Thursday, Jul 15, 2010
Malinvestment?
Zero Hedge: China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered
China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this "data." Although in retrospect, based on China's bottom up GDP goalseeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just announced stunners about the Chinese economy. The first comes from Fitch, which in a report released today titled Informal Securitisation Increasingly Distorting Credit Data, uncovers that China has in fact been massively underrepresenting the actual amount of new loans in the first half of 2010, courtesy of precisely the kinds of securitization deals that blew up half of our own banking system
26 Comments
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1. mark said...
soon they will be paying people to have more kids so they can fill the houses..lol
2. Carol said...
Five times bigger? China's population is four times that of the US (1,300 million vs 310 million), so while there is obviously a bubble, it's not five times that of the US. And yes, the Zero Hedge article compares raw numbers, rather than the more appropriate per capita ones.
By that measure, considering that the US has somewhere between 12-20 million houses on the market, we could say that the US has a bubble maybe 5-10X that of Britain.
3. Dontpanic said...
......and if the bubble bursts?
4. simon68 said...
If you want to get first hand information and have a grip of how planned economy in China works, you better learn Chinese language. There are plenty of good research materials in Hong Kong media!
5. uncle tom said...
At first I thought this was probably just another American having an anti China rant, but the figure for the number of empty apartments seems well researched, and is quite startling..
..the Chinese have a bit of a thing about houses and flats being new, and will not let out a speculative purchase, as that would de-value it; so their market does not function in quite the same way as ours.
However, it does suggest that there is a huge property bust waiting to happen in the PRC. They may not have overbuilt quite as crazily as Ireland (relative to their population) but would appear to be ahead of Spain..
The Chinese solution to an chronic over-supply would be to knock down all their old houses - they never seem sentimental about their built history..
6. simon68 said...
See Jones Lang's June China Property report:
http://www.joneslanglasalle.com.cn/ResearchLevel2/research-pulse-monitor-cn-2010-06-eng.pdf
7. simon68 said...
However, it does suggest that there is a huge property bust………………….but would appear to be ahead of Spain..
Spain properties are being built for foreigners, and probably British took up most of them.
Do you know the number of total population (billion) in China? How many properties are needed to bloat the market demands?
In 2004 509,293 new properties were built in Spain and in 2005 the number of new properties built were 528,754………………..in a country with 16.5 million families, 22-24 million houses and 3-4 million empty houses. From all the houses built over the 2001-2007 period, "no less than 28%" are vacant as of late 2008.
8. uncle tom said...
Simon68,
It could be worse in Spain, but the numbers get a bit confused with the very large number number of holiday homes and lets, which are, quite normally, empty towards the end of the year..
I thought the Spanish over-supply figure was in the order of a million properties for a population of 41 million, against 64 million in China for a population of 1,330 million.
That would suggest the Chinese oversupply per capita is roughly twice as bad, but it is also possible that the Spanish would like to play down the scale of their dilemma, and have been a bit creative with their stats...
9. This comment has been removed as it was found to be in breach of our Blog Policies.
10. Rental John said...
The Great Sprawl of China (sorry!)
11. simon68 said...
It’s good to see foreigners envy about the 10% annual economic growth in China.
12. uncle tom said...
"It’s good to see foreigners envy about the 10% annual economic growth in China"
For 'foreigners' read 'Americans' - I think everyone in the UK thinks "good luck to them" - but it really bugs some of the Yanks..
13. simon68 said...
To: Uncle Tom
By the same token, the 64 million luxury properties in China are for vacation purpose, so there are still half billion home shortage in China!!!!!!!!!
14. simon68 said...
Uncle Same, hope readers in this forum won’t be as daft as a brush after reading your comparison.
15. Rental John said...
A year or so on - but interesting youtube article:
Chinese Economy 2009
http://www.youtube.com/watch?v=ektMQGbW3wk
16. simon68 said...
Definition of Vacant Property
A property that has no occupants. Often these properties are also in severe disrepair.
17. tom101 said...
You seem to have a little grudge there simon? It's good to see China making the same mistakes. It shows we're all the same really.
18. simon68 said...
Don’t be stupid!!!
Chinese Premier Wen Jiabao isn’t Gordon B. All Chinese Banks are State Owned and there is no personal interests to pass over benefits under the table to bankers in China.
China authority has capped banks mortgage lending ratio of 50% LTV of second home and banned banks lending to third home. Hong Kong Monetary Authority implements a policy for 75% mortgage lending for decades & you won’t be able to get 80% mortgage loan on property in China. Aggregate mortgage lending in China accounts for about 19% of GDP versus more than 100% GDP in UK and USA.
The property market in China is the healthiest (from all angles) in the world.
19. simon68 said...
I guess this is just a kind of back pay……………for privilege Tony did give to his banster friends when he is still a PM.
Tony Blair joins investment bank
Tony Blair is said to be providing "political and strategic advice"
Tony Blair has taken a part-time post with US investment bank JP Morgan.
Mr Blair, who stood down as UK prime minister in June last year, has been employed "in a senior advisory capacity", the bank said.
He said he looked forward to advising the bank on the "political and economic changes that globalisation brings".
It is not known how much JP Morgan will pay him, but some estimates say more than $1m (£500,000) a year. The bank said he had a "unique perspective".
20. tom101 said...
No i'm sure any 'benefits' are over the table there.
It's different this time........ whatever
21. simon68 said...
Which brings us to another way China is asserting its new power. It has determined that Moody's, Fitch and S&P are biased towards the West. Its own rating agency has just announced a new way of looking at the creditworthiness of the world's governments. In it, the US has been taken down a notch. So have Britain, France and most other western nations. The Telegraph reports:
Dagong Global Credit Rating Co used its first foray into sovereign debt to paint a revolutionary picture of creditworthiness around the world, giving much greater weight to "wealth creating capacity" and foreign reserves than Fitch, Standard & Poor's, or Moody's.
The US falls to AA, while Britain and France slither down to AA-. Belgium, Spain, Italy are ranked at A- along with Malaysia.
Meanwhile, China rises to AA+ with Germany, the Netherlands and Canada, reflecting its €2.4 trillion (£2 trillion) reserves and a blistering growth rate of 8pc to 10pc a year.
Dominique Strauss-Kahn, chief of the International Monetary Fund, agreed on Monday that the rising East is a transforming global force. "Asia's time has come," he said."
Source: Daily Reckoning
22. Tom101 said...
"Which brings us to another way China is asserting its new power"
Like a toddler playing with a handgrenade....
23. simon68 said...
Whatever you call it property bubble in China no match with household debts in UK which is more than its GDP or public debts mountain in Britain!
24. simon68 said...
Our view? Phase one of the great credit depression is over. It caused a massive transfer of liabilities from the private sector to the public sector and concentrated those liabilities in a handful of firms that are now considered too big to fail. But if the whole system is a failure, what then?
In PhaseTwo, the Welfare State's 300-year old model of funding deficits will be stress tested. And what happens when the stress is too much...when a mountain of debt is supported by an anthill of real tangible equity? You'll read about that in the Economist too, but only after it has happened, and it's too late for you to have protected yourself from it.
Dan Denning
for The Daily Reckoning Australia
25. simon68 said...
ToL Tom101
Better save your worries about yourself first!
The Chinese are rich! They don’t need to worry about their bankers call loans, threaten about repossession on behind mortgage repayment, cut housing benefits, government austerity, become jobless etc…………..
26. simon68 said...
Gordon B is really a clever guy using camouflage exchange control. It is only UK customs officers that search passengers’ luggage for bringing money out from the country but no other nations in the world do such thing.
In United States you only need to declare the amount of cash (equivalent to USD10,000) you are bringing into the country, but nobody cares how much money you bring in your journey to overseas country. In China you are required to declare the worth of valuable personal belonging such as gold watch, jewellery for import duties imposition but doesn’t care about bringing money away.
Australia, Canada, Hong Kong, Singapore, Indonesia are having the same policy with the exception of country in serious financial distress like Zimbawe.