Guest Post: The Reasons For China's Imminent Bust
The global dominant narrative about China is wrong, claims Gordon Chang. Don't expect it to be the 'pocketbook of last resort' that will rescue world markets from their current malaise.
And don't expect its remarkable economic growth to continue. In fact, expect a "hard landing" for China - and soon.
Forbes.com columnist and international lawyer Gordon Chang has spent much of his time since the early 1980s working and living in China. His primary knowledge of the country and his relationships there give him a superior understanding to how its economy is actually faring than many analysts based in the West. And what he sees today doesn't inspire confidence.
We are seeing the first real signs of slowdown in China's economic growth looking at the year-over-year numbers for the past several months. Car sales have decreased nearly 5% since last year, and property values are beginning to plummet in key markets (30% in October alone in Shanghai).
Gordon sees these as the inevitable harbingers of a coming collapse in China due to excessive stimulus policies the government undertook starting in 2009. The bubbles and malinvestment created by this stimulus have not been addressed, and increasing weakness and transitions inside the political system are making it less likely they will be before market forces intervene.
On The Repercussions of Excessive Stimulus
Inefficiency eventually catches up with every economy. They have a semi-closed system so that they are not necessarily subject to the principles of economics in the same way that we are, but they can only delay the inevitable. They cannot prevent it entirely, and that is really going to be their problem. Because they have done a lot which just does not make economic sense. I mean it might make sense in terms of rapid buildup of an economy, but they have to pay a price. And they have not paid their price yet.
The one thing that people say is "These Chinese leaders are so great at economic management because they got through 2008-2009 and they had enormous double-digit growth while the rest of us were suffering." Well yes, they did that but they did that at great cost.
And so for instance in 2009, the first full year of their stimulus plan, they dumped something like $1.1 trillion into a then $4.3 trillion economy. And so did they create growth? Yes, they did, but they also created a stock market bubble, a property market bubble, and inflation. And they have yet to deal with the property market and the inflation problems. Those are dislocations that they do not have the answers to. I would rather have our economic problems than theirs any day of the week.
On Growing Political & Social Instability
Starting at the end of next year, the Communist party is going to change the officers of their Politburo Standing Committee, the apex of political power in China. We are going to have a new General Party Secretary. And then in the early part of 2013, the government officers change. And sometime after that, the all-important Central Military Commission has a revamp of membership. And so at this time of political transition, the important economic decisions are not being made. But it is even worse than that, because corruption indeed is engulfing the political system. It is causing so much friction in society. The Communist Party is not able to mediate conflict and its only answer is to increase coercion.
And that is why you have survey after survey of the rich and the super-rich, they talk about leaving China. It is not the poor who are going, which we have seen in many waves throughout the last couple hundred years, now the rich are thinking of getting out. They are getting passports, they are putting their families offshore, and this is of concern because this is a leading indicator.
If you go about 25 miles south of where I live, and go to Princeton, New Jersey, you will see a lot of beautiful homes. I mean, they are all paid for, they have got a wife there, they have kids, and they have one or two Mercedes in the driveway. It is the perfect American family, except one thing is missing, and that is Dad. Dad is a senior official in Beijing and he is stealing as much money as he can. And at maybe not the first sign of trouble, but perhaps the second sign of trouble, he is on the United flight to New York, because he is not going to stay to defend a regime that is shaking. And that is one of the reasons why I think we have to be concerned about the way the Chinese economy is going, because the Chinese rich are starting to see the signs and are beginning to bail out.
We are talking about the people who have benefited the most from this system. And they can see the problems at the top of society. We have now a weak General Party Secretary, Hu Jintao, and he is going to be followed by probably by someone who is just as weak, especially in his beginning years, Xi Jinping. This is a political system that will not be able to make the decisions and to implement them that everyone knows have to be made. And that is why, for instance, we have not seen much in the way of reform over the last five years. In fact, we have seen a reversal of reform. And most of the conditions that have given rise to China's extraordinary growth either no longer exist or are disappearing fast. And so this is an economy in trouble.
On The Popping of China's Real-Esate Bubble
There was just too much money in the economy and so people then poured money into apartments. And China has gone on a tear building ghost cities and all the rest of it. And now the progression that you talked about -- skyrocketing prices and then stable prices, selling volume, and then property price declines -- is what we are seeing in China.
In October, last month, prices in places like Shanghai declined 30%, as we saw developers start to offer these enormous discounts. And by the way, these discounts were so big that people who bought at earlier stages in these same developments, where these discounts were being offered have now taken to the streets complaining if you are giving 30% discounts to these other guys, then give it to me as well. And so we have not got a little bit of social unrest because of falling property prices.
In Wenzhou, which is in prosperous Zhejiang Province, which was perhaps the most prosperous province up to about a year ago, developers are, one developer is now offering BMWs to the first 150 buyers of apartments. And this is just a sign that property prices have not only softened, but they are starting to fall quickly.
You know, every market has to go to equilibrium. There are too many apartments in China and not enough buyers and occupiers. And it was going to go to equilibrium in some fashion. What is really surprising observers is that the rapidity at which we see this move to equilibrium. Last year there were, in about I guess it was April or May, the state grid in China reported there were 64.5 million apartments that showed no electricity usage for six consecutive months. That is enough housing for 200 million people, but yet Beijing was decreeing the building of 30 to 50 million more apartment units....
But at the end of the day, there has got to be a correction. And what goes up fast comes down fast. And what we are seeing is the down phase. The only issue is whether Beijing can stop the down phase by administrative measures. But so far the Chinese leaders, Premier Wen Jiabao, last Sunday said "nope, we are going to stay with these tightening measures." And that has really created great pessimism in the Chinese property market...
And so really what we have is a government now that is really trying to bring the property market down. And of course it wants to do so gradually, you know, orderly. But as you say, it is a bubble, there is a pin and the problem is that Chinese leaders cannot manage the process of bringing the property market down to equilibrium....
When China's elite analysts start talking about prices being 50% of where they are this year that means that they are probably privately thinking that no, prices will not halve: they might go down even further than that. And that is really a problem because that mentality, once it gets embedded in people's minds in China really means that, Chinese leaders then have very few tools in which to prop up the property market.
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well, at least until they politely ask to settle the U.S. debt in gold - take gold to 15,000,000,000,000 an ounce and give them an ounce.
The collapse of China. The collapse of Europe. The collapse of the US. The depletion of energy. Gold and silver to $5k.
Doomsday economics certainly is the fad these days.
Max Fischer, Civis Mundi
Nah, it's just back to reality. With accrued interest.
This sure makes me glad to be in America, where despite our problems we have far more educated economic advisers and government officials. People from all over the world compete for the privelage of studying at our Ivy League schools and consequently America has some of the smartest and most competent government officials in the world, many of whom have prior experience in top financial institutions. This is why America is not subject to the gross neglect demonstrated by Chinese economic planners with inferior educations and backward mentalitlies.
MDB...You're getting close to perfecting pure sarcasm...Or Newspeak...It's a wonder the PTB hasn't gobbled you up yet...
Yawn, bitchez.
China will liquidate its dollar holdings to bail itself out again.
Welcome to the Great Treasury Crash of 2011/12/13.
http://azizonomics.com/2011/10/23/gold-in-2012-the-coming-bond-crash/
Such a trade war will inevitably lead to a actual military war.
At such time China will win and take Taiwan for free.
ehhh fuck china, how in the fuck are they gonna get half a billion soldiers across the Pacific when the batteries die halfway to Hawaii. molon labe
When the host dies, the parasite follows.
ROTFL...with what military?
They have no navy, a pathetic army, and no air force worth a shit. they couldn't mount an amphibious invasion of Hong Kong, much less Taiwan
DOTFH
C'mon dude...you are fast-becoming an internet celebrity. How many people get songs - especially this catchy - dedicated to them? Own it!
Trav's Theme:
http://www.youtube.com/watch?v=nnpEI3njoeo
That is awsome, Trav has his very own song.
Looks like Fuu put it together.
Well that was different.... but he has missed some of Trav's best junked lines.....
"they have no navy..."
???
The Deleuzian - You of course realize that MDB is an auto-response computer system don't you?
Even if sHe is in human form IT'S automated.
00111000011010001101001001010101010111111000001101010010
MDB either works for the Obama Administration or the NYT. His delusions are the talking points of both entities.
Be careful what you are glad for.
If real shit hits the fan in China, the people will overthrow the government and hang all the politicians. This prospect scares the craps out of the Chinese elite and they are bailing. They know they are hopelessly outnumbered. They know that the people have absolutely no trust in them. Plus, ordinary people don't have much to lose because there is no welfare. The so called "retirement funds" are meager and have been already wiped out by inflation of the past 2 years
The same thing wouldn't happen in America. The people here are too docile and brainwashed, too dependent on paycheck, government and welfare. Economic collapse will result in a Fascist state. And if you frequent zerohedge, you are the perfect candidate for concentration camps.
I'd choose anarchy over fascism on any given day.
EagleFalcon...I think you're taking it all too hard...If anything...Zher's would be a think tank
ZHer's a "think tank"??? *snort*
given the auto-bot angry responses to Million$'s obvious troll posts virtually every thread, it's more like monkeys flinging shit around the cage than thinking - some threads do differ, but in the main, ZHer's are here to entertain themselves in a small small circle. . .
most spend more time trawling the interwebs for the perfect titty-pic-avatar than pondering the state of the world.
@eaglefalcon-Best post in quite a while...I'm glad you chose to incorporate FEMA at the end.
EF, when everything goes bankrupt and those welfare/retirement promises vanish into thin air. The people will quickly go into a rage since they then have nothing left but delusions and poverty. Revolution will then be in the streets.
Vamp-----the peasantry will be killed off slowely and quietly....Or otherwise quickly and thoroughly
Man made pandemic targeted at 50+ population, solves most of their "problems". WW3 would be messy and take out many of the younger "slave" age worker bees. TPTB in China will try to direct attention away from themselves and at a foreign bad guy (ours do the same thing all the time). Obama is getting his foot in the door with Marine base in Australia, so who knows? Maybe China will set up shop in Cuba?
Who said: When people with nothing have nothing left to lose, they lose it?
Gerald Celente says that. Then he lost his (paper) gold to Corzine / MF and now he's losing it. Ironic...
who doesn't?? it's repeated that often.
I have to take this as sarcasm. It just can't be real. No one could be so fucking stupid.
I seem to find myself thinking that about most all your comments.
Socratic Dog...MDB is most obviously being uber-sarcastic...Even those Ivy-League shmucks don't believe what they say publically...They're saying exactly what MDB is saying just pleasantly!!!
ka-ching.
obviously you have not studied at an Ivy League school, unless spelling is optional.
privelage = privilege.
So far it doesn't seem so. Isuggest that you go all in for allof our sakes for the economy. It certainly would put our minds at ease.
Or...
You could shut your pie hole and listen with your ears and not your mouth.
Bingo, dead on. We have delayed and delayed and kicke the can down the road to where the end of the road is 100 feet in front of us. And so we are trying to find some way of extending that road but it won't happen. Everything comes to an end, everything. As he said equilibrium in China is also the same in the rest of the world. Everything must be brought back into equilibrium regardless of how much pain and suffering and countries going under that happen.
as long as it's the 1% suffering, painfully! then, we take back our gold!
Gold 2000: $300
Gold 2011: $1800
China Shanghai composite index 2000: 2000
China Shanghai composite index 2011: 2500 off of peak of 6000 in 2006
S&P500 (SPY) 1999: 130
S&P500 (SPY) 2011: 120
Doomsday has been here for last decade. Faux economics is just revealing itself.
tell Japan what a fad their lost decade was....
and you know what US is in world war III right at 4 fronts?
Iraq
Afghanistan
Pakistan
Libya
Yemen
That's 5, and soon Iran will make 6.
Fuck it. You might as well throw Syria in for good measure...
Don't forget Venezuela!
There are Mexicans and Muslims ready and waiting to pour across the borders of Texas, NM, AZ and Cali. Heck, let 'em have CA.
Iraq: bad situation, troop commitment required, pulling out will give rise to a hostile regime
Afghanistan: not so bad, troop commitment required but only in small numbers, occupation is economically viable because of the profit from the poppy fields
Pakistan: no confrontation likely in near future because the chinese swore to defend it
Yemen: already toppled and no troop
Libya: the europeans need oil from there, so it's up to them to come up with the money and troops
It appears that if iraq can stablize, the US can afford quite a few more occupations
bottomlin: they don't send the elite to die on battlefields, they send the plebs. In that regard, the brits have more guts because their elite do go to combat
Yep ... they're now in the process of occupying Australia ... and the FEMA camps have already been built ... for "refugees", of course ... not for citizens ... never for citizens.....
We need to occupy Afganistan to keep the Chinese out of the middle east. We'll be there till the middle east is out of oil.
Chinese TV Host Says Regime Nearly Bankrupt
http://www.theepochtimes.com/n2/china-news/chinese-tv-host-says-regime-nearly-bankrupt-141214.html
LOL. This Lang Xian ping is FREE LANCE Chinese live in HK!! He has NEVER been a Mainland Chineses resident! How does he know ANYTHING about Mainland China? Just by reading the stupid Western media about China? LOL
He has a huge mouth about everything! A lot of Misinformation from him! Whoever believe his judgement will get SCREWED!
Nice to live in Canada. Well except it's totally frekin' dumping snow on me.
I thought that was the new new China given how many Chinese live there.
See we don't have to worry about being attacked by the Chinese because they will be attacking themselves.
I hate to disturb your sleep, but if you took the time to read some Chinese history, you might not feel so safe. China prefers intramural warfare, because if one is on both sides, one can always rack up a "win".
BC = Beijing, China
UBC = University of Beijing China
I spent a few years in Vancouver, Canada. Affectionately called Hong-couver by the locals.
Canada was a great place, but has deteriorated since getting the Harper govt...
Bongcouver=Bongcouber
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/14_M...
Excerpt:
"When asked about gold, Armstrong responded, “Basically what you are doing is you are building a sideways type of base. Eventually gold is going to take off to the upside, but largely when people begin to see the Emperor has no clothes and we’re getting close to that. I would only give it a few more months.”
Bob and Doug "Take off ehhh.."
<<
Gold is the only winner from the euro crisisAs the euro struggles from crisis to crisis, it isn't hard to identify the losers. In reality, the only big winner from the euro crisis will be gold.Here's why.As this saga unfolds, there are only two possible endgames. One is for the European Central Bank, under its new President Mario Draghi, to rip up the rule book and start buying euro-zone bonds on a massive scale. The other is for the currency to break up in a chaotic and disorderly way. >
>Read MarketWatch commentary on gold and the euro
Doesn't Market Watch understand...."they can't eat gold"....
Read up to where it said "Gordon Chang" and then stopped... the guy hasn't been right about anything in china ever. Get it through your thick skull man, China is actively working to drive property prices down and it's a GOOD THING. The rich who over-invested in property are gonna get fucked and housing becomes more affordable to the rest of the population. This isn't a hard concept to grasp. Everyone who bought pre-2006... hell, pre-2008 is still stupidly ahead. Rich people saw the stock market was no longer a sure fire thing and they dumped it all in property... no you idiot they didn't take out mortgages to do it. Hell, even in the height of the bubble, there have always been cheap properties. No one in china cares if rich people lose their shirt, in fact we laugh our asses of when it happens.
i don't believe in the atruism from the communist party, they are the rich folks
Yep, they rich... they also have power and would like to keep it that way... to keep power they gotta be a bit altruistic at times as well.
Alright, getting the weekend started off with a bang! I should have mnetioned CHINA in my blog article yesterday, I did not think about the MASSIVE corruption there. So, OK, it is the whole damn world.
Anyone interested drop me a gmail at my name, promise to behave (as I write under my own name), and I will send you the link to my blog. My piece yesterday is titiled "Everybody Knows". They already do, or will soon.
do not listen to, believe or trust the Chinese
who's left?
The other honest good looking leaders of the world and some of the ugly ones too... It's that thing they do with their eyes where the look from side to side, very shifty people if you know what I mean...Always watch their eyes, that's how you can tell...
blind politicians can lie too.
don't listen to their empty rhetoric. follow the money. that's how you can tell....
Marcel Marceau?
Yeah, right, listen to and trust an idiot American like you?? What a JOKE!!
Ghost livin' for the Ghost City...
Number 69 is chicken and bwoccoli, bitchez!
That's not chicken!
Meowwwww
if gold is revalued aren't the millions of accounts in china going to see a windfall.....at least the bigger guys everyone will be lifted and people in the US we will be paying 5-6 dollar gas and maybe everyone won't laugh at me anymore
1) Those that can and have been buying PM's will be in the top 1% and the .01% have an even higher gap between the 99.x% because they knew about this long before the mass of sheeple getting in late.
and/or
2) The CB's/Gov's will become the horde hoarding PM's then again confiscate it....from everyone but the 1%
How can China have a property bubble? - land values are so reasonable:
"According to the China Economic Weekly magazine, property prices are currently so high that the total value of land in Beijing, estimated at 130 trillion Chinese yuan (US$19.74 trillion), surpassed the United States' gross domestic product of US$14.5 trillion for 2010."
Jan 26 3011
Wow, that land must be über productive.
Property bubbles grow into poverty bubbles.
http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1302&MainCatID=...
yes it is 2011 not 3011 - sorry for that typo.
wasnt a VERY similar stat quoted in early 1980's when the total value of land in Tokyo was said to be worth more than the whole of the US?
It was still going up at that point. But we now know where it went.
A China bust would be good as prices for commodities would PLUNGE. Especially crude as their oil consumption has been on a tear. With a 3million bpd reduction in use that will free up supply for our fat american asses LOL
We should start seeding labor revolutions in countries where we previously exported all of our manufacturing to, then we could bring those jobs back here after the labor costs rise!
send the weenies to OCCUPY BEJIING
That's an interesting idea, but when an iPad costs you $2,000, what are you going to eat?
What do you mean? My line of credit is good for it. Do I actually have to pay that back??
An iPad Nano?
Mmm, just like "Lay's® Potato chips, no one can eat just one!"
Just like tits.
i guess it wouldn't take long to reprogram chinese robots to understand english!
Wait til' the PRC invade Taiwan using 2 million soldiers... Each in their own little single self contained speed boats so as not to disrupt the submarine nets in the South China Sea
China doesn't need to invade Taiwan ... they already own it.
Taiwan is just a side show for American TV audiences. (The MIC needs to have lots of places to "save", or "protect", so that they can continue developing new weapons).
Awww, not Gordon Chang. And i was about to go very short on the giant panda.
One thing I don't understand, he's talking about economic laws catching up with China, which laws and where he was when the western world got fucked up. I'm not economist and I know untill they're supplying world with everything they will be fine. When jobs will start flowing back to US or Europe then I will start counting years or months to their demise, for now I don't see it.
play the ponzi pay your piper, blah bo be bah pay pay....
It's not just Princetown...the entire Canadian real estate condomindium market is currently being upheld by mainland chinese consumption. The face of this is Vancouver but it's actually now Toronto, the current leader (by far) of North American high tower construction. We have entire Chinese suburbs ie; Markam where 95% of the population is Chinese and my contacts in the real estate division (I'm a construction manager) tell me they are having busloads 4-6 at a time of mainland Chinese at private condomindium viewing parties. Why? hard assets - that's why. $250,000 will automatically allow you to emigrate. You own hard assets here and your first through the door - if they were that confident on China they would be buying condo's in Shangai.
I wonder if they'll purchase Phoenix outright? Or Detroit?
Meanwhile, back in Bizarro World, the latest headline:
Deep spending cuts pose a new threat to US economy