What Does China's Dr. Doom Foresee?

Tyler Durden's picture




 

Chinese investors are holding their collective breaths to see if the banking crisis predicted two years ago by renowned Chinese economist Li Zuojun will come to fruition in the next couple of months. Li's astounding accuracy in predicting China's economy has led to him earning the nickname "China's most successful doomsayer." Though far from perfect, a lot of what he said here rings true, but the interesting insight is that he forecasts that the incoming regime will want to take its lumps early, in 2013, so as to minimize blame ("it was the old crew’s fault") and maximize praise for subsequent recovery... He notes three other drivers (aside from this political one) including external flows and credit expansion and fears social instability should the status quo be maintained.

Housing prices will definitely take a dive, Li said, though it is not clear how far. It is possible that the new Chinese government, led by president Xi Jinping, could maintain tight controls to limit the drop to about 10%-20%, though Li did not rule out the possibility of a US-like collapse where property prices dropped by as much as 50% to nearly 100% in some cases.

 

Li noted that the bankruptcies of small and medium?sized companies, banks, and local governments are all signs of a nationwide economic crisis. Li gave four reasons for his prediction:

Economic

A bursting real estate bubble and the worsening local debt crises are two causes Li attributes to a potential economic meltdown.

He reasons that the overall economic downturn led to financial hardship for small and medium?sized companies, which subsequently resulted in reduced industrial and commercial tax revenues. Local governments suffered from reduced revenues due to the depressed real estate industry.

Nevertheless, local governments are under a lot of pressure to keep spending more money on items such as national defense, local infrastructure, housing construction and social insurance policies, improvement of hydraulic structures, and, most important of all, “maintaining social stability.”

At the same time, maturity of local debts is adding further pressure and forcing some local governments into bankruptcy. This will inevitably lead to banks also declaring bankruptcy, and debts being passed on to Chinese citizens. As a result, Li predicts a full?blown economic crisis is imminent.

Hot Money

China’s economy is slowing down while the United States is experiencing an economic recovery, therefore large sums of international hot money will flow out of China. This drain will also contribute to an economic implosion, he says.

Political

China’s 2013 leadership transition brings new leaders to the helm that might not be so anxious to address China’s economic woes. Li thinks they won’t expose any of the past problems until three to five months after they take their positions. So, the most likely recognition of an economic collapse, according to Li’s estimation, is July or August of 2013.

“Following the economic bubble bursting, there will be a subsequent period of suffering. But for the new leaders, this is nothing bad, since they are not to blame for the suffering,” Li said. Furthermore, “With the economic bubble bursting, the new leadership can adopt practical approaches. … New political achievements will be gained more easily, since the starting point is comparatively low.”

Cycles

The valleys of short?term, mid?term, and long?term cycles converge in 2013, Li said. A short?term cycle spans three or five years. Currently, this cycle is moving downwards and will reach bottom within the next two years, Li said.

A mid?term cycle spans about nine or ten years. According to Li, mid?term cycles in China  ccurred almost every ten years, in 1949, 1957, 1966, 1976, 1989, and 1998. Li said it has been over a decade since 1998, and the cycle should be around the corner. Initially, this cycle should have arrived in 2008 or 2009. Economic policies at that time delayed the cycle’s valley, but it shouldn’t be delayed for too much longer, he said.

There is also a long?term cycle, which spans 60 years, Li said, giving his speech a traditional Chinese inflection with a reference to the I?Ching, also known as the Book of Changes, a classic Chinese text on divination. From Li’s estimation this cycle is also approaching. With the economic crisis, social problems will also result. The current intensification of “mass incidents,” or large, often violent protests, can be seen as a forewarning of future turbulence, he said.

The Challenge of Accumulating Economic Bubbles

Along with the rapid economic growth, economic bubbles have also accumulated. High housing prices are one good example of an economic bubble. High?priced assets represent another bubble. We no longer engage in manufacturing. Rather, we have all dived into the financial market, which in and of itself has created a bubble. Many industries suffer from serious overcapacity, another bubble. Many local governments have invested a great deal in development and spent heavily on financing, directly ?engaging in the business of land? and ?city management,? with low efficiency and with many ?repercussions,? which is likewise a bubble.

Many people are concerned that these bubbles will burst. If the government uses a superb macro?control technique, lets the air out of the bubbles little by little without triggering an economic crisis or social unrest, and timely cultivates new economic growth and new competitive advantages so that businesses are restructured and upgraded, this would be considered a ?soft landing,? and the bubbles would not burst. However, in 2013 there will be unprecedented pressure, which will warrant a high degree of vigilance and attention.

Li's Full China (and global) Outlook (via Google Translate) and press briefs:

13-06-26 Li Zuojun - 2013 Crisis

 

(h/t Sean Corrigan of Diapason Commodities)

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Wed, 06/26/2013 - 17:27 | 3696872 ACP
ACP's picture

DOOM II: HELL ON EARTH

Wed, 06/26/2013 - 17:41 | 3696932 Canadian Dirtlump
Canadian Dirtlump's picture

All I know is someone took a BFG9000 to my fucking silver stack LOL

Wed, 06/26/2013 - 17:52 | 3696965 DoChenRollingBearing
DoChenRollingBearing's picture

My China prediction/guess (worth zero): they will take a real beating in the short-term years to come.  More so than most think.  Demographics, pollution problems and demand in the West for their stuff.  

My other China comment (worth, maybe, more than zero): wee do not need to fear China.  As long as we (USA) anyway) acts responsibly (uh...) and stays out of wars, etc., we'll be fine, they will not.  Many problems are ahead for China.

Wed, 06/26/2013 - 18:06 | 3697006 ACP
ACP's picture

Yup, their internal problems will only take up more resources in the future.

Super high water/electricity demand, other services. They've got more issues than their government will be able to handle.

I wonder how many heavy metals and hazardous chemicals are in the average Chinese citizen's drinking water..?

Wed, 06/26/2013 - 18:07 | 3697013 Triggernometry
Triggernometry's picture

IDDQD

IDKFA

Wed, 06/26/2013 - 18:27 | 3697072 TheCanadianAustrian
Thu, 06/27/2013 - 06:08 | 3698426 lakecity55
lakecity55's picture

It will be another hot day at the farm.

But it is better than working for The Man.

Wed, 06/26/2013 - 20:45 | 3697437 BandGap
BandGap's picture

True story - a reservoir in China had a problem heavy metals. Some scientists planted a weed that absorbed the heavy metals thus extracting them from the water. Now there's a weed problem. The weeds grew very well. The weeds were also a food source for a certain type of fish so a local entrapreneur introduced them big time to this body of water. They flourished and the fish harvest was extraordinary. He harvetsed the fish and made a killing at the market (one of the places he sold these fish to was WalMart). Yes, the fish were fortified with cadmium, nickel, chromium VI and all sorts of metals. The guy who introduced the fish won an award for turning a profit.

There are places where the water table is over 500 feet deep where it was once less than 20. China has issues.

Wed, 06/26/2013 - 22:48 | 3697806 old naughty
old naughty's picture

Why stop at China? Dr. Dooms are everywhere, no?

We have issues! 

Isn't that TPTB plan (agenda) all, well along?

Wed, 06/26/2013 - 18:17 | 3697044 reload
reload's picture

assuming that  'we'll be fine'  is used in loose comparison, you may be right.

But for a lot of folks in the west things are already a long way from what they would call fine, and likely to carry on getting less fine.

ButChina - the miracle engine of growth, has thrown a cog.

I never believed their bullshit numbers anyway.

Wed, 06/26/2013 - 19:03 | 3697168 00evolvedmonkey
00evolvedmonkey's picture

Does this mean the US dollar will be strong for the next several years?

Wed, 06/26/2013 - 18:21 | 3697049 SilverRhino
SilverRhino's picture

Not really.  It's stil sitting there in your safe.   Someone took a blowtorch to the amount of FIAT it takes to get more.   

Stay on the brightside (and classy) :) 

 

Thu, 06/27/2013 - 06:06 | 3698424 lakecity55
lakecity55's picture

A lot of my PMs have been laying around in the family for over 100 years.

They are still shiny, except for some silver coins.

 

Wed, 06/26/2013 - 18:59 | 3697152 Jdog
Jdog's picture

Did he say "while United States is recovering'? his credibility is out the door!

Wed, 06/26/2013 - 19:18 | 3697204 thelibcentury
thelibcentury's picture

That's pretty harsh, it's likely he puts a lot more work into studying China than CUS. Clearly knows what he is talking about in regards to the former.

Thu, 06/27/2013 - 01:07 | 3698137 dunce
dunce's picture

His opinions work out probably because he analyzes facts very well and he tells people the basis . Some  just issue predictions and never explain their reasoning. He may well have access to facts not available to others.

Thu, 06/27/2013 - 03:03 | 3698286 Svendblaaskaeg
Svendblaaskaeg's picture

"DOOM II: HELL ON EARTH"

who cares - iddqd on

Thu, 06/27/2013 - 05:17 | 3698386 Paper CRUSHer
Paper CRUSHer's picture

+ IDCLIP!

Wed, 06/26/2013 - 17:27 | 3696873 A. Magnus
A. Magnus's picture

If this guy thinks the US is having a 'recovery' in ANY sense of the word then he needs to be laughed at instead of worshipped...

Wed, 06/26/2013 - 17:32 | 3696895 stocktivity
stocktivity's picture

It's all Bullshit...even in China!

Wed, 06/26/2013 - 17:36 | 3696912 iDealMeat
iDealMeat's picture

rong..   in China,  it burrchit.

Wed, 06/26/2013 - 18:02 | 3696997 SemperFord
SemperFord's picture

Wrong...my woman is Chinese...

 

wrong = wong

bullshit = booshit

Wed, 06/26/2013 - 19:02 | 3697163 iDealMeat
iDealMeat's picture

Shankyou to your wooman for good attitude.  ;-)

Wed, 06/26/2013 - 17:36 | 3696913 Sudden Debt
Sudden Debt's picture

We'll see... said the Zen master.... and than he got shot in the back of his head by a chinese soldier...

Wed, 06/26/2013 - 17:45 | 3696939 Wile-E-Coyote
Wile-E-Coyote's picture

Something was definitely lost in translation there. Who interprets this shit a fucking monkey?

Oh and like they would let this guy publish this shit, I smell a rat.

Wed, 06/26/2013 - 18:04 | 3697005 stant
stant's picture

Has one black swan policy round eye

Wed, 06/26/2013 - 18:08 | 3697010 Hongcha
Hongcha's picture

I'm with DoChen here.  I also think China is selling gold which is contributing to the cascade here.  It's business as usual concerning the small-time stuff I trade with the mainlanders, at this point in time; but what I am hearing is, the economy there is slowing down fast.

Wed, 06/26/2013 - 19:14 | 3697198 thelibcentury
thelibcentury's picture

Feeding it into the system. Maybe there will never be an announcement about the PBOCs totals...which is stronger, 8 PDs with 10k tonnes or 100,000,000 with x ounces, after things change?

Wed, 06/26/2013 - 18:14 | 3697029 The Master
The Master's picture

I told Fonz this the other day but I think it might be worth repeating for those that didn't see my comment:

 

I am good friends with a very prominent Chinese hedge fund manager who is extremely well connected with high-ranking members of the Chinese banking system and Communist party.  He is pulling out ALL of his funds from China.  Everything that ZH has exposed about China (this article, the collapse of the copper financing deals, the decline in demand for wealth management products, etc.) has been corroborated by this friend of mine.  The shit is about to hit the fan and the smart money is getting out.  Hedge accordingly, bitchez.

Wed, 06/26/2013 - 18:22 | 3697052 Yen Cross
Yen Cross's picture

    I read and remember your comment. Thanks for giving ZH good "boots on the ground" intel. Much appreciated as I trade the Asian markets heavily.

Wed, 06/26/2013 - 18:27 | 3697066 The Master
The Master's picture

It's my pleasure Yen.  We are all a part of an incredibly important support group and we need to look out for one another.  Thank you for all of your posts as well.  Always informative and thought provoking.

Wed, 06/26/2013 - 18:30 | 3697085 DoChenRollingBearing
DoChenRollingBearing's picture

I did not see it the first time, thanks for re-posting!

Wed, 06/26/2013 - 18:27 | 3697070 LouisHill
LouisHill's picture

Thanks TM

Wed, 06/26/2013 - 18:25 | 3697062 zerozulu
zerozulu's picture

"China’s economy is slowing down while the United States is experiencing an economic recovery"

 

He is not very bright after all..

Wed, 06/26/2013 - 22:37 | 3697773 RaceToTheBottom
RaceToTheBottom's picture

Sounds like Lim Logers.....

Wed, 06/26/2013 - 22:47 | 3697801 Golden_Rule
Golden_Rule's picture

I'd be interested in a little debate between Jim Rogers and this guy on the future of China.  Maybe Rogers is missing a few pieces of the puzzle or something (I doubt it), but his view is much more optimistic. 

Thu, 06/27/2013 - 01:25 | 3698164 Yamaha
Yamaha's picture

Fucking Jim Rogers needs to retire again - buy that same ugly yellow fucking Mercedes with the portable porn coach in the back and drive around the world again.

Take a look at his so impressive closed end funds if you want a laugh....

Thu, 06/27/2013 - 01:24 | 3698165 Yamaha
Yamaha's picture

(But he does have a lot of money)

Wed, 06/26/2013 - 23:04 | 3697874 joego1
joego1's picture

And when China goes down what will they do with all those U.S. treasury notes they are holding?

Thu, 06/27/2013 - 02:54 | 3698279 Seer
Seer's picture

I posted a comment on another thread asking what people thought the Chinese were going to do with USTs.  Seems that if they're not going to print internally that they'll end up having to liquidate somewhere along the line (some are suggesting it's gold, but that seems like the last thing to do and I don't think that they're necessarily stupid over there).

Seems that those able to pull back their debt issuance to "in-house" are going to be better off.  And some of the Chinese bind might very well have been a long-orchestrated plan (Henry, is that you?) by the US.  Maybe the Fed has been working to drive USTs from China back to the US (slowly).  Those countries who have a lot of debt held outside their country are more prone to disturbances (think bond vigilantes).

Any of this make sense?

No matter, I believe that China represents the key straw on the camel's back.  It's the tripwire.

Thu, 06/27/2013 - 05:59 | 3698416 lakecity55
lakecity55's picture

What will they do with USTs??

 

At the farm yesterday, while doing farm chores, an older guy who does A/C side work was working on my partner's A/C. I was not there at the same time but she related to me he said China had bought Wallyworld.....

I have to ask him where he heard that when I see him.

Nowadays, for all I know, it is true.

Thu, 06/27/2013 - 11:26 | 3699279 toadold
toadold's picture

No the US is not in a "real" economic recovery, but our "dirty shirt" is much cleaner than a lot of the others and the potential for real economic recovery is pretty good given that are demographics are better, energy resources are good, and food products are of high quality and produced cheaply and efficiently.  The biggest problem for the US is that the communist in charge is even more incompetent than Kim number 3.  

We'll probably all look back on this with the next US President, Putin II, and laugh.

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