Tag Archives: China Miracle

China ‘Greatest Bubble In History’

18 Mar

From BusinessWeek:

China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy.

And yet, RBA Governor Glenn Stevens, Treasury Secretary Ken Henry, and their many cheerleaders in the Australian media still believe that we are all set for another China-fueled mining boom, this time to 2050.

They failed to predict the GFC (see the many links in this blog for background).  That epic failure has cost Australians literally hundreds of billions of dollars in lost retirement savings and investments in 2007-2009.

So why should we trust their judgement now?

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China Biggest Worry For Markets

17 Mar

Fromt the Wall Street Journal:

Nervousness is growing in the financial markets about China, which might seem odd when there are so many other places to worry about.

There’s still Greece, for example, which is likely to be the focus of this week’s meetings of European finance ministers. There’s Germany, and its trade surplus. And there’s the U.S., the U.K. and all the other places with triple-A-rated debt that may not be rated triple-A for much longer.

So why the focus on China, where shares closed Monday at their lowest in five weeks, with the benchmark Shanghai Composite ending below 3000 at its weakest since Feb. 9? Well, as one bank put it on Monday: “Are we facing a ‘growth miracle’ or will China be the next bubble to burst?”

Even the markets are more cautious on China than Australia’s financial powers, the RBA and the Treasury department. They still believe we are headed for 40 years of “unprecedented prosperity” on the back of a new China-fueled mining boom.

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Is Mr Stutchbury Waking Up?

16 Mar

On February 28th I firmly criticised The Australian’s economics editor Michael Stutchbury’s column, “Chinese Can Fund Our Boom” (see my article here).

Well, it seems Mr Stutchbury may be (reluctantly) waking up to reality, if his column today is anything to go by. Though he cannot yet bring himself to let go of the fantasy entirely:

China Won’t Boom Forever

The big risk now is that, having escaped the global crisis, the Lucky Country thinks it’s bulletproof and the rebound in our iron ore and coal export prices means there is no penalty for bad policy.

The airbag of a US50c-US60c dollar cushioned the economy from the 1997 Asian financial crisis and the 2000 Wall Street tech-wreck. Our new China fortune pulled us out of last year’s global recession.

As a result, Australia is about to enter its 19th straight year of economic expansion, possibly the longest unbroken growth in our history. We appear to be heading into a bountiful decade or two of high commodity export prices driven by the rise of China and India.

But now, no doubt in reaction to Chinese Premier Wen Jiabao’s warning yesterday of a global double-dip recession, Stutchbury hedges just a little on his previous blind confidence:

But this new growth phase is bound to be volatile. And there is a smaller probability but higher impact risk that the mega China boom – like the 1980s Japanese bubble, the 90s Asian boom, the technology boom or the US housing bubble – could burst. We can’t count on being able to avoid a fair dinkum recession during the next decade.

Indeed. The fact is, many authorities around the world are predicting the China bubble may burst by 2012. Including some, like former chief economist for the IMF Ken Rogoff, who did predict the GFC in the first place.

I wonder how long it will take for Mr Stutchbury – and many others in the Australian mainstream economic media – to stop publishing reactions to the latest proclamation by an “authority”, and start researching widely in order to  think for themselves?

Perhaps he might take a lead from the Sydney Morning Herald’s Paul Sheehan, and his excellent and insightful article yesterday.

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China’s Banks In Trouble

9 Mar

From Bloomberg:

China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt surges.

China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on local-government borrowing, estimated at about 24 trillion yuan ($3.5 trillion) by Northwestern University Professor Victor Shih, could trigger a “gigantic wave” of bad loans as projects are left without funding, Shih said this month.

“Beijing’s fiscal situation probably isn’t as good as it looks at first glance,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “Perhaps at some stage the central government is going to have to bail out the banks or the regional governments and take it on its own balance sheet.”

Premier Wen Jiabao recently warned of ‘latent risk’ in China’s banking system due to the massive speculative loans taken on by local governments in China.

Warnings of an inevitable crash in China’s real estate market have been growing louder, with former chief economist for the IMF, Ken Rogoff, predicting that China’s property market is in a speculative bubble that will burst ‘within 10 years’, triggering a regional recession.

In Australia, our economic authorities such as RBA Governor Glenn Stevens, and Treasury Secretary Ken Henry, are banking on a China-fueled multi-decade mining boom to carry Australia out of debt.

They both failed to predict the GFC.  It seems they still cannot see, or will not hear, the warning signals today.

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China: ‘Large Financial Crisis’ By 2012

9 Mar

From the Times Online:

Recently there have been even more alarming views on China. Victor Shih, of America’s Northwestern University, looked into 8,000 local governments in China and warned that a wall of “hidden borrowing” could push Chinese government debt to 96 per cent of GDP next year. He feared a “large financial crisis” as a worst case scenario by 2012. Kenneth Rogoff, of Harvard, fears that a Chinese asset bubble, fuelled by the recent surge in debt, could trigger regional recession within a decade.

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Premier Wen: ‘Latent Risk’ In China’s Banks

5 Mar

From Bloomberg:

Premier Wen Jiabao warned of “latent risk” in China’s banks and pledged to crack down on property speculation as the government faces the consequences of flooding the economy with money to drive growth.

“The domestic economy still faces some prominent problems,” Wen, 67, said in a speech in Beijing to the National People’s Congress, similar to the U.S. State of the Union address. He also cited excess capacity in manufacturing and weak support for rural-income growth.

Wen’s comments reinforce concern that loans made in last year’s record 9.59 trillion yuan ($1.4 trillion) credit boom may go bad. Harvard University Professor Kenneth Rogoff has said growth could slide to 2 percent from Wen’s 8 percent target within a decade as a debt-fueled bubble collapses..

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Digging A Hole For Ourselves

5 Mar

From The Age:

In a series of speeches in recent days, senior economic officials from Reserve governor Glenn Stevens down have spread the same message: the brief interruption of the global financial crisis is over, and Australia has gone back to where it was – into a resources boom so big it will dwarf the booms of the late ’60s and early ’80s.

The Reserve Bank’s best and brightest argue that this will be good for Australia because it will allow us to earn more income now than we would if the minerals stayed in the ground for a few more years.

With the greatest respect, I sharply disagree. I think we need a national debate on whether it really is in our interests to try to sell off our mineral wealth as rapidly as possible, as our economic leaders believe…

We need to think hard about this. The implicit argument from our officials is that we should allow otherwise-viable industries to be put down in the interests of making room for us to extract as many minerals now as possible.

This is wrong: not just because they are picking winners, or just because China, too, has its vulnerabilities and could fall, but because you don’t put all your eggs in one basket.

We need to keep a mix of strong, diverse industries to guarantee our future. We need to debate how we do that, and learn from how others do it.

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Stevens’ Nonchalance ‘Stunning’

2 Mar

This excellent article by David Uren at The Australian suggests that he may be the only mainstream journalist in Australia who is awake to international developments, and not in awe of every utterance from RBA Governor Glenn Stevens:

If the Reserve Bank raises rates again tomorrow, it will risk repeating the mistake it made in early 2008, when it failed to see the global financial crisis coming.

Now, as then, it is beguiled by soaring commodity prices and believes Australia can shrug off what it sees as essentially local woes in the industrialised world.

In 2008, it was the subprime crisis, and today it is the sovereign debt crisis, focused for the moment in Europe.

Glenn Stevens’s nonchalance about the Greek debt crisis at the recent parliamentary hearings was stunning.

It had been no more than a marginal influence on the RBA’s decision to hold rates steady in February, he said.

“There is a bit of uncertainty about how all of that is going to be resolved. I do not think, myself, at this point, that those issues will directly present a serious problem for Australia. After all, it is a sovereign debt issue for Europe.”

Europe still represents about a quarter of world GDP and its unity and sound finances matter a lot for global financial stability.

US academics Kenneth Rogoff (a former IMF chief economist) and Carmen Reinhart have been among the most influential analysts of the developments of the past two years because of their analysis of crashes in 66 countries stretching back two centuries. “Serial default remains the norm,” they say.

There is often a lag of some years, leading policymakers to believe “this time it is different”.

Rogoff, who did predict the GFC, is currently warning that China is in a bubble, one that he believes will burst within ten years. If so, then so much for the belief that Australia is on the verge of a new China-fuelled mining boom.

Glenn Stevens appears to be in a bubble of his own, oblivious to the ever-growing warnings from leading international economists about the Eurozone crisis, and/or a new Asia Crisis triggered by the inevitable bust of China’s real estate bubble.

A man who apparently does not learn from his epic failures of the past, should no longer be permitted to retain such enormous power over the economy, and the lives of 22 million Australian citizens.

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Overheating China Can’t Be Cooled

1 Mar

China’s rapidly overheating real estate bubble cannot be cooled, lending further weight to predictions that the Chinese economy will bust inside ten years:

Even among Western analysts who live and work in China, the major role played by municipal governments in fueling China’s increasingly speculative real estate boom is underappreciated. The actions of those local authorities are at the heart of China’s property bubble, and they explain why the central government’s attempts to cool lending and construction are failing.

The key difference between China’s current real estate bubble and the U.S. bubble that popped in 2007 is this: In the U.S., it was individuals and lenders who made overleveraged, speculative bets via subprime mortgages. In China, explained Northwestern University researcher Victor Shih to NPR, the leveraged debt fueling the speculation comes from local governments, which have borrowed trillions of dollars worth of funds from China’s banking system to develop real estate projects in their jurisdictions.

Rudd Labor, Treasury Secretary Ken Henry, RBA Governor Glenn Stevens, and a lazy, blinkered mainstream media can no longer try to blame Barnaby Joyce’s warnings for scaring off the Sino-cyclical angel on which they have pinned all their hopes for economic prosperity.

After all, there is a growing chorus of leading international economists and financiers all around the world who are warning of a China implosion.  Perhaps our talking-head economic commentators, and the EPIC FAILURES currently in charge of the Australian economy, would like to start ridiculing and smearing all of them too?

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Stutchbury Sees The Angel Too

28 Feb

Brandishing the headline “Chinese Can Fund Our Boom”, The Australian economics editor Michael Stutchbury sees that Chinese cyclical angel descending from heaven too… and joins in the smearing of Barnaby Joyce:

The method and madness of Barnaby Joyce won’t lie down because it strikes at the heart of Australia’s economic risks and opportunities amid the mother of all mining booms…

The opposition finance spokesman has tweaked his reckless claim that Australia could default on its sovereign debt…

His incoherence invites ridicule. “He does not have a clue what he is talking about,” Wayne Swan responded, mocking Joyce’s reference to “net debt gross, public and private”. The Nationals senator was saying “ridiculous, stupid and damaging” things about Australia’s debt position. Swan’s Treasury head Ken Henry has accused Joyce to his face of “a gross oversimplification of economic understanding”.

Doesn’t have a clue, ‘eh Wayne?  Remind us again how your Bachelor of Arts (thence career political hack) compares with Barnaby’s qualifications?

As for Ken Henry’s arrogant comments, perhaps Mr Stutchbury might care to do a little research. He might learn just how many international economists directly refute Henry’s confident visions of a multi-decade China Miracle.

Mr Stutchbury goes on to imply that Barnaby poses a threat to that Chinese angel descending, thanks to his warnings about Australia’s levels of debt:

So Joyce now begins with private debt, particularly Australia’s gross foreign debt of $1.2 trillion, or about 100 per cent of gross domestic product.

At $638bn or 47 per cent of GDP, Australia’s net foreign debt is one of the highest in the developed world and much higher than in 1986 when Paul Keating warned that Australia could become a banana republic.

You’d think that fact might concern Mr Stutchbury. Not at all. Immediately comes the justification:

…

Continue reading ‘Stutchbury Sees The Angel Too’

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