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Pivot Capital On China's Investment Boom (And Pending Bust)

Tyler Durden's picture




 

The will-they, won't-they argument over the sustainability of China's capex-driven growth and the transition from an investment-led/high-growth economy to a consumption-driven/lower-growth model is becoming more polarized every day. Pivot Capital Management's take on the slowing growth and muddling transition will make the shift more painful and will likely lead to a credit bust. Their thesis focuses on the balance sheet transformation of the Chinese economy that has attempted to postpone such a transition at a time when the pro-cyclical shadow of global growth expectations demand it. They expound on three main reasons for the proximity of credit bust in China: shadow banking pushing credit expansion to the edge of a crisis (as the regulated markets lose control), real estate and infrastructure investment are at a critical juncture (as worsening fundamentals significantly dampen flows), and interdependence in China's financial system. They fully expect the upcoming credit bust to require government intervention, they expect this to dramatically slow the investment-led growth model and obviously this would be a global event as the world's reliance on China's 'economic miracle' is brought into question.


PGVF 2011 China Investment Boom_on the Edge

 

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Wed, 12/07/2011 - 19:27 | 1956673 Rainman
Rainman's picture

You won't hear squat about a bust from the Chinese High Command. You'll just feel it.

Wed, 12/07/2011 - 19:40 | 1956695 Let them eat iPads
Let them eat iPads's picture

Fuck China.

I can't stress this point enough.

Wed, 12/07/2011 - 19:40 | 1956699 chump666
chump666's picture

China  = EU writeoff x 100,000

Wed, 12/07/2011 - 19:56 | 1956728 Mark123
Mark123's picture

When does the Mayan calendar say it all ends?  I am getting so sick and tired of all this insane crap....

Wed, 12/07/2011 - 20:35 | 1956806 Gypsyducks
Gypsyducks's picture

winter solstice 2012

Thu, 12/08/2011 - 06:54 | 1957728 Sudden Debt
Sudden Debt's picture

not a end, a total reset!

 

Wed, 12/07/2011 - 20:13 | 1956759 Shizzmoney
Shizzmoney's picture

I can tell you from a customer whose company buys tons of shit from China - the natives are getting restless.

Shits not coming in on time, workers are quitting and "going Galt" left and right (meaning new, inexperienced workers replace them, degrading quality of service).  Vendors are warring at each other, even if under the same corporate umbrella.  And of course as we all know, the quality of said product is getting shittier and shittier, even the electronics (which usually had the best quality of product out of all the industries.....but that's also more to the fact that Chinese factories are also going more robotic).

As the Yuan deflates, employees have started to grow balls as shit gets more expensive.  Asking for more pay to match their PMI rates (and unlike Americans, they can do math and know they need raises of at least 9-13% a year to keep up with their deflation).  This is from both the workers AND the manufacturers, who are asking for more money from foriegn corporations to make their cheap shit.  Villagers marching in the streets about housing squats by the state.  And of course, China is always making sure Reailty and Game shows are not shown during the day or late at night.

Either China chooses itself, and goes to a Gold standard...... or it chooses further globalization, which means more accelerated monetarization to keep up with the (intentionally) weak USD.  If it chooses the ladder, it's natives will start to get restless in demand for fiscal sovereignty as THEIR asses get pressed to the wall.  This is starting to happen in India, where they just shot down a law that halts foriegn investment by big retailers like Wal-mart. The rupee is feeling pressures from the inside as well, but the PEOPLE have decided they'll figure that out on their own, and not have some technocrat "force" them to choose a path to figure out their fiscal problems (of course, the Indian Trade Minister who said that is probably a schill for Wal Mart).

But they have a democracy.  China doesn't.  Something WILL give. 

Wed, 12/07/2011 - 20:54 | 1956837 Heyoka Bianco
Heyoka Bianco's picture

A democracy with levels of corruption that make even China's system look like the local PTA.

 

 

Wed, 12/07/2011 - 21:04 | 1956864 Heyoka Bianco
Heyoka Bianco's picture

The RMB doesn't trade freely, they've massively overbuilt in everything, Enron would envy their kind of GAAP, and they're trying to transition from low-end to high-end manufacturing when demand for both has cratered. How can you be anything but bearish on China?

 

On the other hand, because the RMB is heavily controlled (and therefore foreign banks' exposure) and demand is down and because they've shown the capacity and willlingness, nay, even eagerness, to step on the neck anyone daring to challenge the CCP's authority, the overal effect would be significantly smaller then the EU contremps. It might even have a mid-term positive effect (from a strictly economic view): the workers in CHina seem to be in a powerful position, but they have even less leverage than American workers, because demand for jobs is growing while job growth is declining (sound familar?). They may take to the streets, but that's no way to get fed, is it?

 

We don't put out fires, we just piss on the highest flames.

 

Wed, 12/07/2011 - 21:27 | 1956915 Yen Cross
Yen Cross's picture

Gypsy Ducks +1   Silence is golden.

Wed, 12/07/2011 - 23:26 | 1957142 slewie the pi-rat
slewie the pi-rat's picture

jeeez! 

it was just yest we had a piece abt the shadow bankstering in the EU and another abt the RE in denmark...  hmmm...  not to mention the US shadow bankstering

ice9 liquidity factor defcon 2

Wed, 12/07/2011 - 22:21 | 1957036 earleflorida
earleflorida's picture

if i'm not mistaken, china will be entering a 'new-five-year plan', implemented some 30 years ago with 5yr intervals - they have in all practicality scripted their economic growth scenario quite accurately.

it will/should borderline isolationism - similar to the u.s. before we went global[?] and grow their economy within with imports being the bulk of foreign trade[?] minus past outflows of exports.

this is not to be thought of as a precursor for the future, but much more of a realistic, and pragmatic  approach,... knowing and accepting the very facts - there must, and has to be a cooling-down-[period] time for all emerging economies [no-matter-what-size] in a 'new-world-order' paradigm.

thusly, predicated upon empirical economic data they've  [china] refused to ignore,... contrary to their established, "old-world/ new world, paradox contemporaries", - now on the precipice of a defunct global elitist state

sad,... that the industrialized nations gave so much power to so few without even questioning their authority? 

Wed, 12/07/2011 - 22:35 | 1957062 chump666
chump666's picture

and it contiues the great Yuan sell off:

*The USD/CNY is lower after hitting its upper limit for the seventh straight session,

 

Wed, 12/07/2011 - 23:59 | 1957201 Yen Cross
Yen Cross's picture

Smart you are, ( chump ).  Yuan it is, and always will be! Just like the { DEUTCHMARK }>

Thu, 12/08/2011 - 03:41 | 1957608 thydesh
thydesh's picture

Don't worry so much,,,

Thu, 12/08/2011 - 13:34 | 1959311 onebir
onebir's picture

SPAM (in Finnish?)^^^

Very good report. Full of shocking info.

(As an aside, I can't believe property prices in Harbin are the same as in Dallas. (Chart on p7) Harbin is in fricking Manchuria for crying out loud... & Urumqi - thousands of miles from anywhere & ethnic violence venue #1 in 'China' - isn't much cheaper. Complete insanity. :s)

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Sat, 01/28/2012 - 15:10 | 2105763 kelpie-capital
kelpie-capital's picture

Another way of playing a China collapse is shorting Aussie Dollars...

 

http://kelpie-capital.com/2012/01/18/whats-going-down-down-under-the-cas...

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