Wednesday, Jul 21, 2010
These girls fall like dominoes, dominoes, dominoes
Mish's: Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin
China's property bubble is now on the verge of collapse. Transaction volumes are significantly down and declining volume is how property bubbles always burst. In simple terms, the pool of greater fools eventually runs out. Construction is financed by government land sales. Selling land produced 41pc of income for Tianjin municipality last year. But property sales slid at an annualised 8pc rate in June. A typical Beijing flat costs about 22 times average incomes in the city.
Posted by drewster @ 10:12 AM (3989 views) Add Comment
25 Comments
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1. p. doff said...
cue Simon
2. drewster said...
Please don't encourage him...
3. mark said...
lol PRC-simon68
4. rumble said...
"The light that burns twice as bright burns half as long. And you have burned so very, very brightly, Roy."
5. montesquieu said...
Have been to Tianjin ... not much known here but has a fascinating past, not least from having eight foreign powers divide up much of the city between them (including Japan, Russia, the US, even Italy). It has gone through a Beijing-style complete transformation in the last decade, still going on right now.
I've had these discussions with mainland Chinese people and none of them believe their economy can be derailed by these things. My argument is that no country has gone through such major economic change, be it UK, Germany, France, even the US, or China itself in its first big steps towards modernisation and industrialisation post Opium Wars through to the Japanese invasion in 1937) without accompanying social and political upheaval. Graphs don't move only in one direction. They basically trust that their leaders have the country's interest at heart (the top ones anyway - local officials are something else) and know what they are doing. Their faith is touching.
Taiwanese, HK and Singaporeans, who know a bit more about capitalism, the business cycle and the limits of what Governments can do in these situations, have a more mature view of things and the smart money is pulling out already.
China's destiny (so long as it doesnt dissolve into anarchy, which thankfully no-one has any stomach for) is still to be the dominant world power but it won't happen anything like as fast as the straight-line predictions being naively made right now suggest.
6. drewster said...
montesquieu, I couldn't agree more.
7. the number cruncher said...
montesquieu - well said
I do hope china is able to transform itself to a mature democracy without internal or external bloodshed. Interesting I know of a couple of economists that are pushing Georgist economics and Land Value Tax and have started getting some traction in the PRC. That would be one way China could avoid the strife that Russia is going through.
I am sure Simon is a paid employee of the PRC web disinformation task force (but remember all countries, including the UK, employ 'bloggers' to spread disinformation)
8. mark wadsworth said...
What TNC says.
But according to somebody who knows, PRC opposes Land Value Tax not just because apparatchicks can make splendid speculative gains but because "Taiwan does it" and Taiwan is the capitalist enemy. If PRC had thse sense to scrap existing taxes and introduce LVT then it would become a world economic power all the quicker, it won't take them more than five or ten years.
9. simon68 said...
Better read quality research reports by international surveyors firms like Jones Lang, Knight Frank, DTZ Debenham, Vigers, CB Richard Ellis etc than the 9th grade research analyst of StikaPacific Capital (never heard of this name).
10. the number cruncher said...
MW - you are probably correct - there was a historic battle between Georgist and Marxist ideologies that went on in the 30,s and resulted in some Georgist ideas being used by the Kuomintang.
Have you read this old article by Dr Wu Shang-Ying, very interesting:
http://www.cooperativeindividualism.org/shang_ying_on_sun_yat_sen.html
11. montesquieu said...
Simon68, if you've spent any time on the Chinese mainland recently you'll know all of these anecdotals about a credit driven bubble are true, and that things have got out of hand.
I totally understand (given the depredations of the Cultural Revolution, which no-one wants to talk about and most Chinese 2-somethings only have the haziest information about) there is no appetite for political reform in China and I don't think it will happen any time soon. The Chinese people don't want to open that can of worms any time soon and it's western wishful thinking to push for it.
But only a complete idiot would argue that China doesn't have deep structural economic and social problems which, given how cycles work, will lead to more than a couple of pauses along the way.
@tnc - wasn't aware Taiwan had LVT must investigate. If so it doesn't seem to have stopped repeated localised property bubbles & bursts.
12. simon68 said...
TO: montesquieu
Do you know what Singapore is like? It is like a military cadet school and Lee Kuan Yew is the 5 Stars General. All the wealth in the country is stored in Singapore’s CPF & sovereign wealth fund company Temasek, and the President Lee uses the nation’s funds to invest in China and US corporations.
It is only Singaporean and Japanese can enjoy visa free entry to Singapore but no other nationals in the world do have this privilege. You know why? It’s because they are big investors there.
Do you know………….who is the ultimate beneficiary in China’s housing boom? Not private investors! Not state enterprises! Not foreign investors!
Do you know what is behind the China’s housing boom? It is not banks’ credit!
13. simon68 said...
CORRECTION
It is only Singaporean and Japanese can enjoy visa free entry to CHINA but no other nationals in the world do have this privilege.
14. the number cruncher said...
Land Value Tax in Taiwan is not a proper implementation and there are some ways of avoidance and this allows booms and busts - but LVT, Kuomintang(China's) gold and American assistance has allowed Taiwan to convert from a medieval backwater into the world beating economy that it is today. If you look at the fastest growing economies since the second world war. Most have had a element of a land value tax: Look at the system of paid leases in china, Honk Kong, Botswana, Singapore which allowed for some socialisation of economic rents. These economies grew better than their neighbours, as the could maintain high public investment with low personal taxation.
In Taiwan the tax is levied annually for holding land. Tax is assessed by the government taking into account total value of land owned by a person or an entity in a district. Land for residential use is taxed at a flat rate of 0.2%, if certain prescribed conditions can be met. Land used for other purposes is taxed at progressive rates, ranging from 1% to 5.5%.
For LVT to work properly you need it to be levied at about 4% on all land and that should replace most other taxes.
15. simon68 said...
China's law does not enact the provincial-, city- and county-level governments sell debts on the market, but, mysteriously, Beijing has allowed localities to raise money through their financing and investing arms. Nobody knows exactly how much they have borrowed, including mostly bank loans, diversions from other sources and even IOUs.
Entering 2010, Beijing has been alerted, and alarmed too, by a local debt that is reportedly ballooning by the day. The country's bank regulators blew the whistle first, as they found steeply rising loans “bestowed” to the local financing units that were guaranteed by provincial, city and county governments. The local debt expanded to 7.38 trillion yuan at the end of last year, said the country's banking regulatory commission, and has perhaps well exceeded 8 trillion yuan by the end of May, according to analysts.
Chinese leaders know perfectly well that the debts suffered by U.S. banks in 2008, and now suffocating some Euro-zone economies, could be financially perilous, which if not replenished with adequate funds, may wreck the boat.
The problem of amounting local debts is particularly acute now, at a time as Beijing has launched a campaign to rein in runaway home prices. As housing sales have tumbled, and prices spiral down, local governments' land-selling revenue, a major income for them, will dry up.
Some outside observers may worry about the bulging debt could drag China down, and wreck havoc on China's overall economy. The danger is unlikely to materialize, as rescue measures are being taken, and China's Central Government is well financed, among the best in the world, to stonewall any worsening of the debts.
16. simon68 said...
If there is a bubble due to be exploded in China…………then it must be local government debts!
17. simon68 said...
There is no freedom of speech in Singapore.
If you dare to challenge premier Lee, you risk your freedom probably by decades stay in jail!
18. Notsimon68 said...
Changed my usual username of Rental John.....is this guy simon68 actually a PRC mouth piece? He is beginning to hog HPC comments....and piss@ng me off in process...or am I the only one?
The Chinese property market cannot be measured by normal world standards, but will fail in the same way.....and a lot of Chinese peoples savings (generational savings rather than mortgage loans) will disappear with catastrophic outcome both for China, and no doubt the world. Let us not forget that that China holds a vast amount of USA $ debt...
simon68 (if you are listening) - please take a vacation - OK!
19. This comment has been removed as it was found to be in breach of our Blog Policies.
20. mark wadsworth said...
TNC, agreed, Taiwan's LVT is much the same as Domestic Rates and there are a zillion exemptions, but at least it's there.
21. timmy t said...
Simon68 - did you call yourself that because that's your average number of posts per article?
"There is no freedom of speech in Singapore"... well at least they get some peace!
22. montesquieu said...
I do know a wee bit about these things having spent a great deal of time in mainland China, Taiwan, Singapore & HK, speaking some Mandarin which despite being fairly basic compared to my French or German takes a lot of Chinese by surprise (though Simon68's post about needing to read fluently caused a brief moment of panic till I realised it was a wind-up) and having a Taiwanese wife, a UK-based academic. This means I meet/eat with/put up in my home quite a large number of educated mainland Chinese - typically - since they are studying in the UK - from recently-wealthy families.
I really enjoy Simon68's posts. I don't think he's a PRC mouthpiece as I've heard many of these views expressed from regular Chinese people, and they deserve a voice (though perhaps better in the forum than in the blog). Many Chinese are still sore about western imperialism in China's sphere of influence which, while it brought many benefits to ordinary Chinese people, also resulted in awful humiliations that are well-remembered there, even if long-forgotten here. These are views that we ought to listen to and respect as complementary/valid viewpoints, and also understand that there is a huge amount of anger about how 'we' (in the form of Victorian + early 20th century governments) behaved. By modern standards our behaviour in China back then is indefensible, and to make things worse, many of the companies that made it big in this period - eg Hutchison-Whampoa, Swire (owners of Cathay Pacific IIRC), HSBC - are still dominant players today.
What I do observe though among these newly-rich mainlanders is a huge degree of economic naivete, very common, and a post-Marxist belief (again quite touching) in 'progress'. I don't mean to be condescending but with resurgent Chinese nationalist pride comes a huge amount of wishful thinking. However, the refusal to even talk about the need for political reforms, I fully understand: no-one wants a repeat of the many destructive, violent political upheavals China has experienced since Sun Yatsen deposed the Qing in 1911 (to say nothing of catastrophic earlier convulsions such as the Taiping Rebellion or Boxer Uprising).
Far be it from me to defend the Singapore political system! I'm always ultra careful when I visit lest I end up in jail for some trivial thing. I know lots of Singaporeans, none of whom want to live out their lives there. Great place to shop but I really wouldn't want to live or work there for any length of time.
The Taiwanese political system functions, but is immature as yet, having only become 'democratic' in 1987 (viz - regular punch-ups in the parliament, and the ridiculous scene not so long ago of a Green 'anti-China' party MP pushing to the ground an old-aged mainland visitor - part of a small mainland delegation - at a Confucian shrine which would have shocked anyone, let alone traditional Taiwanese who often have deep-seated Confucian sensibilities around honoring older people).
Most Taiwanese would be OK with being be part of a re-unified China, but not at the loss of the personal freedoms they have got used to. In the end, they would settle for 'a better deal than Hong Kong got' (a phrase I've heard many times). As all sides agree, they are all Chinese people, racially and culturally, whatever the politics. Most Taiwanese see convergence down the line at some point as inevitable.
Anyway while I disagree with some of his views I welcome Simon68 to our little enclave of economic awareness here and look forward to his posting in future.
@tnc thanks for the info will follow that up.Wife wants us to have a second home in Taiwan (very unfashionably in the central mountains rather than in a big city - she's been in Europe too long!) which means we will eventually live there part-time. Of course, this means my Chinese reading skills will eventually need to extend beyond menus and road signs to other more practical matters.
recaptcha: bother perfuming (I'm sweating in Central London today, sometimes you have to wonder!)
23. Rental John said...
OK - let simon68 have a voice - please can someone set up 'House Price Crash in China'.....and he can comment and reply there....
24. Cliff Cobb said...
Number Cruncher and Mark Wadsworth, I would like to know the names of Georgist economists either Chinese or foreign who are advocating LVT. Please respond off-line to cliff.cobb@gmail.com, if you don't want to post names publicly.
I am speaking on this topic at a conference in China in the fall and would like to correspond with anyone familiar with the infl;uence of Georgists in China. On my previous trips, I have had very limited success in gaining consideration for George's ideas, largely because of the overwhelming influence of mainstream American economists.
I think it is too late for LVT to make a difference for China in this cycle, now that the bubble has burst. But there is still a possibility that the Chinese leadership could learn from this disaster. Japan failed to learn from its land value crash in the 1990s, and Americans will probably never learn from ours. But the Chinese seem genuinely open to new ideas. The issue is not merely whether the central government requires local governments to adopt LVT, because local governments only enforce laws of that sort that are in their interests to enforce. What is needed is a deep understanding of Georgist economics by at least 5% of Chinese economists.
25. rumble said...
Why don't people skip the comments they don't want to read? No wonder there was no bank run. Anyone grasp this market, consumer choice power thing?
"for buntings"