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Leviathan

Can China ride out market crashes?

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Question  to one and all.

It seems to me that if you look at most of the places where there has been very high house price inflation the main beneficiaries have been those places that for whatever reason have been attractive to Chinese investment. These include London, Singapore, Hong Kong, Vancouver, San Francisco as well as Chinese cities. Circling back over the last financial crisis in 07-08 the trigger seemed to be decisions by investment banks, hedge funds and private individuals to short mortgage backed securities leading to margin calls etc etc.

Last year it looked for all the world that the Chinese stock market was going to collapse after a very rapid rise but the authorities clamped down on short selling, added stimulus to the economy and before too long the economy had stabilised and then the effects of that stimulus were driving up local and favoured real estate markets - see Shenzhen and Hong Kong. 

My question is not about the rights and wrongs of this as I'm sure a majority would agree that use of stimulus is leading to malinvestment. My question is given the Chinese have proved once that they are able to limit the downside momentum that occurs in most "free markets" once short selling and margin calls work through into pricing what is to stop them doing this indefinitely or at least in a more controlled manner where a full bust never occurs i.e. A state backed version of the Greenspan put if you like?

 

Lev

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Just as the 'haves' and 'have nots' divide this country, eventually big change will force change in China. 

That's enevitable. 

But I think we won't have to wait years for the system to change, market forces will do their own work before that. 

 

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Here's an uncontroversial guess: If (or rather as) the state in China intervenes too much, either buying assets in the real economy or preventing more and more of its economy from functioning in any way resembling a market, I think there must be some kind of currency crisis or severe devaluation.

That has political ramifications externally, especially with America, which may introduce protectionist policies, damaging China's economy further.

More fundamentally, it has political repercussions internally, because China imports a lot of food (indeed a lot from the US). Large parts of the population under threat of starvation is one thing that could undermine the rule of law. and be an existential threat for the government.

What's not clear is when this will happen. China have pushed the boat out a long way with credit creation, and market intervention / destruction, and the world still has confidence in the Yuan. Perhaps this is something which you can't see an early signal for: one day everything is fine, and the next day confidence slips from your grasp like a fistful of dry sand.

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Chinese are scared of a yuan devaluation, hence they are keen to invest in non yaun denoted assets. 

Unfortunately for them the pound got devalued before the yuan in London's case.

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The other point to consider is that no-one under 50 has ever experienced a recession in China. I was in a class full of Chinese students and they just looked perplexed when I raised this issue.

Edited by interestrateripoff

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5 hours ago, GreenDevil said:

Chinese are scared of a yuan devaluation, hence they are keen to invest in non yaun denoted assets. 

Unfortunately for them the pound got devalued before the yuan in London's case.

Should have known better than to trust the stories told them by the wily, cunning and inscrutable Brits that house prices only ever go up,

They forgot the fact that historically the pound has often only gone down. 

 

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7 hours ago, interestrateripoff said:

The other point to consider is that no-one under 50 has ever experienced a recession in China. I was in a class full of Chinese students and they just looked perplexed when I raised this issue.

this is rather scary. 

 

meet have not had a real housing bust since the 90's either. 

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50 minutes ago, jiltedjen said:

this is rather scary. 

 

meet have not had a real housing bust since the 90's either. 

Our last real bust was in the 90s. So here everyone under 30-35 has no idea over recessions. I remember my dad being in and out of work throughout the 80s and early 90s.

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I'm late 20s and can't remember much about the 90s recession. I remember growing up without much money and my family all being confined to the living room in winter because it was too expensive to heat the rest of the house. I keep thinking to myself to ask my mum about it, that's how much I can remember.

On a related note did anyone watch the This Is English episodes on C4? The opening credits I'm sure people over a certain age take for granted and remember well but I remember rewinding it several times and watching the footage on repeat. Not like anything I can recognise or have seen in this country. For anyone interested: 

 

 

Or a youtube proxy link: https://eu5.proxysite.com/process.php?d=x5B99FmPCRZLiN7LQFXWwMdJOjQXi39xppqhnSuntP2%2FQDSFWXwp&b=1&f=norefer

Edited by spunko2010

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