Tag Archives: Asia Crisis

China On ‘Treadmill To Hell’ Amid Bubble

9 Apr

From Bloomberg:

China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.

Barnaby Joyce has been warning about the external threats to the Australian economy since October 2009.  With every passing month, more and more evidence coming from economies around the world – including those such as China that are vital to Australia’s economic interests – indicates that there is big trouble brewing.  While the Ken Henry-led Rudd Government slumbers on in La La Land, spending like drunken sailors, confident of an unending China boom to lift us out of debt, more and more economists abroad are predicting a China crash.

Barnaby is also the only Australian politician with the courage to publicly question the Rudd Government’s weakening of Foreign Investment laws, which have allowed foreign ‘investors’ to help spike Australia’s already unaffordable housing bubble, and put our ownership of vital national assets at risk.  Only Barnaby Joyce has had the courage to call out the Rudd Government for ‘selling the farm’, paddock by paddock.

China Losing Control of Economy

8 Apr

From Bloomberg:

Failure to rein in local government spending could push inflation to 15 percent by 2012, said Victor Shih, a political economist at Northwestern University who spent months tallying government borrowing.

“Increasingly the choice facing the government is between inflation or bad loans,” said Shih, author of the book “Finance and Factions in China,” who teaches political science at the university in Evanston, Illinois. “The only mechanism for controlling inflation in China is credit restriction, but if they use that, this show is over — a gigantic wave of bad loans will appear on banks’ balance sheets.”

Attempts to curb borrowing by raising interest rates would boost debt-servicing costs for local governments. At the same time, tightening credit may stall projects, triggering “a build-up of bad loans,” the Basel, Switzerland-based Bank for International Settlements said in a quarterly report in December.

Sun Mingchun, an economist with Nomura in Hong Kong, estimates local governments have proposed projects with a value of more than 20 trillion yuan since the stimulus package was announced in November 2008.

Should the boom end in a property-market collapse, even those stocks tied to the local government projects will be affected along with most other industries, said Shanghai-based independent economist Andy Xie, formerly Morgan Stanley’s chief Asia economist.

“Corporate profits are very much driven by the property sector,” said Xie. “The largest sectors will be hit hard, especially banks and insurance companies.”

A gauge of property stocks has fallen more than 6 percent this year after more than doubling in 2009 as the government takes steps to cool rising prices, including raising the deposit requirement to 20 percent of the minimum price of auctioned land. Property sales were equivalent to 13 percent of gross domestic product last year.

“Policy makers may need to start thinking about how to handle the aftermath of the bust,” said Nomura’s Sun.

China’s Debt Bubble: When Will The Ponzi Unravel?

6 Apr

From Naked Capitalism via Roubini Global Economics:

Independent Strategy’s latest report, “China’s credit bubble: the missing piece in the jigsaw” makes a persuasive case that China’s debt fueled growth model is due for a hard landing, but the timing is uncertain, since the debt is funded internally.

China is barely past an episode of dealing with banks chock full of bad loans (there were debates among Western analysts in 2002 and 2003 as to how bad the damage was and whether the remedies were sufficient). On a more fundamental level, China has copied the Japanese mercantilist development model pretty much wholesale. It arguably hit the wall with the 1985 Plaza accord, when the US found the continued trade deficits unacceptable and succeed in organizing a G5 intervention to drive up the yen (that succeeded too well, the yen overshot, leading to the Louvre accord to push up the greenback). Japan’s central bank lowered interest rates to stoke asset prices in the hopes that the wealth effect would produce higher domestic consumption and offset the effect of the fall in exports.

We all know how that movie ended…

The report forecasts a large decline in growth rates, as well as land and real estate prices, since LGFVs [Local Government Financing Vehicles] will need to liquidate holdings to try to pay off non-performing loans.

China Crisis ‘A Lot Worse Than People Expect’

6 Apr

Robert J. Brenner, economic historian and professor of history at the University of California, offers a grim forecast of the future for China in a series titled, “Overproduction Not Financial Collapse Is The Heart Of The Crisis: The US, East Asia, and the World”:

I think the Chinese crisis is going to be a lot worse than people expect, and this is for two main reasons. The first is that the American crisis, and the global crisis more generally, is much more serious than people expected, and in the last analysis, the fate of the Chinese economy is inextricably dependent on the fate of the U.S. economy, the global economy. This is not only because China has depended to such a great extent on exports to the U.S. market. It is also because most of the rest of the world is also so dependent on the U.S., and that especially includes Europe. If I’m not mistaken, Europe recently became China’s biggest export market. But, as the crisis originating in the U.S. brings down Europe, Europe’s market for Chinese goods will also contract. So the situation for China is much worse than what people expected, because the economic crisis is much worse than people expected. Secondly, in people’s enthusiasm for what has been China’s truly spectacular economic growth, they have ignored the role of bubbles in driving the Chinese economy. China has grown, basically by way of exports and, particularly, a growing trade surplus with the U.S. Because of this surplus, the Chinese government has had to take political steps to keep the Chinese currency down and Chinese manufacturing competitive.

Specifically, it has bought up U.S. dollar-denominated assets on a titanic scale by printing titanic amounts of the renminbi, the Chinese currency. But the result has been to inject huge amounts of money into the Chinese economy, making for ever easier credit over a long period. On the one hand, enterprises and local governments have used this easy credit to finance massive investment. But this has made for ever greater overcapacity. On the other hand, they have used the easy credit to buy land, houses, shares, and other sorts of financial assets. But this has made for massive asset price bubbles, which have played a part, as in the U.S., in allowing for more borrowing and spending. As the Chinese bubbles bust, the depth of the overcapacity will be made clear. As the Chinese bubbles bust, you will also have, as across much of the rest of the world, a huge hit to consumer demand and disruptive financial crisis So, the bottom line is that the Chinese crisis is very serious, and could make the global crisis much more severe.

Global Turmoil Looms: Keating

27 Mar

From The Age:

Paul Keating has delivered a bearish assessment of the world economy, warning that another bout of global turmoil is possible if trade and capital imbalances go unaddressed.

The former prime minister and treasurer last night argued current account surplus nations such as China and Germany must urgently shrink their surpluses by lifting the role of domestic demand.

Failure to do so could trigger another sharp deterioration in global economic conditions, he said, damaging Australia’s growth prospects.

Mr Keating also casts doubt on China’s ability to continue growing at recent rates of near 10 per cent. He said this rate was being artificially supported by excessive investment and its pegged currency, which makes its exporters more competitive.

“Our biggest customer China is growing for the moment… but only on investment steroids,” he said.

The former prime minister also highlighted risks to foreign countries with large debts, such as the US and Europe.

In the event of a double-dip recession, Mr Keating said the developed world would not have the funding to support massive fiscal packages.

“If a financial crisis comes in the future there won’t be the method to deal with it as we’ve seen in this crisis,” he said.

Keating is correct.

Thanks to Rudd Labor’s panicked, massive “stimulus” spending – tens of billions of borrowed money wasted on pink batts, foil insulation, and Julia Gillard Memorial School Halls – Australia no longer has a safety net.

And despite the daily warnings of crisis dead ahead – now coming even from former “world’s greatest treasurer” Paul Keating – Rudd Labor is continuing to borrow well over $1bn a week.

When the next wave of the GFC comes, everyone will know that Barnaby is right.

China Bubble Ready To Pop

26 Mar

From the Financial Post (Canada):

The Chinese economy is a financial bubble that will inevitably pop, says Edward Chancellor, author of the classic text on financial manias, Devil Take the Hindmost. In a new report for GMO, the Boston-based money manager Mr. Chancellor lists 10 signs of a bubble in progress. They range from “blind faith in the competence of the authorities” to “a surge in corruption” to “inappropriately low interest rates.”

He figures the Chinese economy meets all 10 of the criteria. And he has harsh words for some of the cheerleaders for China: “Wall Street … tends to downplay the darker aspects of the Chinese demographic story,” he writes.

“China’s population is set to decline in 2015. The worker participation rate will peak this year. It’s anticipated that the number of people joining the workforce will fall off quite rapidly. Yet it’s this section of the population that tends to move to cities and has provided China with an apparently limitless supply of cheap labor.”

Mr. Chancellor figures that if China’s economy slows below Beijing’s 8% growth target, calamity will ensue. Excess capacity will stifle new investment, the real estate bubble will burst and non-performing loans will bring down the banking system.

China Says Greek Debt Crisis ‘Tip Of The Iceberg’

26 Mar

From the Sydney Morning Herald:

The euro slumped Thursday to a fresh 10-month low after a senior Chinese central bank official warned that the Greek debt crisis was just the “tip of the iceberg.”

Analysts said the comments, and a debt downgrade for Portugal on Wednesday, suggested the crisis was widening to take in the entire eurozone project.

“The fact that Zhu Min, the deputy governor of the People’s Bank of China, felt compelled … to call the Greek debt crisis ‘the tip of the iceberg,’ is as good an indication as any of how rapidly fundamental concerns are growing about the eurozone,” said analyst Neil Mellor at Bank of New York Mellon.

“Indeed, this comment might well signal the point that we stop talking about a ‘Greek debt crisis’ and start talking about a ‘Eurozone structural crisis’ instead,” Mellor said in a research note to clients.

Please take the time to browse the recent posts on this blog.

Our financial authorities – RBA Governor Glenn Stevens, Treasury Secretary Ken Henry, and the Labor Government – are all convinced that the global financial crisis is ‘over’.

They have publicly declared that Australia is all set for a new, multi-decade mining boom (thanks to China), that will provide us with a “period of unprecedented prosperity”.

They have ridiculed Barnaby Joyce, our only politician with the courage to publicly raise questions about the state of the rest of the world’s economies, and what calamity that might mean for Australia, since last October.

And, all of them (except Barnaby) completely failed to predict the GFC in the first place.

Yet, our media and the public believe that everything is fine.  That the Government can just keep right on borrowing around $2bn a fortnight, to continue squandering on a massive, rushed and bungled “stimulus”.

Barnaby is right.

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