Guest Post: One Alarming Indicator From China

Tyler Durden's picture

Submitted by Tim Staermose of Sovereign Man

One Alarming Indicator From China

For a few decades now, the Communist Party in China has had an implicit social and political contract with the Chinese populous for decades, which goes something like:

"We will deliver economic growth and improvements in your material living standards.  You will meekly do as you are told, refrain from dissent, work hard, save a huge percentage of your money, and ignore obvious corruption."

While nearly everyone in China has benefited to some degree under this current "system," the wheels are definitely starting to come off. Official GDP numbers are now slowing, real estate prices are falling, and inflation is quickening.

Now, I've made no secret that I'm decidedly bearish on China's medium-term prospects.  After my trip there back in June to conduct some good old-fashioned "boots on the ground" research, I wrote extensively about the massive overbuilding of apartments, office blocks, and all manner of infrastructure on an almost unimaginable scale.

Put simply, every year since 2005, more than 50% of China's GDP has consisted of construction-related spending.  The law of diminishing marginal returns says this simply cannot continue. 

It represents a misallocation of the household sector's hard-earned savings on a colossal scale, and I believe it will end badly.  Not a day goes by that there aren't riots and protests somewhere in China (including cyberspace) as the downtrodden man in the street reaches his froggy boiling point.   

Increasingly in China, though, those who see the writing on the wall can see that the days of system stability are numbered.  And they're not hanging around. 

For a number of years, mainland Chinese buyers have accounted for nearly all new apartment sales in Melbourne and Sydney.  On numbers I've seen, they have been investing between A$2 billion and $3 billion a year. 

An increasing number of mainland Chinese are establishing permanent residency and sending their child(ren) to school and university in Australia. And Simon recently reported that from an offshore strategies conference in Shanghai that the room was packed full of Chinese people learning how to diversify abroad.

They all want to have their options open when China's economy and political system hits turbulence.

Judging by the poor economic numbers coming out of China, this day of reckoning is drawing ever closer.  One alarming indicator is that the Chinese renminbi has traded down to the lower limit of its strictly controlled trading band for SEVEN TRADING SESSIONS IN A ROW. 

This suggests that there is more money leaving China than being earned from overseas trade or invested there. The exchange rate may be only one simple indicator, but it's a great barometer for what is going on: China is not going to be the savior of the global economy, but rather another casualty. 

If you have stashed some money in a Yuan-denominated bank account for the long haul, you'll probably still be fine relative to other paper currencies.  But, I would caution against expecting it to be a smooth, one-way ride to the top. 
Personally, I'd rather have the bulk of my savings in real wealth:  things like gold and silver bullion, productive real estate, and strong cash-generative businesses. 

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BigMike's picture

Thankfully, I'm on a commune in Chile...

achmachat's picture

but he sure knows how to sell ;-)

Ahmeexnal's picture

Fucktards, they should have invested that 50% of their GDP on their own MIC.

trav7777's picture

no...China is the FUTURE.  The MSM says so

eureka's picture

Construction & construction related finanzing used to make up 50% of US GDP !!!!  (Oh sweet miraculous days of post 911 to 2006) 

If you include US financialization of US construction debt - i.e. derivatives of construction and related debt - it makes up 75% of US GDP !!!

Hell, you could look at US Treasuries - i.e. new US debt per annum - relative to US revenue... if you dare !!

Alas, US construction is dead - and only the debt & the derivatives remain !


Where the fuck is the next bubble?

Or, as Adolf redux would say:  "Raus, Sweinehunden, wir mussen die nechsten "bubble" gleich finden. Wo ist es den da?"

BandGap's picture

Sorts of sounds like our shovel ready, infra-structure reviving way out of these darks woods, don't it?

mkkby's picture

So Simon learned about this from a short trip back in June.  Eat another goat dick, Simon.  Others have reported on the over building and riots there for years.

trav7777's picture

dude...the MSM SAID IT.  And I refuse to question ANYTHING from the MSM that I want to believe

rockraider3's picture

You too?  Am I like the only one who doesn't live on this commune part time?

11b40's picture

Is Simon Black with you?

TGR's picture

Simon Black is a pretentious cunt. But more to the point, what is the "one alarming indicator" the drama-queen poster (who was exciled from Hong Kong - i.e. worse than the FILTH [Failed in London, Try Hong Kong] - and banished to the Philippines) wants the unwashed masses to retain?

11b40's picture

Not sure.  The increasing availability and declining price for prostitutes in the 3rd world?  Is that it?

TGR's picture

Increasing availability, and declining price, comprise two alarming indicators, not one.

In any case, a massive grain of salt is required to take anything penned by Black and his "Chief Investment Strategist", Staermose, who 'resigned' *cough* from Lehman brothers and fled from HK to the Philippines.


SilverRhino's picture

50 million surplus Chinese men with no chance of getting wives.  Even the Chinese government may look at war as a nice distraction and unifying force for the peasants.

RobD's picture

Not to worry most of those 50 million are trying to hack into my FTP site. Seriously, I set up a FTP using Filezilla just to see if I could do it and I start getting all these pings going through my router and messages on the Filezilla screen saying "acces denied" so I check out the I.P.s and there like from 20 different locations in China. WTF are they looking for?

Cthonic's picture

Have this issue with every server I run.  They're constantly hammering away at SSH ports; wrote scripts that block whole IP ranges when reverse dns info shows a CN country code.

kridkrid's picture

Of course they will, it's not even a stretch.  In fact, there are a number of governments around the globe right now who could use a little distraction. 

Göring: Why, of course, the people don't want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece. Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

Gilbert: There is one difference. In a democracy, the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars.

Göring: Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.


Saro's picture

Bullish for Chinese prostitutes.

BandGap's picture

Sorry, but they could go for the world's record in the Circle Jerk.

Release The Lohan!

dolph9's picture

Before that they'll try Han-ifying imported Vietnamese girls.  May not be enough.

JW n FL's picture



The Renminbi is Leveraged 1,200% before the ink is dry.

(In China the central bank, the People's Bank, is leveraged 1200 to 1.)

They build 10 - 15 Empty City's a year to be able to service their debt.

And.. I have been talking about this for a good long while..

Even Jim Rogers has capitulated! But with the caveat that farming +++ will carry the day for China moving forward????????????

People can grumble all they want but America is winning this World War.


DoChenRollingBearing's picture

+ 1  Good reporting JW!  

Great observation about us winning, I agree.


China does not look like a big problem to me.  With smart diplomacy, we should be able to avoid anything big and bad with them (same with Russia).  China has so many problems that are just not widely understood.

If the USA can get its financial system (even barely) under control (or a reset that does not sink us), then we will continue to do well vs. the rest of the world.  That is a big If though...

buyingsterling's picture

So if we're lucky we muddle through under fiat, a little less broken than everyone else. No thanks, and not likely. Everything is decoupling; the casino wears no clothes. There's no new normal because everything is unravelling.

The best we hope for, IMO, is that any war(s) stay outside our borders and we come out of the worldwide depression without losing millions to violence and starvation, and with the police state moved to the border, where it belongs. Even flopping along like we are now, with the system perpetually propped up yet still floundering, is untenable - psychologically, at least.

JW n FL's picture



America already owns China.. the only way China was able to Verticle to begin with was American Investment.

Until 2 - 3 years ago American could own majority(s) Control in Company(s).

We own China.

this tit for tat that the sheep bat back and forth.. something to keep the diots occupied with?? that China is buying us?

there is no hope. it is soooooooooooooo beyond the common man to understand that there is NO HOPE in ever escaping this web of bullshit spun by the bottom feeders..

Alex Kintner's picture

Ha ha. USA WINNING# . What? In the Charlie Sheen sense?

$14 Trillion in debt doesn't feel like winning. So I guess all are losers.

JW n FL's picture



I should have went with Double Winning Drenched in Tiger Blood! LOL!!

huanjo's picture

$14 Trillion in debt to who?

The winner is the one who doesn't pay back their debt, or pays it back at a reduced value.

john39's picture

america who?  you mean the talmudic cabal that runs the show?  or the increasingly poor masses...

JW n FL's picture



You make it sound like the Jews give more money to Washington DC than the Bankers do! LOL!!

TruthHunter's picture

talmudic cabal that runs the show...


How come your dragging the Talmud into this?

The only relationship these guys have with the Talmud is genetic coincidence.

BandGap's picture

Because farming in China has always worked???? Uh, doesn't it involve fresh water? The likes that China never had and will never see? Thought so.

trav7777's picture

...and what they did have they have polluted beyond the possibility of human contact

WhiteNight123129's picture

It is aready lost pal the debtor nations always lose open a history book.

Smiddywesson's picture

fiat is irrelevant when all fiat, all over the world, goes tits up, all at the same time, pal.

When the collapse comes, all that matters is how big your army is and how much gold you end up with in your vaults.  Right now, by that definition, the US is the winner. 

The Fed is clearly orchestrating this suppress gold price/kick the can and buy up gold dance.  The ECB is in on the scam as well.  There may have been no gold in Ft. Knox or under the NY Fed during 911, but there is now.  It's not how much you have on your balance sheet that matters, it's how much you actually control.  Don't believe me, believe Bernacke and Greenspan, they are the ones who wrote about it.

CynicLaureate's picture

Shh... the Chinese people might be listening.

We don't want them to understand that they've been working their asses off so they can subsidise our standard of living.  All we have to do is to send them electronic records of small green pieces of paper!

Let them continue to think they own us, right until we send them a sheet of paper that says "Federal Reserve Note $100 Trillion Dollars" and say "Okay, we've paid you back.  Enjoy this small green piece of paper".


CynicLaureate's picture

It is aready lost pal the debtor nations always lose open a history book.

Debtor nations that lose a war and have to pay reparations in gold always lose.

With Fiat currency it's trivial to pay your old debt; the trick is financing your new debt.

earleflorida's picture

grant is a japan bull, period

roger's &[hammerstein?] soros are  commi'fascists and could care less about the united states or democracy

Future Tense's picture

Chanos ripped it this morning on Squawk Box.  Said 70% of their economy was tied in directly to real estate development.  The anchors had no response to that.

11b40's picture

Those anchors don't have answers for anything, as they sit there with tight sphichter muscles praying none of the guests says anything that goes against the Wall Street line & makes them look bad in the eyes of their boss.  Spin, spin, spin.....never let the ball stop spinning.

trav7777's picture

I almost get the sense you're suggesting I shouldn't believe much of anything I hear on the MSM?

Kayman's picture


Uhhhh... I have to vehemently disagree. Those are NOT tight sphincter muscles.

dolph9's picture

I sometimes pity them, seeing how they are dependent on looking plastic and telling lies into a screen just to get their meagre share of the trickle down fiat money.

But then I remember that they're prostitutes.  You choose your bed and sleep in it.

kito's picture






tmosley's picture

Who's "we" Kemosabe?

You are purposfully mischaracterizing a purposeful mischaracterization.  A few dozen students are marchin in some street, which is then mischaracerized into a national movement (but labelled peaceful by the sympathetic "journalist"), which you then mischaracterize as some sort of ongoing riot.

Why all the lies?  What's your agenda here?

kito's picture

a few dozen students? talk about misinformation tmos----

in june of this year, there were between 100 THOUSAND and 200 THOUSAND PROTESTERS in CHILE!!! the movement is big enough to warrant its own page in wikipedia.


question to you tmos, how many of those plots did you buy from mr. black? and did he make good on his promise of free chilean inflation protection bonds and mermaids in the swimming pool?

Azannoth's picture

There is a Socialist movement in every country, it's good that the Chilean police is showing those young commies where their place is

If anything that Validates Simon's opinion of Chile as a Pro-Capitalist country