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THE GREAT BIG CHINA THREAD


winkie
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It might not be so intentional with zerohedge but of course the mainstream media do that sort of stuff all the time.

For example following up and mixing up extremely serious and important news as well as tragic news with stuff like comedy and social items plus sports news etc. It gives them similar weight and importance and dilutes, distracts and relegates the importance, impact and emotion of the serious news. To some extent the variety is probably inevitable but sometimes the extremes and contrast are taken too far just to be a coincidence.

BBC - "WW3 has just been declared".........."In other news, a lab in Oxford has pioneered a way to make kittens fluffier...take a look at this"

I just don`t watch it any more.

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http://www.zerohedge.com/news/2014-04-23/chinese-housing-ponzi-exposedd-we-sell-our-first-apartments-we%E2%80%99ll-have-cash-flow-bui

Much has been said here and elsewhere about not only China's ghost cities - that final resting place where trillions in Chinese GDP "fixed investment" goes to quietly die but no before contributing to over half of China's GPD - over the past five years, but also about the bursting of the Chinese housing bubble in the past several months now that the Beijing Politburo has drastically slowed down the pace of loan creation and the country has shocked its bond investors by admitting failure is an all too real possibility. This post will therefore hardly reveal anything new, however it will provide some perspective on how from one of the most important industries for China's suddenly cooling economy, housing has becoming nothing more (or less) than one giant Ponzi scheme.

Here are some of the soundbites of a recent Bloomberg piece showing how "Xi’s Squeeze Leaves China’s Heartland Missing Boom" covering such exciting topics as:

... Bubbles:

Cities in China are facing some serious real estate bubbles, and the bubbles in third-, fourth-tier cities have the risks of total collapse,
” said Tao Ran, director of the China Center for Public Economics and Governance at Renmin University in Beijing, in a phone interview on March 31. “The central government and banks tightened credit in the property market because they realized the risks.”

... Collateral

That makes it harder for Zhu Houlun, 43, who took over as Laohekou party secretary in August 2012 with plans to merge with neighboring Gucheng by building a new urban center on 70 square kilometers (27 square miles) of farming communities between the two. The project would create a city of 700,000 by 2020, more than double Laohekou’s existing urban population, according to a Xiangyang government report.
Zhu must rely on private developers like Liu Pingfeng, from neighboring Hunan province, who is building a 5 billion yuan project north of Laohekou called the Red River Valley Eco-Tourism Resort that includes apartments, a five-star hotel, a theme park and a polo club.
Raising funds is very difficult
,” said Liu, 47, who has been building in Hunan for a decade. “I used to use land as collateral -- as long as I got the land certificate I could get the loan. Now it’s almost impossible.”

Everyone's plans revolve around property. I'm amazed the world didn't discover the path to infinite wealth sooner!

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http://www.zerohedge.com/news/2014-04-23/60-chinas-water-too-polluted-drink

Forget bank-runs, the water run has begun in China. Residents of the western city of Lanzhou rushed to buy mineral water earlier this month after local tap water was found to contain excessive levels of the toxic chemical benzene. But that is the tip of what is a massive problem facing the Chinese people. Not only do they suffer choking smog day after day, but, as The Business Times reports, sixty per cent of underground water in China which is officially monitored is too polluted to drink directly, state media have reported, underlining the country's grave environmental problems.

20140423_water_0.png

Although I do wonder where the water was sourced from!

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http://www.zerohedge.com/news/2014-04-28/meanwhile-china-bayonets-ready

It was only a week ago when we reported that the Chinese Police, for the first time in over 60 years of "pacifism", has resumed arming itself as more than 1,000 street-patrol officers began carrying 9mm revolvers. "Shanghai officers, according to the city police bureau, will increasingly be equipped "to respond to all violence and terror" with a revolver using real and rubber bullets. It said officers are getting training in the largest cities in Tibet, Xinjiang, Hunan, Sichuan and Yunnan, where Kunming is the capital."

However, perhaps nowehere is it clearer just how nervous the Chinese authorities are getting about the restless natives than in the following series of photos posted moments ago on Sina, showing security forces in China's Urumqi province learning how to use... bayonets?

bayonet%201_0.jpg

For later use in crowd control???

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http://www.zerohedge.com/news/2014-04-23/60-chinas-water-too-polluted-drink

Although I do wonder where the water was sourced from!

But if they insisted on having rigorous inspections and quality control on products for human consumption, that would be stifling red tape, a fate unimaginably worse than death by food/drink contamination.

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http://www.theguardian.com/business/economics-blog/2014/apr/30/china-overtake-us-economy-living-standards

A century of American economy is about to come to an end. China is on the point of overtaking the US as the world's biggest economy. If Washington called the shots in the 20th Century, Beijing will be doing the same in the 21st.

These are the bald conclusions from reports showing that China is hard on the heels of the US in terms of its share of global GDP and that it won't be long – given current trends in growth rates - before the positions at the top are reversed.

Not so fast, though. China, by virtue of its population, was the world's biggest economy at the dawn of the industrial revolution but lagged behind as countries in Europe and North America industrialised rapidly. As soon as China started its period of catch-up at the end of the 1970s, it was only a matter of time before its sheer size would make it number one. What has been surprising is the speed at which that transformation has taken place, with the date at which the US loses its top dog status constantly brought forward.

John Hawksworth, chief economist at PwC, estimates that the big moment will arrive in 2020; the latest data suggests it could be as soon as this year.

..

The second – more significant – point is that even with the use of the PPP method, real living standards in China remain well behind those in the US. Per capita incomes in China, according to the OECD, are 75% of the global average, whilst those in the US are 370%. China's sheer size and its rapid growth rate mean that it is now a global force to be reckoned with when it comes to talks about economic management, trade and climate change. But on the measure that really matters to people – living standards – it remains a poor country.

Massive income inequality and incredible poor people living there it sounds just like the US.

China’S Income Inequality Surpasses

..

U.s. China Exporting Deflation

Edited by interestrateripoff
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http://www.zerohedge.com/news/2014-05-02/leaked-recording-reveals-true-state-chinese-housing-market

A leaked recording by the vice-chairman of Vanke Group (China’s biggest property developer), confirms, as The Telegraph's Amrbose Evans-Pritchard reports, what the bears have been saying for months, 'it is a dangerous bubble, and already deflating'. Mao Daqing's words, translated, are ominous: "In 1990, Tokyo’s total land value accounts for 63.3% of US GDP, while Hong Kong reached 66.3% in 1997. Now, the total land value in Beijing is 61.6% of US GDP, a dangerous level... China has reached its capacity limit for new construction of residential projects... and I don’t see any possibility for a rise in home prices." The simple chart below highlights all one needs to know - inventory is exploding - and as Mao concludes: "housing production per 1000 people reached 35; even when the housing market is hot, no country has a figure of greater than 14 - this should cause alarm."

If only the houses had been built in London, they could have doubled in a few short years...

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What Can Possibly Go Wrong: In China Homes Are Offered "Zero Money Down"

china%20demolition_1.jpg"...Since March, 20 property developers in Guangzhou have been offering "zero down-­payments" to attract buyers, in addition to large discounts and tax refund, the National Business Daily reported Monday."

What could possible go wrong!

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China produced more cement during its two year post-GFC stimulus 2011-12 than the US produced in the entire 20th century! :blink:

http://davidstockmanscontracorner.com/why-china-will-implode/

Occasionally a picture is worth a thousand words, and here’s one buried in a Financial Times story on China’s rapidly deteriorating housing market. It seems that during the two-year period 2011-2012, which was the peak of China’s much praised “aggressive” stimulus response to the Great Recession in the DM world, China consumed more cement than did the United States during the entire 20th century!

That astounding fact needs to sink in, and it is a fact—blessed by the U.S. Geological Survey. Stated differently, imagine the whole urbanization and suburbanization of America over 100 years; the building of all the office towers, skyscrapers and malls which festoon thousands of city landscapes from coast-to-coast; the building of all the great public works of the 20th century including likes of the Hoover,TVA and Grand Coulee dams and all the Army Corps locks, dams, navigation and flood control projects; the Interstate Highway system and all the derivate highways and suburban sprawl which came with it; all the stadiums, auditoriums, airports, bus and train stations, subways and parking lots that have ever been built in America; and keep imagining because the underlying proposition is itself scarcely imaginable:

Here’s the thing. You can’t look at China’s entirely doctored and goal-seeked GDP accounts and have any understanding of the thundering collapse which will actually occur when the building boom ends. The idea that fixed asset investment at 50% of GDP is just some kind of economic ratio that the comrades in Beijing can shimmy down to normality–say 25% which is still high by every other economy in the world—fails to comprehend what China’s economy really is. That is, its a continent-wide construction project in which everything flows into obtaining, moving, fabricating and erecting infrastructure—both public and private, retail and industrial.

So when the building stops because the inflated prices of real estate are collapsing and credit expansion can no longer prop up the bubble, the implosion will be thunderous. Cement production could drop from 2 billion tons per year to 500 million; rebar consumption would crater proportionately; industrial fleets of cement trucks and steel haulers would lie idle; demand for tires, engine parts and truck fuel would vaporize; vendors of all the services that support this gigantic flow of cement and steel will be out of business; they empty apartment “investments” held by their owners will be worthless.

China%20Cement.jpg

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http://www.bloomberg.com/news/2014-05-15/zhou-plans-anchor-after-china-monetary-policy-gyrations.html

People’s Bank of China Governor Zhou Xiaochuan is designing a policy anchor for money-market rates, after gyrating borrowing costs aggravated a slowdown in the world’s second-largest economy.

The seven-day repurchase rate, the benchmark short-term borrowing cost between banks, surged to 10.77 percent last June in the nation’s worst cash crunch on record, and in January the rate rose above 6 percent for the third time in eight months. While the rate rose to 3.15 percent today, it remains above consumer inflation of 1.8 percent, and its 100-day volatility is close to the highest since 2011.

Ah gyrating borrowing costs...

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If that claim is accurate it's incredible, hard to see how that consumption can be sustainable!

Not sustainable, but look at the chart, you could pick a couple of outliers, China and UK. China at the beginning of its deveopment, the UK at the end of its development. China gets whole new road networks, we were reduced to the odd detour or ringroad by the 90's and almost nothing now other than filling in the potholes (when they get so bad the insurance claims come flooding in to the local council for damaged suspensions).

They are building their furture, we are pricing ours out of existence.

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They are building their furture, we are pricing ours out of existence.

Stockman points out however that a lot of that infrastructure will be left to rot as it remains unused and under occupied. Basically it's beginning to look as if the 'Bricks' were a mirage created out of unsustainable credit creation, much as most western 'prosperity'of the last thirty years was a similar mirage.

There's something wildly comic about an entire planetary civilization having levered itself up to the point where it has blown up it's own financial structure but imagines the way to solve this problem is to create more leverage in that already saturated system.

Even the ancient Babylonians had worked out that no system can keep on adding leverage indefinitely- that a day would come when only a wholesale bonfire of debt would allow the game to continue.

But what did they know? We have 'experts' to advise us :lol:

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At Least 6 Chinese Cities Have Bailed Out There Real Estate Markets In The Last Month

20140516_china_0.pngAccording to the Chinese financial publication Securities Daily, emergency real estate rescue packages have been launched in large cities such as Wuxi, Nanning, Hangzhou, Tianjin, Tongling and Zhengzhou in the last month alone..."if a borrower does not fulfill the loan repayment obligations as agreed in the contract, the guarantee institutions will have to repay the housing loans..." What a surprise – a government guarantee. The market is imploding and defaults are going through the roof. Property vacancy rates in Zhengzhou are an astounding 23%. So the government is putting taxpayers on the hook. In other words, the government is panicking. But it’s not working... so much excess inventory has built up, a major slowdown was inevitable. And like the butterfly that flaps its wings, a slowdown in China has substantial effects on the rest of the world.

Still I'm sure it's contained.

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Not sustainable, but look at the chart, you could pick a couple of outliers, China and UK. China at the beginning of its deveopment, the UK at the end of its development. China gets whole new road networks, we were reduced to the odd detour or ringroad by the 90's and almost nothing now other than filling in the potholes (when they get so bad the insurance claims come flooding in to the local council for damaged suspensions).

They are building their furture, we are pricing ours out of existence.

Out of interest how much of China's infrastructure do you think will still be in existence in 20 or 30 years?

A lot of our Victorian infrastructure is still standing and just requires maintaining. Is the new Chinese build of the same quality?

http://www.businessweek.com/articles/2012-09-27/the-cracks-in-chinas-shiny-buildings

econ_chinainfra40__01__630x420.jpg

Photograph by Shanghai Daily/Imaginechina

Excavators dismantle a toppled 13-story building in 2009 at the Lotus Riverside apartment complex in Shanghai’s Minhang district. Bad project management, poorly trained workers, and loose monitoring affect the quality of construction

On a Saturday morning in September, prospective homebuyers thronged the sales office for Fun City, a community of high-rises under construction on Beijing’s outskirts. Whether the buildings will still be standing a half-century from now is anybody’s guess. In July, massive flooding raised questions about the fitness of this low-lying stretch of land for dense development. Local media reported that properties adjacent to Fun City experienced water-logged basements, while parts of the nearby G-4 superhighway were submerged. At least 77 people died—many of them drowned in their cars—in part because of inadequate or clogged drainage systems.

Nearly every month brings news of an infrastructure failure, dramatic or mundane. In August a new $300 million eight-lane suspension bridge in Harbin collapsed, sending four trucks tumbling and leaving three dead. In 2009 a nearly completed building in Shanghai toppled like a domino because its foundation was inadequate. The U.K.’s Telegraph reported that within months of opening last year, the $210 million Guangzhou Opera House began to shed its glass window panels and developed large cracks in its ceiling. Last year writer Evan Osnos chronicled on his New Yorker blog the premature decline of his courtyard house: “When the rainy season hit Beijing, our house began to show its age. About four years old, to be precise.”

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Out of interest how much of China's infrastructure do you think will still be in existence in 20 or 30 years?

A lot of our Victorian infrastructure is still standing and just requires maintaining. Is the new Chinese build of the same quality?

http://www.businessweek.com/articles/2012-09-27/the-cracks-in-chinas-shiny-buildings

Probably most of it is not of victorian quality, howver that is a totally different mindset than not only China's but our own building sector, certainly the housebuildeing one where 50 year life build abounds.

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If the Victorian infastructure hadn't lasted so long, we might have some modern infastructure like the rest of Europe. IMO most of the 100+ year old housing need demolishing and replacing with 3+ story energy efficient places with parking underneath. The onlything is the UK is broke and could never afford such an investment.

I'm afraid we will still be living in crumbling Victorian infrastructure in 100 years time whilst the rest of the world has grown around us.One things certain at some point in the very near future the UK's going to need a massive house replacement program of the likes nobody has ever seen. Many of the ex-BTL properties will need demolishing as teh y are damp and poorly maintained. It would be better and cheaper to replace them with eco prefabs.

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China's Rising 'Working Class Insurrection' Problem

20140522_china_0_0.pngLast week we highlighted the stunning images of China's "fists and daggers" police force training for a "working class insurrection." It appears to be good timing, given last night's terrible blasts in Urumqi. The chart below shows the worrying escalation in social unrest in China - at a time when the leadership is pushing a "strike first" anti-terrorist policy that appears to be failing badly. The "serious violent terrorist incident" that occurred last night in Urumqi, killing 31 and injuring 94, was the worst in years and prompted domestic security chief Meng Jianzhu to vow to strengthen a crackdown on the "arrogance of terrorists," but, as one analyst warns tightening controls on the Uighur region may be "smacking them in the face."

Just think what will happen when China has a recession.

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China Has A Housing Bubble In "Some Cities", PBOC Admits

20140522_pop.pngWhile US central bankers shudder at the idea of admitting their could be a bubble in real estate or stocks (unless its obvious in hindsight); and England's Bank of England explains 'if there is a bubble, it's not their fault, but there isn't so there'; it appears the Chinese are more comfortable with the truth. As Bloomberg BusinessWeek reports, China's central bank Governor Zhou Xiaochuan said, China may have a housing bubble only in “some cities,” - an issue that’s difficult to resolve with a single nationwide policy. As concerns mount of dramatic over-supply on the back of extrapolated urbanization dreams, Zhou notes, “The economy has slowed down a bit, but not very much," adding that "we should keep vigilance on whether it continues to slow down." Which is odd because US talking heads have made up their minds that China is fixed...

We have a problem in some cities, is this a way of admitting we have a problem across the whole of China. Pity he's not in the UK then there would be no problem as the dynamics here are for constant HPI.

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China Has A Housing Bubble In "Some Cities", PBOC Admits

20140522_pop.pngWhile US central bankers shudder at the idea of admitting their could be a bubble in real estate or stocks (unless its obvious in hindsight); and England's Bank of England explains 'if there is a bubble, it's not their fault, but there isn't so there'; it appears the Chinese are more comfortable with the truth. As Bloomberg BusinessWeek reports, China's central bank Governor Zhou Xiaochuan said, China may have a housing bubble only in “some cities,” - an issue that’s difficult to resolve with a single nationwide policy. As concerns mount of dramatic over-supply on the back of extrapolated urbanization dreams, Zhou notes, “The economy has slowed down a bit, but not very much," adding that "we should keep vigilance on whether it continues to slow down." Which is odd because US talking heads have made up their minds that China is fixed...

We have a problem in some cities, is this a way of admitting we have a problem across the whole of China. Pity he's not in the UK then there would be no problem as the dynamics here are for constant HPI.

If you want to understand bubbles, manias and panics then don't do a degree in economics. Neoclassical equilibrium theory tautologically proves the existence of equilibrium by first assuming the economy is in equilibrium! Bubbles are exogenous events that can't be predicted.

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  • 3 weeks later...
Goldman Explains How Big China's Rehypothecation Problem Is (Hint: Very)

"Step 4: Repeat Step 1-Step 3 as many times as possible, during the period of LC (usually 6 months, with range of 3-12 months). This could be 10-30 times over the course of the 6 month LC, with the limitation being the amount of time it takes to clear the paperwork. In this way, the total notional LCs issued over a particular tonne of bonded or inbound copper over the course of a year would be 10-30 times the value of the physical copper involved, depending on the LC duration."

Oops.

Still I'm sure it's not a problem...

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