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interestrateripoff

The West Can’t Spend. China Won’t Spend

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http://www.timesonline.co.uk/tol/comment/c...icle6729557.ece

Arrogant and rich, Victorian Britons were once the ugly face of world tourism. In the 20th century, the crown of shame passed to America. Yanks in slacks became objects of scorn and ridicule from the Louvre to the Uffizi. Debt and the shrinking dollar have upset America’s claim to the title of world’s most despised foreign visitor. A new aspirant has taken up the challenge of bringing sartorial shame to the world’s fleshpots. From Bondi Beach to Phuket, the Chinese tourist is making waves.

Taiwan turned up its nose last year when mainland Chinese arrived after six decades of travel bans. Locals complained about spitting, loud voices and boorish behaviour. For their part, the Chinese tourists found Taiwan “tatty and rundownâ€. Complaints about uncouth visitors in Thailand prompted China’s Spiritual Civilisation Steering Committee to provide guides on behaviour abroad.

Even so, America and Europe are hoping for an invasion because these new Victorians have something that speaks louder than manners: cash.

After months of nail-biting worry in the workshop, Beijing’s mechanics have coaxed China’s engine out of low gear. Primed with billions of dollars of government funds, the economy is at cruising speed and expected to move into the fast lane this year. The Shanghai stock market is up 85 per cent since the beginning of the year. Last week the company that built the Water Cube aquatic centre at the Beijing Olympics raised $7.3 billion in its first public offering. Investors put up 35 times as much money as there were shares on offer.

The Chinese economy expanded by 7.9 per cent in the second quarter compared with 6.1 per cent in the first, bank lending is up 35 per cent and real estate investment 18 per cent since the start of the year. Buyers are returning to the homes market and car showrooms in droves, while property developers are back in the game.

US and European estate agents hope some of this money will trickle into their bombed-out markets. Where Russian oligarchs swaggered in Hampstead and Cap d’Antibes, we may soon find Chinese tycoons.

So fast and so unexpected is the recovery that Morgan Stanley reckons China may be decoupling from the rest of the world. Like Shanghai’s superfast Maglev train, the China express is breaking free from America’s diesel loco, flying over the rusting rails of the economy.

China lacks our over-borrowed banks, our ballooning government debt and insolvent households but it still needs us, the customers. We have stopped buying the stuff that comes out of Guangdong’s factories. Instead, the Beijing Government is keeping things moving by spending its rainy-day money. Meanwhile, the Chinese people, the world’s greatest savers, are still hiding half their disposable income under the mattress. HSBC’s economists reckon that 80 per cent of the GDP increase was engineered by hundreds of billions of stimulus renminbi. Loosened credit restrictions have created a building boom and car purchase frenzy. Investment was up by a third in June over last year as the State bought steel and cement. But exports fell by more than a fifth.

In the short-term, the Chinese Maglev can surge ahead, but in the long-term, much depends on a big recovery in US consumption (unlikely) or a sea change in Chinese consumer behaviour (improbable). The world will change utterly when China’s rural millions begin to buy the TVs, fridges and knock-off Prada shoes that we can no longer afford. Chinese retail spending is up by 15 per cent but it is half the rate of growth in investment spending. Consumer price deflation continues; there is investment in cars and new homes but not much cash is frittered away on laptops and lipstick. McDonald’s is so worried about weak Chinese spending that it recently cut back expansion plans. Its rival, Yum Brands which owns KFC, is expecting nil growth in China.

Cash is hoarded, not spent on indulgence. There is still no universal pension or health scheme and the Chinese have long memories of hardship and famine. If China is decoupling from the world economy, many want to know where it is headed. Can we afford to go there and do we want to?

For more than a decade, we funded our lifestyles with cheap loans made possible by cash surpluses hoarded in China and recycled into Western economies. Now we have no choice but to save and pay back what we borrowed. Our pensions depend on the dividends of mining and oil companies that supply China’s mills but it is not enough. We must begin once again to make things Chinese people might be tempted to buy.

China appears to be a boom about to burst, the stock market up 85% in just over 6 months, huge returns for those that invested wisely, you've nearly doubled you money with no effect. Did the stock market pre 29 every go up by the same amount or is the China stock market increase on a whole new level?

Has any western stock market ever increased by such an amount.

There is no way this level of increase can be sustainable can it?

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In a word no.

This guy is very good, if you're interested in China

http://mpettis.com/

Recent article headlines include:

More public worrying about the Chinese stimulus

I wasn't impressed by China's high reserve and GDP growth numbers

RMB 1.5 trillion in new Chinese lending - can we turn this thing off?

China's loan growth isn't boosting my confidence in China's "green shoots"

China's saving problem and the consumption constraint

Stimulus - at what cost?

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http://www.guardian.co.uk/commentisfree/20...-economy-growth

At the end of last week, the politburo of China's Communist party decided to continue the stimulus package launched last November. The world could heave a sigh of relief that Beijing was going to throw its weight behind global economy, and the China bulls could predict that the last major state ruled by a Communist party was going to ride to the rescue of capitalism.

The numbers appear to say it all: growth back to 7.1% after a hiccup around the turn of the year, with forecasts of 7.9% for the year as a whole. The Shanghai stock market index is booming. Property prices are recovering in major cities. There is no sign of the widespread labour unrest forecast at the start of 2009 as tens of millions of migrant workers lost their jobs. All in all, China is the hot investment tip. Though anybody with any sense would have got in months ago; confidence is being pumped up as fast as a weightlifter's muscles.

Well, yes. The summer economic data were bound to be sunny. After all, Beijing has not only pumped the equivalent of $580bn into a fiscal package concentrated on infrastructure, but has opened the bank lending taps to a degree that is still barely grasped – so far this year around $1tn has poured out in cheap credit, triple the figure for the same period of 2008. Exporting firms, from steel to textiles, have been showered with tax rebates. Huge railway projects have been launched. Subsidies have poured out for farmers and to encourage rural households to buy household appliances.

If all that did not produce an upturn in growth, something very strange would be happening. As a matter of fact, it is, but in a way that the bulls prefer to ignore. Despite the rise in GDP, tax receipts are falling (that can't be all the effect of the rebates). Despite the enormous injection of liquidity from bank loans, deflation has set in. Despite the availability of cheap money, household consumption is not growing much faster. Despite the reported increase in industrial production, imports, which go largely into goods finished on the mainland, are dropping. In other words, this is a peculiar kind of recovery.

It is, in part, a political phenomenon. Having adopted economic expansion and material betterment as its main reasons for legitimacy after Mao was shunted off to the mausoleum, the current leadership of party chief Hu Jintao and prime minister Wen Jiabao has to come up with the goods to show that their movement alone is fitted to run the world's most populous nation. On top of that, as will be evident at the US-China strategic dialogue this week, they are not averse to pointing out that China's system of state controls enabled it to avoid the financial crisis that gripped the west and that its pain is the result of the crash in its external markets (not the whole story but true enough to pass muster).

But it seems that, when it comes to the medium-term outlook, the leaders part company with the bulls who see 11% growth returning in 2010-11. Last week, the politburo took control of economic policy which had previously been left to the government. That is probably a sign of two linked factors – a feeling at the very top of the regime that the short-term measures undertaken by Wen and his ministers will not prove enough, and a realisation of the scale of the longer-term challenge facing China as it seeks to upgrade its industry and rebalance its economy for a more sustainable future.

The politburo decided to continue with the stimulus remedy, a sign that it believes not enough have been done despite the 7.1% growth number. Monetary policy is to be "moderately relaxed", which means keeping up the lending. Fear of escalating non-performing loans, a wash of liquidity and the build-up of inflationary pressures could count for little when a political leadership is committed to producing an 8% growth figure by the end of 2009.

The snag is that the medicine China is applying, while producing spectacular short-term results, pushes the country in the wrong direction. Nearly 90% of the 7.1% growth came from government investments and guaranteed cheap loans. Spending on railways more than doubled. Expenditure on roads and irrigation were up 50%. Overall, fixed asset investment in everything from power grids to residential property increased by 34% year-on-year.

Edited by interestrateripoff

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There is another article about this on a different thread.

It seems the Chinese government ordered the banks to start massive amounts of lending to businesses, (56% of gdp in six months).

The banks did so but the businesses have no orders and no reason to invest so they stuck it all on the stock market.

I'm sure it can only go up... :huh:

Edited by D.C.

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There is another article about this on a different thread.

It seems the Chinese government ordered the banks to start massive amounts of lending to businesses, (56% of gdp in six months).

The banks did so but the businesses have no orders and no reason to invest so they stuck it all on the stock market.

I'm sure it can only go up... :huh:

I'm suppose it's better than sticking it all on houses. :blink::blink:

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There is another article about this on a different thread.

You mean this one:

http://www.housepricecrash.co.uk/forum/ind...howtopic=121102

Didn't seem to grab anyone's attention, even though it was the South China Morning Post that ran the story that appeared on the BBC international headline reviews this morning. Nothing like being at the coal face.

China is an accident waiting to happen. But it'll be the last stock market to peak - so there's probably 8-9 months of bubble-speed returns to be had if you feel lucky.

Edited by AvidFan

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China is an accident waiting to happen. But it'll be the last stock market to peak - so there's probably 8-9 months of bubble-speed returns to be had if you feel lucky.

But at least China has a very strong manufacturing base, and a very rich middle class- huge numbers of successful businessmen. Both of these are contributing to a very strong and strengthening domestic market in China for products and services.

It's interesting to see that that half the shops and restaurants in cities are quite expensive and only affordable to businessmen or middle class high earners, this just goes to show how the built up wealth from exports is trickling down into the wider domestic economy. Living in China now, and having been to a lot of cities here I can say this with a lot of confidence.

A big part of the reason China was and is booming so much is because wealth from exports was spreading around and China's stimulus plan did more to boost the confidence of the population than it did directly, as markets are all about confidence.

I believe China wants to keep booming, and wants the West to keep booming alongside it so that when everything comes to a crash China can pick up all the peices and be king while we are all consumed out. Hence why China Bank wants to enter the UK mortgage market!

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But at least China has a very strong manufacturing base, and a very rich middle class- huge numbers of successful businessmen. Both of these are contributing to a very strong and strengthening domestic market in China for products and services.

It's interesting to see that that half the shops and restaurants in cities are quite expensive and only affordable to businessmen or middle class high earners, this just goes to show how the built up wealth from exports is trickling down into the wider domestic economy. Living in China now, and having been to a lot of cities here I can say this with a lot of confidence.

A big part of the reason China was and is booming so much is because wealth from exports was spreading around and China's stimulus plan did more to boost the confidence of the population than it did directly, as markets are all about confidence.

I believe China wants to keep booming, and wants the West to keep booming alongside it so that when everything comes to a crash China can pick up all the peices and be king while we are all consumed out. Hence why China Bank wants to enter the UK mortgage market!

great the top 2% are doing very well. And this will keep their economy going when the remaining 98% cant afford to buy the products they themselves produce because....?

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But at least China has a very strong manufacturing base, and a very rich middle class- huge numbers of successful businessmen. Both of these are contributing to a very strong and strengthening domestic market in China for products and services.

It's interesting to see that that half the shops and restaurants in cities are quite expensive and only affordable to businessmen or middle class high earners, this just goes to show how the built up wealth from exports is trickling down into the wider domestic economy. Living in China now, and having been to a lot of cities here I can say this with a lot of confidence.

A big part of the reason China was and is booming so much is because wealth from exports was spreading around and China's stimulus plan did more to boost the confidence of the population than it did directly, as markets are all about confidence.

I believe China wants to keep booming, and wants the West to keep booming alongside it so that when everything comes to a crash China can pick up all the peices and be king while we are all consumed out. Hence why China Bank wants to enter the UK mortgage market!

China seems to be going straight from an agricultural economy to industrialised with super-rich and lots of industrial serfs and missing the whole mass consumption / mass middle class bit that in the West prevailed for decades until utterly undermined by debt and debt/cost production destruction. As a whole they will be earning big bucks but like the Victorian age the consumption that was needed to fill the coppers had to occur on a global scale.

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China seems to be going straight from an agricultural economy to industrialised with super-rich and lots of industrial serfs and missing the whole mass consumption / mass middle class bit that in the West prevailed for decades until utterly undermined by debt and debt/cost production destruction. As a whole they will be earning big bucks but like the Victorian age the consumption that was needed to fill the coppers had to occur on a global scale.

that's the thing isn't it.

if the mega rich hoard everything then you can't actually run a decent economy.

there are only so many bentley's one is capable of driving,and what is the point of having an entire carpound full of them sitting idle,when you could quite easily suffice with a different colour one for each day of the week.....freeing up lots more betnleys for other people to drive......and also the aspiration for those a bit lower down the chain to strive to achieve that status(hence improving productivity by carrots rather than sticks)

...it is a case of obsessive pen1s envy or what?

Edited by oracle

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China seems to be going straight from an agricultural economy to industrialised with super-rich and lots of industrial serfs and missing the whole mass consumption / mass middle class bit that in the West prevailed for decades until utterly undermined by debt and debt/cost production destruction. As a whole they will be earning big bucks but like the Victorian age the consumption that was needed to fill the coppers had to occur on a global scale.

From an economic experiment it's an interesting one.

Personally I fear that China will implode simply because of the population problem.

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great the top 2% are doing very well. And this will keep their economy going when the remaining 98% cant afford to buy the products they themselves produce because....?

Because the wealth gap is huge and as funny as it sounds you are entirely right. Sure there are still cheap products and services for the masses, but a majority of shops and services I've seen in China are expensive even from my perspective as a Westerner, for example clothes shops can often be as expensive as the West, with many shops selling at silly prices compared to local average wages.

This is much more pronounced in the cities and less the case in towns and the countryside. I also think in a bid to try and live the life of businessmen or middle classes many average earners are spending all their salaries each month just to try and enjoy some of these basic entertainments, restaurants and purchases. Uh just like here basically, so much for the prudence of the Chinese, capitalism has seen them turn into us.

To be honest I think capitalism breeds jealousy and greed among the less intelligent, while the more independant thinkers stay sensible and often go to to make successful businesses and afford much more than the jealous ones who spent all their money ever did.

My Chinese friends brother took me out to a restaurant and was happy to spend 20 pounds on a meal with drinks, which is a lot here- despite the fact he only earns around 100 pounds / month. Funny thing is I couldn't have turned him down as it would have offended him so I just enjoyed the free meal.

I'm sure he got an ego boost from seeming wealthy enough to treat me though :P

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From an economic experiment it's an interesting one.

Personally I fear that China will implode simply because of the population problem.

I understand they are relaxing the one child rule in places, but they still have awkward demographics, so medium term they could have a problem imho

thye USA has amazing demographics for med-long term economic growth, tho...

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Because the wealth gap is huge and as funny as it sounds you are entirely right. Sure there are still cheap products and services for the masses, but a majority of shops and services I've seen in China are expensive even from my perspective as a Westerner, for example clothes shops can often be as expensive as the West, with many shops selling at silly prices compared to local average wages.

This is much more pronounced in the cities and less the case in towns and the countryside. I also think in a bid to try and live the life of businessmen or middle classes many average earners are spending all their salaries each month just to try and enjoy some of these basic entertainments, restaurants and purchases. Uh just like here basically, so much for the prudence of the Chinese, capitalism has seen them turn into us.

To be honest I think capitalism breeds jealousy and greed among the less intelligent, while the more independant thinkers stay sensible and often go to to make successful businesses and afford much more than the jealous ones who spent all their money ever did.

My Chinese friends brother took me out to a restaurant and was happy to spend 20 pounds on a meal with drinks, which is a lot here- despite the fact he only earns around 100 pounds / month. Funny thing is I couldn't have turned him down as it would have offended him so I just enjoyed the free meal.

I'm sure he got an ego boost from seeming wealthy enough to treat me though :P

And this is sustainable how? You have no industry if you have no consumers who can buy what is produced. And 2% arnt going to consume the produce of the other 98%. This would work in the 1700's but not in the mass production 2000's.

Its all screaming UNSUSTAINABLE at me, in big neon lights. You'd be bonkers to believe it's otherwise.

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And this is sustainable how? You have no industry if you have no consumers who can buy what is produced. And 2% arnt going to consume the produce of the other 98%. This would work in the 1700's but not in the mass production 2000's.

Its all screaming UNSUSTAINABLE at me, in big neon lights. You'd be bonkers to believe it's otherwise.

just like the societal model in the UAE and to a lesser extent Russia.

You have the super rich and you have virtual slaves. No one in between.

All hail the new world order :angry:

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And this is sustainable how? You have no industry if you have no consumers who can buy what is produced. And 2% arnt going to consume the produce of the other 98%. This would work in the 1700's but not in the mass production 2000's.

Its all screaming UNSUSTAINABLE at me, in big neon lights. You'd be bonkers to believe it's otherwise.

And in between you have the all the powerful communist party holding it all together by fear.

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What will hit China will be the USA openly defaulting on its debt. Which it will.

Look out for some manufactured incident that will give the US the "moral" reason to default. There's already been some naval argy-bargy in the China Sea.

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What will hit China will be the USA openly defaulting on its debt. Which it will.

Look out for some manufactured incident that will give the US the "moral" reason to default. There's already been some naval argy-bargy in the China Sea.

What is North Korea doing these days?

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