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Guest Post: China's Real Estate Collapse
Submitted by South of Wall Street
China's Real Estate Collapse
As I listen to all types of perma-bull talk about how the S&P would be at 1400 if it wasn't for Europe (which is the equivalent of: if my wife was 100 pounds lighter... she'd be a supermodel), I can't help but pulling my hair out.
The situation in Europe is clearly bad, and after reading Michael Lewis' new book... appears almost impossible to be resolved without massive defaults. However, the other domino in the equation is the Chinese real estate market. The 'global growth engine', China, is running out of steam. Their policy of placing market orders on anything and everything to inflate stimulate the economy - surprise, surprise - is proving to be unsustainable.
Take a minute to go thru this article.
According to Stephen Ip, infrastructure and real estate industry lead partner for KPMG China, property developers have found refinancing increasingly difficult, but worse situations could develop."Although the debt-equity ratio of some listed property companies have exceeded 100 percent, they still have alternatives to maintain operations, such as issuing convertible bonds or preferred shares to international institutional investors, selling project stakes and cutting prices to stimulate sales," he said. Link
So - they're going broke slowly. Got it. The implications are severe as everything from coal to casinos are impacted. Not surprisingly, the Chinese don't think its a big deal.
"Given the importance of the sector to the whole economy, a hard landing would be hard to avoid," Wang said. "Such a property-led hard landing scenario is quite likely in the next few years, even though we do not think the property market is about to collapse now."
Chinese officials hold a different viewpoint.
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Butt They Love Gold ...
How the chinese will solve this situation
http://www.threadbombing.com/details.php?image_id=4531
Ooops ... I Meant They Wove Gold ...
Thank God China has enough spare housing already built in their country to last them a decade, even if they don't build another single house or condo till then.
That should keep them off our backs for a while cause they'll still be fairly comfortable for a while. They even got the worlds largest dam in the world out of the deal, The Three Gorges Dam.
CHINA HAS CRASHED HERE AT 0HEDGE SINCE WHEN?
What the f do you suppose gold can save them from?
Collapse of USD perhaps. Nothing more than that. Besides they can never buy gold with all their reserves anyway so at best gold saves 5 oz of their arse flesh, perhaps.
A property collapse means evaporation of value in RMB terms, something that they can't do shit about with dollar reserve or gold.
The entire World Fin System is now under threat.
Ignore it at your own peril.
Printing fiats is the only possible solution in the end.
So, the Asian know what they are doing, most Mericans don't.
AND houses are a great asset, everybody Wants/Needs One... Butt its what you pay for them and how much you Owe (Or Not), that matters most.
They got in wrong when they made it a policy to put everyone in housing. The one great asset of the poor was they could pull up stakes and move to the jobs. When they were saddled with a home, it anchored their labor to one region where there may or may not be a job.
They got it wrong because the poor are bad credit risks until they earn their place. Period.
Not necessarily Bicycle, there are many small business loan schemes in poorest rural India and other parts of Asia that have few if any defaults, where loan risk is considerably less than highly levered middle America.
It's the amount that you borrow that's the problem, as the Western world is about to find out...
Who gave me thumb down? I didn't bad-mouth gold.......i was talking about china's problem unrelated to gold. For god's sake, someone has his mind up his own ass
You got junked? You must have bad mouthed either China or Israel, the two big perception management troll employers.
Goldman Sachs: We have revised our S&P end-year target to 2000 on the news that China's economy is exploding.
When the only tool you have is a printer, every problem starts to look like a rumor pump + capital injection.
Corrapse
bubbr
rook out berow!
it's actuarry Japanese who can't pronounce the r but hey, they arr rook arike, right?
ROR
Short rear estate, rong gord and sirver, bitchez!
@ Comay
+ 1 LOL
This is just one of a few reasons why I do not (much, never can be sure about anything) fear China. They have a terrible demographic situation (100,000,000 more men than women to start with) that portends a "China will get old before they get rich". I do not buy the "China is stable" argument either. China also has a history of screwing things up JUST when they are on the verge of greatness (superpower if you prefer).
All we need do re China is to use cautious and grown-up diplomacy with them. War is not in the cards if we constructively engage with them, and we do not needlessly threaten their vital interests.
well said DCRB.
And don't forget any future scenarios that place China and Russia in some sort of friendship are bogus. I see those every once in a while and roll my eyes. China and Russia will never trust each other. They hate each other even more than they hate the U.S. That is my opinion.
China and Russia joining forces is not a bad idea. I am sick and tired of the unipolar world.
+1 Agreed. I wouldn't like to be in charge of having to ensure 1.4 billion people got fed on a daily basis especially when approx 660 million of them are subsistance farmers. They have enough issues just ensuring the country stays together without class revelution to entertain taking over the world militarily - economically is another matter entirely.
Grain = the new oil
I wonder if they're water supply is as polluted with birth control hormones and/or fluoride.
Underestimate Mongols at your own peril. Allegedly, "we" did in Vietnam and Korea.
Kissinger's peace/piece was to sell them the (intellectual/egotistical) benefits of psychological warfare, as opposed to physical. Think slow roasted boiling frogs (foreplay), not nuked (orgasmed).
Taiwan and Hong Kong are (now) sacraficial bitches (pawned). No shots fired, but how do you feel about it?
Check.
I prefer to attribute (to) them the wisdom they inherit and preserve. By all measures, "we" are owned.
Check Mate.
aaawh that's just silly. My checkbook still has checks in it.
well you're just loaded then aren't you... at least for a few more weeks anyway...
In the last 2500 years, nobody has gone broke underestimating China. Overestimating China, that's a whole 'nother story.
For pretty much all of human history China has had the planet's largest population, but on a relative basis has precious little to show for it. Compare billions of Chinese (in arts and sciences) with the Zerohedge designated whipping boy, the Jewish people, of which even today there are perhaps 12 million. There's a clear overachiever, and a clear underachiever. And forget Jared Diamond's theories; China stepped on its own foot, despite having food and resources and free time.
"wisdom they inherit and preserve"....I think it's better to seek out new ideas and new wisdom, and not be just some trust fund nation trying to live off someone else's thinking. From the Renaissance (~1500) onward, history says I'm right, and we can leave most of the old Chinese superstitions and "wisdom" behind.
Well, just how do you eliminate an extra 100,000,000 men?
srine fru?
http://www.youtube.com/watch?v=bX7V6FAoTLc
agreed...it's a logistical nightmare...anyone remember that epic traffic jam? not to mention the water problem...
' They have a terrible demographic situation (100,000,000 more men than women to start with) that portends a "China will get old before they get rich".' - No it doesn't, it means this nation of wankers (pun intended) is going to become a nation of 'wife swappers'...
Oh yeah...
Impossibru !
Chinese ReaR Estate no corrapse....
Even if it does corrapse, just brame it on a GODDAMN MONGORIANS!!!
South Park - Nice
Highrises of Cards
As late as 2007 shills and morons were still saying that Florida real estate would not collapse. The government would make sure of that. How did that work out?
I saw my friend's Chinese cable TV the other day showing news from his Motherland, The Middle Kingdom. Holy crap! These people line up the day before to buy a new issue of some gold coin with a dragon on it!!! They showed some little old lady walking out with a 10 oz Gold coin with a strange dragon on it. WTF!
Is the dragion that good luck or something?
I can understand lining and sleeping out all nigtht up to see Justin Bieber ...but the Barbaric Relic?
Don't they listen to Buffet,"you can't eat gold."
Probably she was stocking up for the year of the dragon (next chinese year):
http://en.wikipedia.org/wiki/Dragon_(zodiac)
And we want them (they need) to become economy based on consumption?!
Good luck!
China is like your neighbor down the street that has come in to some money but you know he is still just a crazy asshole at heart.
By JR Nyquist 09/06/2011If the world has invested in the wrong things, and China is one of those things, then the bursting of the China bubble may be the greatest catastrophe of all. China’s financial system is a mess, and a major crisis cannot be far off. With the U.S. economy dipping lower and Europe facing its own financial nightmare, China cannot postpone its own day of reckoning. So what will China’s leaders do? What plans have they made?
To give readers some idea of the problem, a recent WikiLeak revealed that the U.S. had advanced knowledge of a secret Chinese missile test last year. In response to this revelation, Chinese Gen. Xu Guangyu told the South China Morning Post that American officials possessed enough advanced detail to suggest the presence of a sensitively placed U.S. spy in China’s rocket forces. According to the South China Morning Post, Gen. Xu said that “if China could no longer keep secret its missile launches, it would not be able to launch a surprise attack on the U.S.”
But why would China want to launch a surprise attack on the U.S.?
In 2005 Chinese Defense Minister Chi Haotian explained that an ailing Chinese economy would produce a social explosion that could sweep away the Communist Party. “If we do not have good ideas,” warned Chi, “China will inevitably change … and we will all become criminals in history. After some deep pondering, we finally came to this conclusion: only by turning our developed national strength into the force of a fist striking outward – only by leading the people to go out – can we win forever the Chinese people’s support and love for the Communist Party.”
To survive the consequences of an economic downturn, the Party needs to lead the Chinese people – as Chi Haotian suggests – “out of China.” This may seem confusing to those who think China is a post-Communist country; but as journalist Richard Mcgregor points out in his book The Party, China is yet a Leninist state. And yes, they really are Communists, though what this means is lost on nearly all outside observers – and somewhat bewildering to the Chinese themselves. The rulers of China keep their Communist goals and objective from public view. They do not like the glare of publicity; and so they banned Mcgregor’s book because he underscored the Party’s control over the army, police media and big business.
Two things are important to remember about the Chinese Communist Party: first, Communism remains a philosophy set against freedom; second, Communism is ultimately about the elimination of capitalism in favor of socialism (because capitalism opens the way to freedom). This latter point was underscored by none other than Deng Xiaoping himself – and by the Party in its secret conclaves today. But few in the West have bothered to read Deng’s collected works. Neither have they understood the reason for the Communist Party retaining its name and its ideology behind the scenes, where its strategies are meditated in secret.
The rationale behind Chinese capitalism is not to eliminate Communism. The rationale is to fight fire with fire – to defeat capitalism by capitalist means. The objectives of “Chinese capitalism,” as conceived by Deng Xiaoping, were outlined in an article published by the Hong Kong newspaper Cheng Ming on 6 June 1991. Here it was shown that Deng Xiaoping was secretly working to advance Sino-Soviet supremacy while the Americans were duped into giving China everything it needed. After the fall of the Soviet Union, as reported by Bill Gertz in the Washington Times of 21 Oct. 1992, China and Russia signed a pact restoring intelligence ties. From that point forward the Russians assisted the Chinese in their continuing military buildup.
The Chinese Communist goal was clearly stated at the beginning, in 1977, when Deng Xiaoping explained the strategy of opening economic relations with the West. Deng told the CCP Central Committee that they were engaged in “the international united front struggle” which was a strategy about which the “American imperialists” know absolutely nothing. “We belong to the Marxist camp,” he explained, “and can never be so thoughtless that we cannot distinguish friends from enemies.” According to Deng, President Nixon and President Ford were enemies, as well as President Carter. All future “American imperialist leaders” were also enemies. “What we need mainly is scientific and technical knowledge and equipment,” he said. In the future, America “will have no way of avoiding defeat by our hands.”
The strategic thinking of the Chinese Communist leadership holds that as long as America continues to enrich China, and as long as China can build its military power, then peace is workable. But when the economic wellspring runs dry and the Sino-American partnership has exhausted its profitability, then peace becomes unworkable. Rising discontent within China must then be diverted. The natural course would be for the people to hold the country’s leaders responsible, and to remove them from power. Many of these leaders would be tried as criminals, and would lose their heads. The only alternative to this would be war with the United States. This course automatically shuts down the Chinese democracy movement, which would have to choose between China and America in the course of a life-and-death struggle. In such a contest, the Chinese Communist Party automatically wins the assent of nearly all Chinese – including democrats.
And so, the best course for a failing Chinese economy is war. One might ask what kind of war? In a secret 2005 speech given by Chinese Defense Minister Gen. Chi Haotian (titled “War is not far from us and is the midwife of the Chinese century”), a biological attack on the United States was suggested as optimal. “It is indeed brutal to kill one or two hundred million Americans,” said Gen. Chi. “But that is the only path that will secure a Chinese century….” Having already noted that millions of Chinese would die if the Chinese economy collapsed, Gen. Chi explained that the only way out for China was to “teach the Chinese people to go out” (i.e., attack the United States). “We, as revolutionary humanitarians, do not want deaths,” said Chi. “But if history confronts us with a choice between deaths of Chinese and those of Americans, we’d have to pick the latter….”
Worried about the Chinese public’s reaction to the mass extermination of Americans, the Chinese Communist Party conducted an online survey through an intermediary. “[W]e wanted to know whether the people [of China] would rise up against us if one day we secretly adopted resolute means to ‘clean up’ America,” Gen. Chi explained. The survey asked if it was acceptable to shoot prisoners of war, along with women and children. If an overwhelming majority approved of such measures, “then they would approve our ‘cleaning up’ America,” said Chi.
The curious American reader might ask how the Chinese public reacted to the survey. “What turned out to be comforting,” noted Gen. Chi, “is they [the Chinese public] did not turn in a blank test paper. In fact, they turned in a test paper with a score of over 80. This is the excellent fruition of our Party’s work in propaganda and education over the past few decades.”
And so, if China’s economy stops growing, America should expect that its relations with China will deteriorate. This is based on the internal logic of the Chinese political system – which appears to be locked on a collision course with America.
http://www.financialsense.com/contributors/jr-nyquist/2011/09/06/when-th...
http://thefinalphaseforum.invisionzone.com/index.php?showtopic=44
China lacked the planning and logistics to beat Vietnam in a war back in 1978, its tiny southern neighbor. Now, 33 years later we're supposed to believe that China has the innate ability to defy the same laws of nature that are crushing everyone else?
Re: Chinese sneak attack: is that why TPTB are allowing record unemployment among young, draft-age men? Obama beefing up forces in Australia....?
John Kerry says, "you better study."
The "beef up" in Australia consists of exactly 250 Marines. I don't think China is moved.
well they should be shitting their pants...
Whoever wrote that article you posted is an idiot and under the impression we're still living in the cold war. We're all the poorer for having read it.
Yeah. He obviously made up all the quotes, and the survey, and surely the survey results. He probably also makes stuff up about the Chinese boiling cats and dogs alive, eating fetuses, using 'mobile execution vans', having millions of prisoners of conscience in gulags, and other cold war BS. He needs to wake up and smell the liberty!
WOLVERINES!!!!!!!
My impression is that at least Mr Li Shufu, the principal owner of Volvo, fears that there is a small risk that there will be some kind of socialist or communist backlash in China since he has a foreign holding company. But perhaps he operates this holding company for other reasons.
I doubt that the Chinese leaders intend to socialize privately held companies on a large scale in the foreseeable future. Of course no foreigner can be 100 % sure that the Chinese leaders are not still “real”, hard marxists who interpret marxism in a way that means that you first have to go through the capitalist phase before you can enter the socialist and communist phases. Furthermore, nobody can know for sure how socialism would be re-introduced. They could use a soft method like the Swedish social democrats tried in the 1970s and early 80s when wealth taxes, death taxes and employee funds were used as means to socialize big business. If the employee fund system had not been scrapped and if the Swedish governments had not been forced to large-scale privatizations due to the failed pegging of the Swedish krona to the European currency Ecu, I reckon that big business in Sweden could have been almost completely socialized by now. Another form of socialization could be confiscations and socializations similar to what took place in France after WWII and under Mitterand´s rule in the 1980´s. My impression, however, is that JR Nyquist fears a more drastic form of socialization similar to what happened in Russia after the revolution in 1917.
I think that there is a risk for socialization in any country where you got enough losers who do not benefit enough from a capitalist system and where you got an organized group of people who for idealistic reasons or for personal gain reasons want to impose socialism or communism and have the means to accomplish that. I suppose that is nothing new for political analysts. However, my impression is that most analysts underrate the importance of personal gain motives and other non-idealistic motives among socialist/communist revolution leaders and other revolution leaders. I don´t think that it was a coincidence that most wealth was privatized in the Soviet Union about 75-80 years after the revolution. I don´t think that it was a coincidence that French revolution leaders could buy manors previously owned by the aristocracy for a paltry sum after the revolution in 1789.
I guess that as long there is economic growth in China and people get a better living standard and people still remember the cultural revolution there should be little support for a true, communist backlash in the general public. But what happens if, let say, 40 % of the population still will have 3rd world wages while they at the same time can see how other people get rich? Some underpaid generals and soldiers could might take advantage of the discontent among these 40 % of the population. Spontaneously, I think that the risk for a coup d`état for such reasons should be slim. But that doesn´t mean that the current leaders are immune to problems caused by too many losers and too few winners in the current capitalist system. If the Chinese leaders fail to increase the living standard for the masses by increasing productivity and wages and if the Chinese economy continues to focus on exporting cheap junk which require low wages, there may be problems ahead. If people riot it may be tempting for party leaders to distribute wealth from the rich to the poor in order to calm down the masses. But so far I have not seen any reports about growing discontent among poor people in China. Therefore, I think that rioting, low-paid masses in China is a theoretical element of risk rather than an imminent threat to investors in China.
Furthermore, I think that even people in traditional, capitalist countries should keep in mind that if a majority, or a large minority, of the population hold a significant share of the big business stock in a country they become less inclined to support heavy taxes on this kind of asset class, or socialization of this asset class. I think that the growing number of voters in the United States who make very little money and own almost nothing can make it harder for the Republican party to win future elections. There also got to be a reason why social democratic governments in Europe, sometimes with support from ex-communists, have been able to abolish the death tax while that has not happened in the United States so far. I am not so sure that China is the only country where the masses could cause problems for capitalists.
MISH has been doing a good job showing China is in trouble.
And then there is this Chinese University finance professor in Hong Kong who was recorded as he lets it all hang out....might be sleeping with the fishes by now.
" Every province in China is Greece "
http://www.theepochtimes.com/n2/china-news/chinese-tv-host-says-regime-nearly-bankrupt-141214.html
if any of this was at all important, the market would sense it and the S&P would be below 1000 already, but it's not, so apparently it's not all that important.
The market is just now sensing that Europe may be over extended financially.
So much for the so called Efficient Market hypothesis.
The binary argument that China is in for a hard landing - whatever that means - essentially argues that the Yuan is not undervalued. I just don't hear many China bears making that argument, at least in public.
If Yuan is undervalued (which no one disagrees) that means those who bought in the housing bubble paid higher real values. Ooops, more pain.
Besides, major upward re-valuation of Yuan amid deflating housing market will be devastating, literally.
I disagree, I think the Yuan is grossly overvalued and fucking worthless, and it's only the central banking system that allows China to buy anything with it in the first place.
I am guessing you do not read Mish then.
Don't forget to look in the mirror first!
Hory shit!! my apattment is corrapsing
China creates labor for the sake of employing people, but there's no demand for much of what they produce. This is why they have ghost towns and vacant skyscrapers. It's a truly bizarre economy.
In ZH Style: GAS MASKS, BITCHEZ
If only I had been born a foot and a half taller then I'd be the most famous NBA star of all time.
If is for children, and certainly no way to run a global economy.
Seriously: can anyone recommend good protection for biological warfare? I've read gas masks need to be fitted specifically for each head.
The biggest threat of an NBC (Nuclear Biological Chemical) Attack is the ensuing panic, and the idea that one attack equals total decimation.
The logistical eye of the needle required to actually provide success for such an attack is so remote that it should be considered impossible (statistically, if you walk across a beach covered with ants, killing ants with every step, in the end, statistically you have killed 0 ants)
If an attack actually occurs, by the time you figure out you are under attack, you would be dead anyway, unless you carried your mask in a pouch on your side and trained regularly to be able to don it in less than 9 seconds.
The real defense against an attack is to stay indoors and don't go outside until it was clear that the prevailing winds had had sufficient time to disperse the threat.
Biological threats would die quickly in the open air, toxins would become extremely dilute, which leaves a nuke.
If a nuke gets you, you might see a bright light but you'll be dead before you feel the pain, so why worry.
Just get a good one.. Ware it often so it "molds" to your face. Remember to pick one with the filter on the side depending on which side you shoot your rifle..
The simple answer to your question is that you'd need to be sure that your mask formed a tight seal against your face. This is generally easy to accomplish from the existing sizes, S, M, L, XL. I never met anyone whose face did not seal against one of these sizes, and that includes plenty of people with funny shaped heads.
Thanks guys. Any recommendations for a mask/suit? A link to a site would be great.
<---paranoid.
I definitely do not want to die via biological agents, even if it means wearing my suit all day. haha.
Sorry mate gas masks don't do shit especially if you have any facial hair. If your up against anything worse than tear gas you need a full NCB suit (nuclear, chemical and biological) which in 34 -38 degrees centigrade you have about 15 - 20 minutes before you cook inside so an attack in the middle of summer everyone's toast. If they use nerve gas you gave seconds to get adrenaline into you. So unless you have a full NCB suit in your reverse-circulated air conditioned bunker with a stash of adrenaline your toast.
What am I trying to say here - if it comes to that we are all fucked so don't worry be happy...
Seriously: Distance from Patient Zero.
It's a crap shoot.
China is not Communist its Corruptionist-- You think the "leader ship" is worried about the USA-- what a crock-- the "leader ship" is worried about the other leaders(generals, organized crime figures in the underground, the blackmarket and shadow banking). If any heads will roll it will be a inside job.
The Chinese are finally realizing that in this PONZI finance system, once the scheme and borrowing gets big enough, you can never really raise interest rates and hence fight inflation, without the whole thing collapsing...
3 words for the Chinese- Massive Nuclear Strike! An attack anywhere in North America will bring everyone on this continent together. Chinese should also not forget that their populations are very close together, and only a couple hundred nuclear weapons would be needed to wipe them out.
In addition to that there would be massive arrest, and trials of Chinese Americans, and Canadian. Why would we trust anyone from that country when there are 1 billions plus of them trying to kill us! I believe this is a fight that we would eventually win, but at what cost...
Hard landing and uncontrollable inflation leading potentially to civil unrest.
Expect this to be 'hidden' from the view of outsiders to whatever extent possible. Stats from Chinese bureau of propaganda shall be treated as such. Buyer beware. One good thing is most of the Chinese just came from rice paddies to the city so they are used to getting by on very little.
Potemkin Villages, anybody?
The only not so funny thing about an economical collapse in China is the 50 percent possibility of a great war between the U.S. and China.
Why?
Because in an inner crisis China will seek to get rid of pressure by seeking to ignite an outer conflict. There is no greater uniting force than a war. Taiwan will be the detonator for this crisis.And North Korea will finally find its ultimate determination as a thorn in the flesh of US-Forces in South Korea and Japan.
Let's hope the chinese suceed in steering this crisis. The price for the worst case might be higher than anyone here is willing to pay.
As long as we don't do something stupid like challenge them to a ping-pong tournament, for all the marbles, we should be okay.
"The 'global growth engine', China, is running out of steam. "
You mean, the USA, Europe, and Japan have run out of jobs to offshore to China?
Of course, with the meltdown (2007-2008) in Scandinavia, quite a few jobs were then offshored to China from Finland, Sweden, etc., aiding their growth, along with the American federal stimulus, which seemed more directed at China than the US!
Since America hit critical mass as of July 1999, when there has been ZERO net new job creation since then (more jobs lost than created from 1999 to the present); and since 37 million jobs are missing from America (22 million created offshore instead of the USA, and another 15 million offshored during that period), one assumes there can't be an infinite number of jobs remaining to be offshored! (Of course, the Wall Streeters and Fed Reserve slimeballs will differ with this assessment?)
Sitting across from a multi-billionaire in America several years back, I inquired of him why he or anyone else believed China had the funds to buy, or continue buying, American T-bills? After all, they've been shipping jobs and technology to them because they have been the cheapest labor market in existence, not the richest!
http://neweconomicperspectives.blogspot.com/2011/11/fed-under-fire.html
http://www.youtube.com/watch?v=zpbW64vRrMc&feature=player_embedded#!
China is bizarre....they have used international corporations to exploit their cheap, hard-working labor. To provide the illusion of great wealth being created from slave labor they expand lending like crazy, and have their local governments sell land to the people.
If they slowed down and just built on the strong work ethic they might do OK, but that would still leave a horribly corrupt system that would hold them back. As it is they have built a very fragile facade of a great economic miracle. Miracle my ass....
*PoP*
*PoP*
What would Ron do?
I can tell you from first hand observation that the real estate market is not popping, at lest not yet, and in my opinion, it likely will not for quite sometime.
The situation in China vs the USA sub-prime mess has a few key differences.
1.) Most property (I estimate) is purchased with little debt. The reason is that people are using real estate for long term investment. For example, mom and dad buy an apartment after a lifetime of saving for only child (when child is still 10 years old). So the apartment will sit empty until the child gets married and moves in. Having said that, some are throwing caution to the wind and flipping apartments. They raise cash from sales profit and from loans in the shadow banking system. This is bad, the question I can't answer is how much of the purchases are with savings vs shadow loans?
2.) The current situation is that sellers are holding onto their homes and refusing to lower prices. The result is that houses are not selling. However, if the owners were in debt and needed cash flow, they would be dropping prices in a panic. Therefore, I do believe that most folks have parked their money in the home and don't plan to do anything with it for a long while.
3.) Real Estate is an attractive investment for a few reasons. First, Chinese basically have only three choices of where to invest. A bank savings account, the Chinese Stock Market, or Real Estate. Bank rates are modest, the Chinese Stock market has not been a winner and is viewed suspiciously by older investors. That leaves real estate. Culturally, (just as in the west), owning a home (even if you don't live in it) is also a status symbol that carries its own value.
4.) Overseas Chinese keep close ties to home. They have not left China, they are just taking advantage of outside opportunity. Many dream of returning home for their final years. So, they purchase homes in China that will remain empty until they retire, or pass the home on to their children.
5.) It is a total farce that China builds homes as make work projects. Chinese now use modern building methods with heavy equipment, etc. I will agree that a China work site has many more workers then a western work-site. But the numbers at a typical hi-rise project are hundreds of workers, certainly not thousands. So, its comical to think that they are building with slave labor like thousands of years ago. China builds homes because developers are still getting rich building them!
6.) The Chinese government has enacted a gaggle of methods to try to slow the real estate bubble but market forces keep expanding the bubble. However, if there is a correction, China can quickly inject cash into the banking system and relax all valves they have currently been tightening. This is a far cry from the west, who have exhausted all government tools such as zero interest rates, QE1, QE2, etc. and still the economy is stagnant.
7.) Much of economics is perception. It seems the west has lost its confidence and does not have a clear direction into the future. China on the other-hand is going through a golden age of confidence. Very few people in China have a negative view of their future. A married couple with child and obligations will quit a job with-out second thought with the confidence that with-in a week they will have found a new job at a better salary (if they have basic skills). Most in China do have the basic skills because the education system is serious and produces competent (not brilliant) workers. Contrast this to the west where many are graduating with-out the basic skills needed to compete.
8.) The days of cheap labor are coming very quickly to a close in China. However, China is still one of the best places in the world to manufacture because of pro business government, good infrastructure (not just roads, but also raw material availability, etc.) Chinese factories have always been extremely productive and they are growing more so as wages raise. One thing to realize is that living costs in China are typically cheaper then the west. Wages might not be as high as the west, but typically living costs are not either. For example, an MRI on a brand new GE scanner will only cost about $100 cash. The reason is that they do 100 MRI scans a day on the machine, vs 10 scans on the same machine in the west. You can get good quality prepared fresh food for under $2. That's not available in the west unless you count the artery clogging $0.99 items at McD's.
China has lots of issues. The reliance on exports is a balancing act. The internal consumer market is growing but will it catch up before its too late? Culturally, China has lots of issues. They work hard, but they are always looking for the sure money. They are great at productivity, but not so great at innovation. They are inwardly focused. They have grown largely from luring capital in from abroad and unapologeticly stealing whatever know how what ever they can. However, they don't feel the obligation to share, it's almost always their goal to end up with all the chips at the end... after-all, the foreigners have their business back home, so why should we let them keep anything here in China.
Nationalism is growing in China, especially among the spoiled youth. However, the youth is soft compared to the generations before them. The management class in China today have come from the fields. They lived on dirt floors not 10 years ago. They don't fear hardship. They are willing to take risks we can't fathom in our society gone soft. If they gamble on running a factory and lose everything, they can survive off the land... most folks in the west like to talk about this, but few can. The current leadership wants no part of war. However, the spoiled youth are a question mark. China is historically not interested in external politics, they manage to keep themselves very busy with internal politics. All governments are corrupt, this is by nature because power corrupts. China is no different. The good news is that the China police state is not not as organized as in the west. There is the perception that police are everywhere in China, not true. The few police seen typically don't even carry guns. Compare this to the modern police state of the west, where your local neighborhood cop now looks like Rambo. Many folks in China don't pay all their taxes, the government does not yet have a good way to track down these folks. Compare this to the west. Don't pay your taxes and you will be found with certainty. My point is that China will and is moving towards the type of police state people envision it as. However, today, unless you are really open and go and stand in front of a tank or directly and openly challenge the government (and more importantly cause some harm), you will not be targeted. They simply don't waste their limited resources on anything but what they view as direct threats. Compare this to the huge police apparatus that has been mobilized against the OWS crowds in the last several days. My point is that you are more free in China right now than the USA. However, this is only because the USA has a more sophisticated police apparatus, not because China's government is less paranoid.
What you said was enormously similar to those deniers back in 2005. Basically you guys are just squeezing and scratching and stretching whatever tiny bits of agreeable facts to support your hope.
Foreign chinese loving to return china for their final years and therefore buying and holding onto houses from now til they die? Fuck, you're one amazing stretcher.
Back before US houses popped, there were just tons of deniers like you, thinking that whatever dumb reasons they came up will trounce economic principals. Well guess what? Economic principals always win. Period.
There's a bubble and it will pop. That's physics, motha fucka!
Economics is not a hard science, so comparing it to physics makes no sense. Tell me, what Economic principals are going to cause the Chinese Real Estate Market to pop anytime soon? Too much suppply and not enough demand? Hum, there is still an awful lot of demand, for one, there is still a lot of dumb money that is flowing into China via western money managers looking for return. The domestic demand here in China is something that westerners really can not fathom, but its real.
Credit crunch? Chinese are net savers. They don't make a lot of money, but they save most of it and that savings adds up over the years. Ya, the average Joe actually has money, unlike in the US...
They buy gold in addition to real estate, which seems seems pretty smart.
Tiny bits of agreeable facts? There are over 40 million overseas Chinese, making them the largest migrant workforce in the world and the vast majority of them have done pretty well for themselves. So these 40 M doctors, PhD's and Engineers are a tiny bit?
I can tell you for certain that developments are to this day almost always 100% sold before they have even completed construction. But when you drive around, you see all these empty shells of buildings. Why? Because, people buy and hold. Unlike in the USA where an empty house quickly gets vandalized and pulls the value of all homes down. Chinese condos are bare concrete brick structures. You buy a shell, not a finished house. Once you buy it, it is up to you to add electricty, plumbing, and even windows and plaster. So, you can safely buy a concrete shell, let it sit empty for 10 years and then go and renovate, and the shell will be no worse for the wear. Or, you can sell the shell and not have had any upkeep on it in ten years. Oh, and no property tax usually.
Will housing price ever decline, yes. Will some call it a bubble popping, yes. However, I can tell you this, unless there is a major world changing event like WW3, housing prices in places like Shanghai, Beijing, etc. will never fall dramatically from where they are today. Just as the value of real estate in NY, San Fran, HK, etc. will never fall to a level that the average Joe can buy an apartment in mid-town. Outside of the big China cities, the real estate boom is still not really happening like it happened in small town USA.
China is being gamed by the banking cartel....they will not escape weatlh confiscation unless they give up on debt fueled growth.
This past week in China most large companies have publish company culture books!. These books, meetings, and team building events are not about war. They are about giving extra effort in times of stress and accepting reduced salary when times are hard.
is that wrong for a society a TEAM!
would you rather have the greed of unions bashing up the infastructure and bankrupting their cities. Muni's?
So, a command economy is a command economy...
The Shanghai composite index continues to look very bearish, which will only cause the selloff for US equities to be much more violent due to the propping up of the markets. It is time to become bearish risk. The USD is setting up for a major breakout to the upside, while equities are likely to make a severe breakdown to the suprise of many bullish investors speaking out in the public recently. http://bit.ly/v5NKFO
The good thing for China is that the government has a call option on the people's gold. Oh, you think the government encouraged private gold buying because they wanted the people to protect themselves?
A centrally planned economy, replete with apparatchiks and informants across the entire swathe of society, certainly will know who owns what if time comes to seize it "in the people's name".
If they can stop families from having two kids, they can stop people from having one coin.
"A centrally planned economy, replete with apparatchiks and informants across the entire swathe of society"
It seems ZH has an infestation of commentators who are stuck in the 1950's. China was never really a communist country and it certainly is not one today. Mao needed something to break the 5,000 year old dynastic system. He effectively used land reform to motivate the masses and when that did not work he had no problem to murder anyone that stood in the way of his struggle for power. That is about as close to communism that China ever got. After Mao, Deng paved the way for almost pure capitalism.
Modern China is a one-party system of rule. They call themselves communist, but there's no pursuit of communist ideology or pursuit of Marxism.
As for China being a centrally planned economy, HA! China's right hand does not know what China's left hand is doing. They are far from a centrally planned economy. China is divided into 32 provinces and hundreds of cities. Real power lies in local government in China. The central leaders are often unaware of the real situation locally. Central leaders concentrate on Social stability and maintaining the unchallenged rule of the one party system. For the most part, they don't interfere with local decisions.
People, wake up. Its 2012. From the comments on ZH I have to ask myself, where do you people get your information? Joe McCarthy?
I have a question? Do you think we are getting wiser as a human race or dumber? Could it be true that the idiots among us are breading faster and thus the real bubble to pop is the human race?
No Joe Mc here; China still has a centrally planned economy (check out the mandated lending to the perpetually unprofitable SOEs) and a centrally planned society. Layers of bureaucracy, beginning at the neighborhood level, form the information network of the State so that even a small protest in sympathy of the Arab Spring or OWS is met with a larger number of security officials.
One Child is still largely the rule, albeit not for all of them. Political dissidents are still tracked down and jailed, the internet is still controlled, and social unrest is met with force (Tibet, April 2008). The government can even "instruct" people and corporations to tamp down activities that pollute, as they did in the run-up to the Beijing Olympics.
If you are in China, go ahead and Google---whoops! Find a search engine and put in "Arab Spring". Any results?
Dude, hate to burst your bubble. It really is not like that in China anymore. Ten years ago I looked at the SOEs and I never thought they could pull off privatization. Never! But here we are ten years later and the vast majority of SOE's are gone. The private business's that replaced them are small and extremely productive. They don't get perpetual loans. If they have any equity in the land and buildings they can get a loan on about 60% of that equity. After that, they can look to shadow banking at very high costs.
If they can't meet their cash flow needs, they go out of business! And yes, it does happen every day in China. Google it, you will see that factories are closing mainly in the south. Owners either face criminal charges if they can't pay debt, or chose to run and live a life in hiding.
Amazingly, China has managed to build a system with limited bureaucracy. Again, I attribute it more to lack of technology and not lack of desire. Things can happen very quickly in China if you understand the system. There is corruption, but it is not only about bribes.
If you are naive enough to believe that you have free speech in the US, you are wrong. Again, I really attribute it to technology. In China, they don't have the sophistication. So anytime a sensitive issue arises like open political protest, they quickly address it. However, in the US, its more thinly veiled. In the US, the game is played to lead people to believe they are free. However, they in fact are not. Each day that passes you are less free and the technology in the US is much more sophisticated then China. The protests are tolerated and even encouraged in the US because it gives the illusion to people that they are free. However, the OWS protests are a joke. No message, no leadership, no threat. This is by design.
In China, they are not so sophisticated yet, so they can only use binary methods. When a threat to central power arises, they squash it. At least you know where the lines are in China. In the US, you think you have freedom, but you don't.
Regarding the internet. Here is the thing. China is not afraid of protests. They are not afraid of criticism. What they are afraid of is outside intervention. Inside China, on Chinese language websites, you can openly discuss political issues, especially if you keep it in the context of the current system. In other words, you can criticize local leaders, you can expose corruption, you can demand higher wages, you can pretty much say what ever you want to as long as you don't try to over though the current central government and as long as it does not appear you are a puppet to the west. There are lots of protests in China every day. There are strikes. For the most part they are very effective, the key is they happen at the local level and are sorted out by the local community.
Any protest talking about an Arab Spring would be viewed as an outside imperialistic threat and the nationalism of China would have ordinary citizens pissing on those who participated. Keep your egotistical ideas to yourself is the attitude of most Chinese about the west and its false freedoms.
Hum, the US does not imprison political targets. Ok, tell me another joke.
On the internet. I am pretty certain that a good part of the internet in the west is now censored (I mean anything with any real teeth). I have been trying to learn more about how this would be happening, any internet experts here at ZH that would like to shed some light on this? Again, China is very open about their feeble attempts to censer the net. Yes, I am in China, and yes, I can participate in a discussion here at ZH and I can fucking see all I want about the fucking CIA manipulated Arab Spring.
What's that Google slogan? Only do evil... Google and the ISP's are lock in step with the US propaganda and monitoring system. China's internet geeks only wish they were that good.
Lots of bubbles to burst in your response, both about China and the US, but it seems pointless to even begin to tread that path.
As far as I know, my eyes are pretty wide open, and I've had two and a half decades in and around the Middle Kingdom. Clearly our experiences vary, and this means our opinions differ. Suffice it to say neither of us is going to convince the other.
"fucking CIA manipulated Arab Spring". How little you know, yet how much you think you know.
Actually, I'm here to learn. I wish that I was wrong about real estate prices remaining high in China. I need a bigger place, so should I wait to buy? Someone give me a better argument then "its Physics Bitch".
Its so true that ones world view is the filter though wich all of life is viewed. I am curious what events in your life lead you to observe different things that I have about China and the US. In your time in Asia, did you integrate or live in gated communities as an expat. Does your income depend somewhat on maintaining the "west is best" point of view?
Regarding the Arab Spring, you are correct. I know very very little. What I do know is that after WW2 the west established a historically artifical group of vassal states including Lybia, Iraq, Iran, South Vietnam and South Korea. And in the following decades often represed the will of the people and supported despots who where sympathitic to the US. This was all done in light of the cold war and the utter fear that Communism would overtake the world like dominaos falling one after another if the US did not intervine at any cost to stop it.
Gadaffi was tolerated by the west for 42 years. I may be crazy, but I have to assume he was no longer useful.
Do I think the CIA manipulates soverien states? Yes I do. Operation Mongoose, the Phoenix Program, Iran-Contra, just to name a few.
As I said, I know very little, if you have some insights, please share them.
perhaps foreign investors will bail out the chinese real estate market?
The Indonesians are coming must be the slogan.
I would just say that out of the small group of Chinese investors and devlopers that I know they do every thing in cash not with debt!
In other words they have been getting rid of their fiat $ and yuan and building shopping malls, office towers and apartment complexes with CASH not by going into Debt!
So they care little if their malls & appartments sit empty or offices are unoccupied, they are hard assets.
Oh and one more thing they're buying lots of gold and silver.
All of these things I listed above are part of the Chinese culture of staying out of debt doing things when you have the cash, a lesson also learned from life under communism, can you imagine buying a car paying for it up front then waiting 3 years to take delivery.
I know no occidental could or would do it.
So who the hell is going to buy T-bills if they do blow up ?
This blog has a solid commentary:
This is precisely what happened in Japan thirty years ago; buildings were used as collateral for ever increasing credit until the bubble popped; and it’s been downhill ever since. Japan’s population was younger at the start of that downturn than China’s is now, and more socially cohesive.
Expect “lost decades” in China coming soon.
Yes, the only way to get a loan in China is with a building as collateral. And yes, it has gotten to the point that any monkey can do a real estate deal and make a profit.
My understanding is that much of the shadow banking system gets its funding like this; Trader takes several year's profits and buys apartments. Uses those apartments as colleteral for loans. Uses the cash from the loans to supply shadow loans at much higher rates.
I think the million dollar question is what percentage of real estate is owned and held with-out further loans on it, and what percentage is leveraged with ever increasing risk. I don't think I have ever seen any good info on this question?
China will own all the pussy in the world and eat it too
Nyquist is a long-time paranoid and likes to believe that we have enemies everywhere. This article is pretty much along the same lines. Things like 'the cold war never ended', 'enemies are just waiting to launch nukes against us', 'we must not give up first strike capability', 'strategic small nukes are very useful, and will not escalate' etc. Fear mongering at its worst.