you’d be wrong. Barron’s interviewed a no-nonsense woman who has lived, worked and analyzed China from within since 1985. Anne Stevenson-Yang has spent the bulk of her professional life there working as a journalist, magazine publisher, and software executive, with stints in between heading up the U.S. Information Technology office and the China operations of the U.S.-China Business Council. She’s now research director of J Capital, an outfit that works for foreign investors in China doing fundamental research on local companies and tracking macroeconomic developments.
This lady is about as blunt as you can get about Chinese fraud, lies, mal-investment, and data manipulation. The entire Chinese economic miracle is a fraud. The reforms are false. The leaders are corrupt and as evil as ever. The entire edifice is built upon a Himalayan mountain of bad debt.
The slave labor manufacturer for the world’s mal-investments since 2008 make Japan look like pikers.
China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn’t working anymore. Sure, the nation has been hugely successful over recent decades in providing its people with literacy, a decent life, basic health care, shelter, and safe cities. But starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects—you know, airports with no commercial flights, highways to nowhere, and stadiums with no teams. The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt.
The BLS should take lessons from the Chinese government in data falsification. But, the American MSM dutifully reports the Chinese data as if it was real. Faux journalism at its finest.
People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross- domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too.
Real numbers from the real economy and real companies reveal the truth about the Chinese economy. If revenues are falling, why is the Chinese stock market up 48% in the last six months? The same reason the U.S. stock market is up. Rampant speculation created by blind faith in central bankers and central banks buying stocks.
I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy. Think about it: Property sales are in decline, steel production is falling, commercial long-and short-haul vehicle sales are continuing to implode, and much of the growth in GDP is coming from huge rises in inventories across the economy. We track the 400 Chinese consumer companies listed on the Shanghai and Shenzhen stock markets, and in the third quarter, their gross revenues fell 4% from a year ago. This is hardly a vibrant economy.
The Chinese are learning the same thing as Americans. Stimulus does nothing for the average person or the real economy. It benefits crony capitalists and crony communists. It results in mal-investment, booming stock markets and ultimately a bust – that will negatively impact the average person.
By our calculations, since June the central government directly and indirectly has added more than $400 billion of stimulus and relaxed lending terms for housing purchases. Yet, every spasm of new stimulus seems less and less effective in boosting the economy. So most likely, China is sinking into a deflationary recession that’s increasing in speed and may take some time to run its course. Investors have lost faith in the property market, which alone comprises about 20% of GDP, when taking into account the entire supply chain, from iron-ore production to construction to related financial services and appliance sales. Employment and wage compensation will suffer. Consumption will continue to suffer. There’s even an outside possibility that China’s economic miracle could end up in a fiery crash landing, if a surge in banking-system loan defaults outruns government regulators’ attempt to contain such a credit crisis and restore financial confidence.
The diminishing effectiveness of Keynesian claptrap projects is evident for all to see.
The giant government economic-stimulus programs since 2008 are rapidly losing their effectiveness. The reason is simple. Much of the money has been squandered in money-losing industrial projects and vanity infrastructure spending that make no economic sense beyond supplying temporary bump-ups in GDP growth. China is riding an involuntary credit treadmill where much new money has to be hosed into the economy just to sustain ever-mounting bad-debt totals. Capital efficiency, or the amount of capital it takes to generate a unit of GDP growth, has soared as a result.
Nothing like 50 million unoccupied housing units to create the greatest housing bust in world history. Maybe Blackstone can work its buy to rent strategy in China. It’s worked so well here in the U.S.
The Chinese home real estate market, mostly units in high-rise buildings, is truly bizarre. Many Chinese regard apartments as capital-gains machines rather than sources of shelter. In fact, there are 50 million units in China that are owned but vacant. The owners won’t rent them because used apartments suffer an immediate haircut in value. It’s as if the government created a new asset class that no one lives in. This fact gives lie to the commonly held myth that the buildout of all these empty towers and ghost cities is a Chinese urbanization play. The only city folk who don’t own housing are the millions of migrant laborers continuously flocking to Chinese cities. Yet, they can’t afford the new housing.
China should rename themselves Bad Debts R Us. I’m sure they can keep the bad debt balls in the air for another decade. Right?
Interestingly, liquidity seems to be a growing problem in China. Chinese corporations have taken on $1.5 trillion in foreign debt in the past year or so, where previously they had none. A lot of it is short term. If defaults start to cascade through the economy, it will be more difficult for China to hide its debt problems now that foreign investors are involved. It’s here that a credit crisis could start. Bad debt in China never seems to get written down. The huge pile of nonperforming bank loans that Beijing assumed earlier in the millennium in order to be able to take its major banks public still sits on the balance sheets of various asset-management companies.
China is still an evil communist nation that disregards human rights, murders its citizens, crushes dissent, and suppresses free speech. Other than that, they are a great bunch of guys.
In my opinion, the press is somewhat guilty of willing suspension of disbelief on developments in China. Xi’s agenda of Confucian [moral] purification has nothing to do with opening up the economy or social reform. He wants to bolster the power of the Communist Party and tamp down the cynicism about the system that is increasing in China. This explains in large part his bellicosity in the South China Sea, quashing of dissent on the Internet and elsewhere, and heavy-handed attacks on non-Han populations like the Uighurs. He openly disdains Western democratic values. As for Xi’s much-ballyhooed anti-corruption campaign inside China, it offends me that international media depict it as a good-governance effort. What’s really going on is an old-style party purge reminiscent of the 1950s and 1960s with quota-driven arrests, summary trials, mysterious disappearances, and suicides, which has already entrapped, by our calculations, 100,000 party operatives and others. The intent is not moral purification by the Xi administration but instead the elimination of political enemies and other claimants to the economy’s spoils.
Nothing like a little blunt truth on the day the Chinese stock market hits a four year high. Nothing but smoggy skies ahead.

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I think most people don't give China enough credit (no pun intended). If we all know about the potential economic collapse, why wouldn't they? I think they might have a great plan: artificially boost their economy; build up the middle class via a housing boom; encourage your citizens to buy GOLD and buy gold for the governemnt as well; wait until the next cataclysm and be a country that actually has physical assets inside it borders. As an added bonus, they will have plenty of empty apartments for people to squat in.
Before people lived on the land. In bad timesthye could still grow food. Now gazillions live in sky high flats. Next recession comes, what will they eat?
Chinese.....food?
I think they have proven they will eat about anything.
I think even the Chinese would bawk at eating concrete apartment blocks
As I write this I am looking across the street at one of those stadiums with no team. I ask myself at least once a month, who in their right mind authorized the money to build this thing. The stadium is part of a huge athletic complex.
Until you live here you can not grasp the enormity of what goes on here.
Huge public works projects, authorised and funded by the government, to keep ordinary Chinese people employed and to keep them occupied perhaps?
LOL What would keep Xi restless at night 300 million chinamen sitting on their arses with no job the next morning.
Well ... the way it work is that not all the money budgeted for the project goes tothe project. It is lucky is 50% gos there. The rest goes into others' pockets-especially for those who approve the project. So the project is approved to generate a payment stream to the approver, not because the project makes sense. A lot of projects don't even get finished because along the way the person who approved it is displaced and the new person either wants too much or stops the project on some trumped up grounds, maybe so that his buddies can finish it later, after buying it for a song.
Gee, you'd think the Communist party runs that place. ;)
Hugh Hendry had a great video on youtube where he was wandering around the CBD or central business district in one city pointing out $500 million empty (huge) office buildings.
Just extrapolate that across dozens of other cities in China. The city he was in was like a second tier city and it had at least 5 huge empty buildings. Oddly, the video, shot probably 4 years ago, is no longer on youtube.
Coming from a GBR sponsonred Drug Trafficking and a NWO-OchloOligarchy Nexus which is about to be supplanted by Shanghai, one needs to mindful of the Bias in the prose.
50 Million vacant apartments is nothing for a Country like CHN. They've enough people who can make use of it down the road.
Since the the Anti-Corruption Drive is reportedly working - as expected since CHN now has business partners from abroad - I'd refrain from concluding that "it's all going to crash and burn".
Trade with JPN, RUS, IND is picking up. The EU/USA's Trade activity may have slowed down; but as their 2nd through 4th Quintiles' Quality of Life improves, their domestic activity should mark a healthier pace.
I never ever bought into the commie miracle in the first place. They have a billion of slaves pepo. You can do a lot with that. Red fricking bastard China. And we are trying our damndest to emulate.
You are clueless.
Compared to any nation on earth the Chinese have come further than anyone over the last 30 years.
Go to Beijing and see a city that is pretty impressive. 6 million cars and the roads to pretty well handle them from purely bicycles 30 years ago. A pretty good subway system, high speed rail. Yeah shitty air I know.
Or Shanghai where at a factory I visted has a fantastic work set up with a company coffee bar at the entrance (which even serves beer and wine) plus a company cafeteria which serves a free lunch which is better than any cafeteria I have eaten at. If that is slavery I want some.
China has a ton of problems from doing things way too fast and corruptly, but a growing entrepreneurial class is developing. Unfortunately it probably won't be fast enough and a crash will have to come first.
I don't think they've come further than anyone if you look at things per capita. Surely South Korea has done better in the last 30 years. Germany (reunification), Japan, etc.
Nope. I went there 30 years ago. Everyone wore green or blue Mao suits. Nary a private anyhting to be found. One black and white TV per hotel floor. Out of everything. Only bicycles. Lots of rocky rice to eat and not much else. No choice in the stores, if there was anything you even wanted.
Today after 30 years it is bloody astounding. No one has come close to this much of a change.
Well, you're kind of talking your book, because you're in China and obviously have a connection there. And I don't really want to be argumentative about it. But I stand by my comment. South Korea, East Germany (reunified), and Japan have done way better than China.
Anyway, I don't disagree that China has come a long way. But they aren't at the top of the list, in my opinion.
At least there is one person out there that has been doing it as long as me.
Spot on comments.
The western media, the big banks and even the likes of Apple, Google (do no evil) all prop up what is otherwise an unjust feudal tyranny - and all for a little bit of money and no self respect.
This is why I am not physically in China anymore.
You can throw only so many business partners out the window or shoot them up and put them in a fake car crash for this barbarian to read the tea leaves.
The coup de grace will be when Microsoft, Intel and Google all find their IP was been funneled to a new competitor and they loss market share overnight.
It may sound trite, but the West is there to complete the four modernizations. After that is anyone's guess.
Google in China? Not these days, nor Facebook or Twitter. Thank you Great Firewall
Fraud begets fraud. If you commit fraud in the US and your currency is pegged, you must do the same.
I read recently an interesting statistic.
In 2010-2012 (or was it 2011- 2013), China consumed more concrete than the USA did throughout the 20th century!
Make of that what you will.
Edit : this link http://www.gatesnotes.com/About-Bill-Gates/Concrete-in-China
You mean by breathing it?
The Chinese used 27.2 million cubic metres (35.6×106 cu yd) of concrete on the Gorges dam alone which was completed in 2012.
We smogged a few folks.
I just dont get how everyone in China doesn't have cancer, they fucking breathe in Mercury gas from cradle to grave.
Must be all the rice.
Dre4dwolf- shouldn't that tell you something. If you can't believe government statistics about the economy or war or unemployment, then why would you believe them about second hand smoke, global warming, or anything else they spew all in order to TAX THE FUCK OUT OF YOU?
That's exactly why when I hear "China is the biggest eCONomy in the world now", I say fuck you...prove it.
They are not the largest per capita, and that DOES matter.
Take away the War Industry and everything associated with the Police State, there isn't much of an economy left. All the infrastructure in China is new, whether they need it or not. Compare that to the 30,000 bridges needing serious structural repairs in the US.
Leave it to the Chinese to upstage America.
Thanks, Beijing, now no one will pay any attention to today's revelations about CIA torture and that God Bless America hit a 238 year low.
Those poor, poor terrorists.
If von Clausewitz is right that
then it is obvious to all, that terrorism is a continuation of the politics of war. It is only Orwellian Propaganda that defines soldiers in uniform using cluster bombs and drones as acceptable and men in bed spreads and burkas wearing suicide vests, and car bombs as unacceptable.
There's not a nickel's worth of difference between the two. Each side is inciting fear and hopeless to the other side.
The West uses that fear to induce their citizens to willingly give heir freedoms. The terrorists use that hopelessness to recruit suicide bombers.
If terrorism didn't already exist, the West would have invented it themselves.
The "China miracle" is the same exact shit we were told about Japan back in the 80s, except unlike the Japanese, the Chinese are utterly, totally and thoroughly corrupt.
And (again, unlike the Japanese) their products are dog shit and often toxic.
Seriously, did you bitchez believe that a communist society, with corruption and nepotism ingrained into the social fabric, would suddenly become Puritanical, like another Germany but with more peeps?
you ought to go to WalMart and watch the 'Merkun peeps suck that dog shit down
Most Walmarts are being converted to part grocery store. The other part has much shorter shelves, MUCH wider aisles, and those shelves are far emptier than they used to be.
The Chinese merchandise is moving so fast, WalMart can't keep their shelves stocked. There's a several day wait to unload container ships full of desirable crap at American west coast ports.
That's absolute nonsense. I hope you forgot your sarcasm tag.
" Sure, the nation has been hugely successful over recent decades in providing its people with literacy, a decent life, basic health care, shelter, and safe cities. But starting in 2008, China sought to counter global recession with huge amounts of ill-advised investment in redundant industrial capacity and vanity infrastructure projects—you know, airports with no commercial flights, highways to nowhere, and stadiums with no teams."
Well duh, it's clear where the Chinese went wrong, after "literacy, a decent life, basic health care, shelter and safe cities" they should have given them a heaping hot bowl of American Freedom & Democracy.
And the Recipe for American Freedom & Democracy is :
One heaping cup of Enron Two ounces of Lehman Bros sauce MF Global sprouts One cup Worldcom juice Creamy Nortel Glazing A pinch Madoff magic spice Food Stamps Wars, Wars, and more fucking Wars.
And don't forget the Get Out of Jail Free cards for every financial crook in the country, the stupid Chinese have a bad habit of hanging the bastards.
Never underestimate chinese greed.
never underestimate human greed
This lady gets it. She sits there and read the elegant mandarin obtuse prose from the Govt including the non-independent PBOC. she is understandably livid.
While I will not go so far as to think that President Xi is that asinine not to ensure that the Party does not lose further legitimacy with its people; the delays in needed reforms are just stalled to ensure that the average household income in real terms do not fall drastically.
They can no longer export deflation so the most likely exit in today's G Zero World is to stealthily debase the currency. (You can still make your piles trading but just make sure that you do no hold on to their papers).
The chinese are very interesting people and live in very interesting times.
So many hints the past couple months that the entire world economy is flying over the edge of the cliff. The eurozone, the USSA, China... all chained together and headed down the tubes with Japan acting as the ball on the end of the chain.
2016 is gonna be the biggest bust ever, perhaps only exceeded by whatever happened to the dinosaurs. Or maybe not exceeded.
We went off the cliff a long time ago, we just haven't hit the bottom yet.
Hahaha. True enough... depending on what we mean by the "cliff" metaphor. Good one.
the whole world has a big giganic problem....
My sentiment to a "t "
LOL. You win my (meaningless) prize of post of the month!
Everything will work out fine.
The crony communists/capitalists have already been siphoning their ill gotten gains to the USA, Canada, Australia and Europe.
When the system implodes they will then escape to where their real estate acquisitions have been made and the poor old hard working Chinese can move into the 50 million empty units the crooks left behind. At four people a unit, this should house some 200 million people.
By the way, the bit that I love is the $1.5 trillion that Chinese corporations have borrowed from the west. When the system implodes at least China will have the satisfaction that it will have basically squared much of the account with the by then useless US government bonds it holds.
This harpie is a Chinese-bashing naysayer. She will always have an audience with Americans who want somebody else with a failing economy.
She's troll with an agenda. Not very credible.
"how is this different than USA?"
Well China has gold... (yuck how barbaric!)
The US have Corzine and Holder! (yippie!)
http://blog.gsmarena.com/xiaomi-announces-mi-air-purifier-150/
No need to worry
China. .....1984 in the flesh.
Only slaves have problems.....China has many friends and no problems
U.S. Air Force to Send Satellite Data To China Bypassing State Dept.
Heinz Opens Baby Cereal Factory In China
China Helps Fund Philly’s I-95 Turnpike Link
China Creates Yuan Trading Center in Los Angeles
http://newworldorderg20.wordpress.com
The usa government would never murder it's shitizens Eric Garner.
Make no mistake, the leadership of both the US and China are wolves and the only thing that remains to be seen is how they will treat the sheep they govern when things turn truly sour.
Dre4dwolf- shouldn't that tell you something. If you can't believe government statistics about the economy or war or unemployment, then why would you believe them about the affects of second hand smoke, global warming, or anything else they spew all in order to TAX THE FUCK OUT OF YOU?
Doesn't apply in a Communist system......world-wide get it?
Lagarde Ponders IMF Headquarters in Beijing
Western Retailers Move To China Boost Chinese Manufacturing Supremacy
U.S. Air Force to Send Satellite Data To China Bypassing State Dept.
China Aircraft Leasing To Purchase $10 Billion In Airbus Planes
Chinese Students Lead Foreign Surge at U.S. Colleges
China Helps Fund Philly’s I-95 Turnpike Link
China Creates Yuan Trading Center in Los Angeles
more.....http://newworldorderg20.wordpress.com