China Blows a Double Bubble 42 comments
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The second quarter was a good one for commodity and China ETFs. Almost everything risk related advanced in the past three months, with PowerShares Financial Preferred (PGF) sporting a 57 percent return, the fifth best among funds in our newsletter. Other strong performers include the India ETFs and ETNs, which popped more than 20 percent in one day following the country’s election results in May. Aside from the reduced risk aversion, these funds advanced on isolated factors. Commodity and China ETFs, however, were pushed by common threads, most important among them the growth in Chinese loans.
As early as February, Chinese economists were “ballparking” that as much as one-third of the country’s loans could be headed into stocks and real estate. The percentage may still be in that neighborhood, with roughly 20 percent heading into stocks, according to a Bloomberg story, which cites Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
Based on the current exchange rate of 6.83 renminbi to the U.S. dollar, Chinese banks loaned $358 billion in the first half of 2008 and $719 billion in all of 2008. Through the first half of 2009, banks have lent $1.1 trillion; Reuters reports that the Bank of China’s research department predicts that loan growth could surpass $1.4 trillion by the end of 2009. Those loans paid off for stock investors—China’s Shanghai Composite Index gained 63 percent in the first half of the year, 30 percent in the first quarter and 25 percent in the second quarter. The market capitalization of Chinese shares has risen from about $1.8 trillion at the end of 2008 to $3 trillion this July.
EPFR Global reported that $3.8 billion of foreign money flowed into China in the second quarter, but that’s dwarfed by the $82 billion that potentially came via misallocated bank loans. If the stock market’s rally was fueled in large part by these loans ($135 billion in the first quarter), then further gains will be dependent on further loan growth. In order to hit the $1.4 trillion loan total for 2009, banks can lend only another $400 billion this year, roughly equivalent to the amount of loans in the second quarter and less than double the amount lent in June alone. However, as yet there is no sign of a slowdown in lending growth, aside from a minor regulatory change.
Unlike in the U.S., where there are little to no signs of inflation anywhere in the economy, China has almost completely reflated its stock market and real estate bubble. The Shanghai Composite is at a 52-week high and roughly 80 percent off its lows. One fund manager said that Chinese small caps were in a bubble in mid-June, some of them sporting P/Es over 100, but prices continued to rise into July. As of July 1, the People’s Daily said the P/E was 25 for Shanghai stocks and 35 for Shenzhen stocks.
At the end of June, a parcel of land in Beijing was auctioned for the single highest price ever, and China Daily reports that the same parcel had been pulled 15 months ago “due to a lack of bidders.” That article cites a property broker, Homelink, which claimed that residential property in Beijing’s Central Business District appreciated 6.5 percent in the last week of June. A Homelink broker went on to say, “We used to talk about monthly price growth, but recently, it’s more about daily change.” To further quote the article, jam-packed as it is with great anecdotes: “‘Unlike the previous growth, mainly driven by first-time homebuyers, the recent transaction growth is largely buoyed by rising investment sentiment,’ said Chen Weiye, a researcher at Shanghai Centaline Property Consultants.”
Similar to the U.S., China undertook several measures to boost home buying, but unlike the U.S., China was more conservative during the boom times. For instance, Chinese home buyers often needed 30 percent down payments, something virtually unheard of in subprime America, with its zero or even negative down payments. Recently, the government has again stepped in to slow the real estate market. Hangzhou, a wealthy city in Zhejiang province, recently tightened the rules for purchasing a second home. JLM Pacific Epoch reports:
“Second-home buyers must now pay down payments equal to 40% of the total property price, while interest will be charged at 110% of a base rate, according to Binjiang Real Estate Chairman Qi Jinxing. Previously, down payments were 20% of the total property price and interest was charged at 70% of the base rate, the report said.”
And I haven’t even mentioned the rally in crude oil, copper and other hard assets. Besides money being plowed into stocks and real estate, money also flowed into commodity markets as Chinese imports surged. From February 27 though June 11, iPath Copper ETN (JJC) popped 58 percent, 22 percent of that in the second quarter. PowerShares DB Oil ETF (DBO) advanced 66 percent between February 18 and June 11. Another industrial metal ETN, iPath Nickel (JJN), gained 56 percent in the second quarter alone.
We’ve already caught a glimpse of what happens when China stops adding to its commodity reserves. According to John Garnaut of The Sydney Morning Herald, China’s resource spree ended on June 30. The article mainly focuses on the impact on Australia’s economy, which managed to grow in the first quarter thanks to China’s appetite, but also cites a Chinese economist who says that China needs to ease purchases to slow the growth of heavy industry and relieve the pressure on commodity prices.
Many natural resource ETFs sold off in June, save JJN, which peaked on July 2. JJC fell 11 percent between June 11 and July 7 and DBO lost 12 percent. PowerShares DB Base Metals (DBB) fell 9 percent over the same period. PowerShares DB Agriculture (DBA) tumbled 18.3 percent since June 1.
While it’s clear that prices can reverse quickly once the loaning stops, it’s not clear that the loaning will stop, and this has Chinese economists worried. Every week, if not every day, there are new stories fretting about bad loans, misallocated resources, potential inflation and other negative repercussions. Influential financial magazine Caijinghad the following to say in a recent editorial:
“If the nation’s GDP growth rate hits double digits, and the current flood of excess liquidity is not curbed within 12 months, CPI may rise by more than 5 percent per month next year. China’s current liquidity levels are unprecedented, laying a foundation for steep inflation. A lesson from the past is that consumer and asset price inflation always follow increased liquidity levels.”
Of course, it’s also possible that, in the absence of a global economic recovery, the inflation ends via deflation. Another stock market and real estate plunge, in addition to a financial crisis (something China avoided in 2008), could be in the offing if the global economy suffers a double-dip. Even for investors avoiding the Chinese market, the impact would be widespread and could unleash another round of global deflation.
In June, iShares FTSE/Xinhua China 25 (FXI) received the bulk of investors’ dollars, $248 million total. Next was the ProShares Ultra Short FTSE/Xinhua China 25 (FXP) with $65 million; followed by SPDR China (GXC) with $31 million; Claymore/AlphaShares China Small Cap (HAO), $23 million; PowerShares Golden Dragon USX China Index (PGJ), $19 million; and Claymore/ AlphaShares China Real Estate (TAO), $15 million. iShares FTSE China HK Listed (FCHI) saw no inflows.
Performance-wise, TAO and HAO delivered more than 50 percent returns and PGJ rallied more than 40 percent, while the three broadest ETFs had gains north of 30 percent. FXP fell significantly, down more than 50 percent. As long as China’s bankers and bureaucrats allow loan growth to continue, this bull will continue to run. The recent dip in commodity prices will put a lid on inflation and ease inflation fears temporarily. A correction may be coming, but chances are good that loan growth will not be curtailed until sometime late in the third quarter, at the earliest. And note that commodity buying has slowed and real estate controls have just begun. Speculators will move out of the restricted markets and into the relatively unrestricted ones, helping to fuel a bubble even if loan growth slows. This should be an exciting second half.
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This article has 42 comments:
Why is DBA treated like all other commodiites? Isn't the "movin on up" Chinese middle class (and same in other emerging markets) part of the perceived increased demand for more food (and more grain consuming food like beef?).
I get that China may be looking at its own housing bubble (who isn't) but unlike developed countries I doubt that oversupply of houses (my opinion the biggest problem in the US) is an issue.
So I get all the flow analysis, but I think if any place could be looked on as having a fundementals story, it's China.
PS While everyone is talking about Chinese manufacturing slowing because of reduced US demand, note that China provides a huge amount of US basic goods (diapers for example), that while low margin are likely to continue without change . Also China is going to be the choice of manufacturers trying to sell into a cost sensitive world.
The U.S. has funneled over $10 TRILLION to the financial sector in loans, hand-outs, and guarantees, and you talk about CHINA "misallocating resources"? Lol!
Okay, maybe their bubble is better than our bubble, but, it seems like tax-gifted fraudsters are destined to own everything in both "Red China" and the "land of the free," the US.
I used to work in China and have travelled extensivelly along the coast and in the poorer interior. The interior is indeed much poorer, but the peasants are still moderately contented. But problems are brewing. Chinese government reported that land under cultivation has been decreasing for the last few years, because the farmers cannot make a living off the land. That's why the farmers are going to the coastal cities to look for work.
With the joining of WTO, Chinese farmers' life could become even more miserable with the importation of various farm products from highly subsidized western countries.
Communist Chinese government recognizes that they must keep the farmers happy and stay where they are, otherwise, they just may be thrown out like past emperors. It can be rather violent. Mao said "Revolution is not a tea party". They have set up incentive programs to encourage both local and foreign investors to locate inland. They even put up a humongous coal fire power plant in the interior and transmit the electricity to the coastal cities.
China also faces another dilemma. As it moves up the manufacturing food chain, it needs more automation and skilled trade workers. This means more unemployed unskilled workers, ie ex-farmers. Watch out, trouble. When I was there, Chinese labour department commented that they were short some 3 million precision machinists and equipment operators. The catch with the Chinese is those who can afford to send their kids to school do not want their kids to become trade workers. Go figure. China in fact has surplus of young engineers.
Basically, China is going through very unstable and precarious time. Things can go crazy and downhill very fast.
their growth story will begin before the US?"
Using China and the US in a sentence together like this is an insult....to China. China never stopped growing.
On Jul 10 09:51 AM predictorman1000 wrote:
> Could not interest in China ETF's also come from people believing
> their growth story will begin before the US?
>
> Why is DBA treated like all other commodiites? Isn't the "movin on
> up" Chinese middle class (and same in other emerging markets) part
> of the perceived increased demand for more food (and more grain consuming
> food like beef?).
>
> I get that China may be looking at its own housing bubble (who isn't)
> but unlike developed countries I doubt that oversupply of houses
> (my opinion the biggest problem in the US) is an issue.
>
> So I get all the flow analysis, but I think if any place could be
> looked on as having a fundementals story, it's China.
>
> PS While everyone is talking about Chinese manufacturing slowing
> because of reduced US demand, note that China provides a huge amount
> of US basic goods (diapers for example), that while low margin are
> likely to continue without change . Also China is going to be the
> choice of manufacturers trying to sell into a cost sensitive world.
China news such as this gets lost in the other ones....
for all to know
i started investing in china stock's since ..SSE WAS AT 2000 POINTS
I AGREE MAYBE BUBLE....
BUT WHYLE YOU MAKE MONEY ON DAY OR WEEKLY TRADE,,,,AND WITH THIS MONEY YOU CAN DO GOOD THINGS FOR SOME HUMEN BEING'S THAT IN NEED MORE THEN YOU..THEN WHY NOT,,WITH SANSE GET OUT BEFORE THE COLLAPSE IF YOU CAN,,,,SO FAR I HEAR ALL THE TIME ABOUT CRESH IS COMEING DAY AND NIGHT STILL FOR MY SURPRISE THE MARKET MOVES UP.....
WELL ALL NEWS IS NO NEWS
YOU GOT TO DECIDE WHAT IS WHAT....
FOR GET NEWS
FORGET ARTICALES
THIS CREATES ONLY CONFETION...
REHARDS
TO ALL
RIO....
have a gut feeling that China's 'green shoots' may not be green at all. I did read about huge increases in automobile sales. And I watch Chinese stock indexes rise without looking back for the last few months. But there is something about China I just don't trust. China is still a communist country. China (like all Asian countries) is more concerned about appearances that with realities, more concerned about what the neighbor is saying and thinking. I've been told that 'face' is so important in Asia, that an Asian would rather dresss well and have nothing in his pocket than dress poorly and have money in his pocket.
During the Vietnam War, Americans would ask ally South Vietnamese officers and intelligence operatives about existing conditions on the ground; the response was always positive. It was either the need to maintain 'face' -- that is, put a good face on everything -- or because the South Vietnamese officials felt it would be rude to tell the Americans the truth if they thought they didn't want to hear the truth. It was hugely frustrating for Americans who live to fix the negatives to never hear any negatives from their allies. Eventually, the Americans stopped asking their allies anything, except about things that didn't matter, like the weather.
In my mind, the whole Asian economic miracle (China and Vietnam, etc.) of the last decade is a bubble of illusion waiting to break. Interesting that I should come across an article on the web this week (DNA Read the World) by Venkatesan Vembu where the writer calls into question the Chinese recovery:
Increasingly, economy watchers are beginning to believe falsehood could go a step beyond: China's GDP numbers. Ever since the official Chinese statistical agency announced earlier this year that the country's GDP grew 6.1% in the first quarter of 2009, there have been murmurs of scepticism about the authenticity of those figures. A few have observed that the GDP data are inconsistent with other data, such as weak power production.
Those murmurs have in recent weeks turned into a high-decibel chorus that is beginning to openly rubbish the validity of the official numbers.
"The Q1 6.1% GDP outturn is simply a lie," notes Albert Edwards, chief global strategist, Societe Generale. "It helps explain why the Chinese data is derided by so many economic commentators."
Commodity prices worldwide have surged in recent weeks on the hopes of a robust V-shaped revival in the Chinese economy. But Edwards, who had rightly called the Malaysian economic crisis of 1997 and the dotcom bust of 2000, believes that "to the extent that the renewed surge in commodities and the metals and mining sectors are based on the Chinese growth miracle, the markets are relying on a combination of hype, lies and wishful thinking."
Edwards isn't alone in questioning the validity of the official data. Last month, the International Energy Agency (IEA) observed that China's first-quarter GDP data "does not tally with oil demand data, which contracted by 3.5% year on year." One explanation for this, IEA analysts reasoned, "is simply that real GDP data are not accurate, and therefore should not be taken at face value."
Simultaneously, analysts at Lombard Street Research, a London-based economic consultancy, too argued that the 6.1% GDP growth figure was inconsistent with the 20% decline in trade volumes over the same period, because it would have required domestic demand to expand by 9% in real terms. Using official nominal annual growth rates for GDP and consumption for the first quarter, and consumer and fixed investment price indices as deflators for consumer spending and investment, respectively, Lombard analysts claimed that domestic demand expanded at most by 2% year on year in real terms.
They therefore concluded that real GDP growth in the first quarter was probably slightly negative or nil at best, and even in the fourth quarter of 2008, real growth was likely negative or flat. "If so, the last two quarters would effectively signal, from a Chinese perspective, a recession of a rare magnitude."
China's official statistical agency, the National Bureau of Statistics, responded to IEA's scepticism with a stern rap on the knuckles. "It is regrettable that the point of view in the... article is groundless," a notice on its website said.
"We believe that, for an international organisation, this approach lacks seriousness.""
Even economists who point to anecdotal evidence of China's recovery concede that interpreting official Chinese data is problematic.
"Trying to understand China's GDP data is always a nightmare for professional China economists," observes Credit Suisse chief regional economist Dong Tao. "Since I joined this industry 14 years ago, I've had this trouble, I still have this trouble, and I suspect I will continue to have this trouble."
He points out that there is abundant anecdotal evidence of a "phenomenal improvement" in China's economy over the previous quarter too. "Go to restaurants, talk to real estate agents, count the number of shipping containers at terminals, see the number of cars being sold... I believe in my eyes."
The plain-speaking Edwards, however, argues that "if the bubble of belief in China's medium-term growth prospects finally bursts, it will have huge investment implications."
It is all too easy, he reckons, for investors to buy into "beguiling growth stories, which are in fact utter nonsense." He concedes that China's mammoth 4 trillion yuan stimulus has had a beneficial effect on economic activity this year, but says that he still questions the "quaint notion the markets now seem to have that the Chinese economy can grow at a respectable rate when the rest of the world is in a deep recession."
The "bullish group think on China is just as vulnerable to massive disappointment as any other extreme of bubble nonsense I have seen over the last two decades," says Edwards. "The fall to earth will be equally shocking."
dnaindia.com/money/rep...
This week I also read that an official Chinese banking committee oveersight member admitted by over 50% of the loans connected to the government's massive stimulus program had been spent to purchase shares in China's stock markets and for purchase of Chinese houses and land. I didn't realize the stock market and the housing markets were 'infrastructure' plays. If stocks correct, and Chinese property markets continue to decline, these loans might quickly add to the problem Chinese banks have almost always had with non-performing loans.
It was explained to me by a Chinese national: 'When a Chinese business takes out a loan from the bank, 50% of the loan is earmarked for bribes.' In other words, 50% of the loan is non-performing from its inception.
Yesterday, China reported that exports fell for an eighth month, falling 21.4%, after a 26.4% drop in May. Imports also declined, but by less than the estimated 13.2%. 'Green shoots' anyone? Anyone?
Sun Mingchun, Chief China Economist at Nomura Holdings was the first to stand up and cheer the report: 'There is light at the end of the tunnel,' Mingchun (actually) said. "The worst for exports will soon be over."
Premier Wen Jiabao, however, was not so quick to jump up and down and smile. He said the foundations for an economic recovery were "not yet solid" and pledged to continue a pro-active fiscal policy and moderately loose monetary policy
Exports to the U.S. fell 16.9 percent in the first half of 2009 from a year earlier, the customs bureau reported. Shipments to the European Union declined 24.5 percent.
I won't even get in to the bloody riots that have swept through China over the last year, the most recent being a mix of have-not Uigurs (Chinese Turkish-language Muslims) and have (Han Chinese) in the northwest of China, which left 100 dead, 1000 injured and 1500 arrested. One of the targets of the riot was a new car showroom that left 65 new cars burned and smashed.
Economic-inspired riots have swept Chinese provinces for the last year -- and Chinese officials are concerned about more civil unrest. Anecdotal evidence has been bandied about the internet since 2005 that agents of the Chinese government (and independent rich Chinese) are buying U.S. foreclosed houses into which they might move their families if civil unrest were to topple the Chinese government or if the boom might turn to bust.
On Jul 10 01:56 PM Alphameister wrote:
> I agree with the above commenters who regard talk of a Chinese bubble
> in stocks as ludicrous. The Chinese market plunged by 70% even though
> their economy kept growing. Not sure where you came up with those
> valuation multiples, but I'm holding a broad range of Chinese ADRs
> priced between 4 and 10 times rapidly growing earnings. Sure, they
> are up as much as 100% or more from their lows when they were valued
> at 2 to 6 times earnings, but if that's a bubble, I'll take my chances
> that it will grow a lot bigger before significant long-term risk
> surfaces.
In short, the party state is at the centre of a spiderweb of control of the economy, radiating out from the tight ownership and direction of the 57 sectors the party considers the economy's strategic heart like steel and energy to a more relaxed stance the less important the party considers an enterprise's activity - such as packaging or hairdressing. Even they can be controlled if need be. The general rule is that the more politicised and controlled a Chinese enterprise, the lower its productivity and performance. Thus the performance of China's State Owned Enterprises (SOEs), which control two-thirds of industrial assets, has hardly improved during 20 years of reform. One in three of their employees is estimated to be structurally idle. SOEs are on a financial edge and barely profitable. According to one influential estimate, even the tiniest upward movement in interest rates or the slightest decline in sales would mean that 40%-60% of their enormous bank debts would not be serviced, rendering the entire Chinese banking system bankrupt. They are commercial and business disaster areas.
Even large private companies, although better performing, are still affected. Davin Mackenzie, managing director of iVentures, which is based in Beijing, says that almost no private company, however well run, wants to leave the opaque, informal world of guanxi personal relationships in which the main aim is to hide revenue, cash, and profits from potential political direction. The vast majority, he says, run themselves out of the "cash box in the back of the Mercedes". Most private Chinese companies have three sets of accounts - one for the banks, one for the tax authorities, and one for management. Most do not last long; the average duration is three years. The law of the jungle prevails: you do what you can get away with. China is the counterfeiters' paradise, where intellectual property rights are neither respected nor enforced. Between 15% and 20% of all well-known brands in China are fake; two-thirds of the imports confiscated by US Customs as fakes were made in China. Counterfeiting is estimated to represent 8% of GDP - eloquent testimony to Chinese business strategies and the ineffectiveness of the legal system.
On Jul 11 10:29 AM Ben Gee wrote:
> Is Chinese banks following its counterpart in the US? Hardly, Chinese
> banks are backed by 1.2 billion the world's best savers not to mention
> that they are controlled by the Chinese government.
www.guardian.co.uk/wor...
Some sober facts:
1. China is a communist country.
2. Corruption in China is one of the worst even down to lower ranking employees.
3. There is almost no "law" since law itself is written to back the local communist bosses and judges are there to help out the local cadres.
4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of trouble for discussing hidden bad and uncollectible debts. You see the local communist cadres dictate banks to lend not to mention COMPLETE lack of transparency.
5. No one except pea size brains trusts the communist government's statistics which are MANIPULATED.
6. Many of the listed companies numbers are COOKED and if audited by auditors who can be bribed.
7. Latest Chinese share and commodity appreciation have lot to do with communists pumping money to the economy by directing the banks to make loans. This kind of stimulus cannot go on.
Now is good time to buy FXP when all the moron investment gurus in unison are recommending Chinese stocks.
As for Mobius, his job at Templeton for last 15+ years has been pumping or more like pimping Asian stocks and his own mutual funds with little to show in terms of performance.
As for Rogers, let's just say he is getting senile in love with commodities and we all know what happened to commodities last summer and what is about to happen soon for the 2nd time. Bet he is shorting it now.
PS - Duh - Cu inventory dropping in London is due to stockpiling in China.
> Careful what you believe about China. They tell us what they want
> us to believe.
We believe that the US also tells us and their citzens what they want
> China is still a communist country
Stop riding the communist thing, that was 1950, it does not matter in fact if your capitalist or communist, the US has 2 parties opposed to one chinese, that both do the same, so where is the difference.
> It was explained to me by a Chinese national: 'When a Chinese
> business takes out a loan from the bank, 50% of the loan is
> earmarked for bribes.' In other words, 50% of the loan is non-
> performing from its inception
I wonder how much corruption is going on in the US, these bonuses, the wars and the rest that seems to be quite well nown.
So after you have lectured the world on so many things, I will give you one good suggestion,
Sweep before your own door (a German saying)
On Jul 11 03:54 AM Michael Clark wrote:
> Careful what you believe about China. They tell us what they want
> us to believe.
>
> have a gut feeling that China's 'green shoots' may not be green at
> all. I did read about huge increases in automobile sales. And I watch
> Chinese stock indexes rise without looking back for the last few
> months. But there is something about China I just don't trust. China
> is still a communist country. China (like all Asian countries) is
> more concerned about appearances that with realities, more concerned
> about what the neighbor is saying and thinking. I've been told that
> 'face' is so important in Asia, that an Asian would rather dresss
> well and have nothing in his pocket than dress poorly and have money
> in his pocket.
>
> During the Vietnam War, Americans would ask ally South Vietnamese
> officers and intelligence operatives about existing conditions on
> the ground; the response was always positive. It was either the need
> to maintain 'face' -- that is, put a good face on everything -- or
> because the South Vietnamese officials felt it would be rude to tell
> the Americans the truth if they thought they didn't want to hear
> the truth. It was hugely frustrating for Americans who live to fix
> the negatives to never hear any negatives from their allies. Eventually,
> the Americans stopped asking their allies anything, except about
> things that didn't matter, like the weather.
>
> In my mind, the whole Asian economic miracle (China and Vietnam,
> etc.) of the last decade is a bubble of illusion waiting to break.
> Interesting that I should come across an article on the web this
> week (DNA Read the World) by Venkatesan Vembu where the writer calls
> into question the Chinese recovery:
>
> Increasingly, economy watchers are beginning to believe falsehood
> could go a step beyond: China's GDP numbers. Ever since the official
> Chinese statistical agency announced earlier this year that the country's
> GDP grew 6.1% in the first quarter of 2009, there have been murmurs
> of scepticism about the authenticity of those figures. A few have
> observed that the GDP data are inconsistent with other data, such
> as weak power production.
> Those murmurs have in recent weeks turned into a high-decibel chorus
> that is beginning to openly rubbish the validity of the official
> numbers.
> "The Q1 6.1% GDP outturn is simply a lie," notes Albert Edwards,
> chief global strategist, Societe Generale. "It helps explain why
> the Chinese data is derided by so many economic commentators."<br/&...
> prices worldwide have surged in recent weeks on the hopes of a robust
> V-shaped revival in the Chinese economy. But Edwards, who had rightly
> called the Malaysian economic crisis of 1997 and the dotcom bust
> of 2000, believes that "to the extent that the renewed surge in commodities
> and the metals and mining sectors are based on the Chinese growth
> miracle, the markets are relying on a combination of hype, lies and
> wishful thinking."
> Edwards isn't alone in questioning the validity of the official data.
> Last month, the International Energy Agency (seekingalpha.com/symbo...)
> observed that China's first-quarter GDP data "does not tally with
> oil demand data, which contracted by 3.5% year on year." One explanation
> for this, IEA analysts reasoned, "is simply that real GDP data are
> not accurate, and therefore should not be taken at face value."<br/>Simu...
> analysts at Lombard Street Research, a London-based economic consultancy,
> too argued that the 6.1% GDP growth figure was inconsistent with
> the 20% decline in trade volumes over the same period, because it
> would have required domestic demand to expand by 9% in real terms.
> Using official nominal annual growth rates for GDP and consumption
> for the first quarter, and consumer and fixed investment price indices
> as deflators for consumer spending and investment, respectively,
> Lombard analysts claimed that domestic demand expanded at most by
> 2% year on year in real terms.
> They therefore concluded that real GDP growth in the first quarter
> was probably slightly negative or nil at best, and even in the fourth
> quarter of 2008, real growth was likely negative or flat. "If so,
> the last two quarters would effectively signal, from a Chinese perspective,
> a recession of a rare magnitude."
> China's official statistical agency, the National Bureau of Statistics,
> responded to IEA's scepticism with a stern rap on the knuckles. "It
> is regrettable that the point of view in the... article is groundless,"
> a notice on its website said.
> "We believe that, for an international organisation, this approach
> lacks seriousness.""
>
> Even economists who point to anecdotal evidence of China's recovery
> concede that interpreting official Chinese data is problematic.<br/>...
> to understand China's GDP data is always a nightmare for professional
> China economists," observes Credit Suisse chief regional economist
> Dong Tao. "Since I joined this industry 14 years ago, I've had this
> trouble, I still have this trouble, and I suspect I will continue
> to have this trouble."
> He points out that there is abundant anecdotal evidence of a "phenomenal
> improvement" in China's economy over the previous quarter too. "Go
> to restaurants, talk to real estate agents, count the number of shipping
> containers at terminals, see the number of cars being sold... I believe
> in my eyes."
> The plain-speaking Edwards, however, argues that "if the bubble of
> belief in China's medium-term growth prospects finally bursts, it
> will have huge investment implications."
> It is all too easy, he reckons, for investors to buy into "beguiling
> growth stories, which are in fact utter nonsense." He concedes that
> China's mammoth 4 trillion yuan stimulus has had a beneficial effect
> on economic activity this year, but says that he still questions
> the "quaint notion the markets now seem to have that the Chinese
> economy can grow at a respectable rate when the rest of the world
> is in a deep recession."
> The "bullish group think on China is just as vulnerable to massive
> disappointment as any other extreme of bubble nonsense I have seen
> over the last two decades," says Edwards. "The fall to earth will
> be equally shocking."
>
> dnaindia.com/money/rep...
>
>
> This week I also read that an official Chinese banking committee
> oveersight member admitted by over 50% of the loans connected to
> the government's massive stimulus program had been spent to purchase
> shares in China's stock markets and for purchase of Chinese houses
> and land. I didn't realize the stock market and the housing markets
> were 'infrastructure' plays. If stocks correct, and Chinese property
> markets continue to decline, these loans might quickly add to the
> problem Chinese banks have almost always had with non-performing
> loans.
>
> It was explained to me by a Chinese national: 'When a Chinese business
> takes out a loan from the bank, 50% of the loan is earmarked for
> bribes.' In other words, 50% of the loan is non-performing from its
> inception.
>
> Yesterday, China reported that exports fell for an eighth month,
> falling 21.4%, after a 26.4% drop in May. Imports also declined,
> but by less than the estimated 13.2%. 'Green shoots' anyone? Anyone?
>
>
> Sun Mingchun, Chief China Economist at Nomura Holdings was the first
> to stand up and cheer the report: 'There is light at the end of the
> tunnel,' Mingchun (actually) said. "The worst for exports will soon
> be over."
>
> Premier Wen Jiabao, however, was not so quick to jump up and down
> and smile. He said the foundations for an economic recovery were
> "not yet solid" and pledged to continue a pro-active fiscal policy
> and moderately loose monetary policy
>
> Exports to the U.S. fell 16.9 percent in the first half of 2009 from
> a year earlier, the customs bureau reported. Shipments to the European
> Union declined 24.5 percent.
>
> I won't even get in to the bloody riots that have swept through China
> over the last year, the most recent being a mix of have-not Uigurs
> (Chinese Turkish-language Muslims) and have (Han Chinese) in the
> northwest of China, which left 100 dead, 1000 injured and 1500 arrested.
> One of the targets of the riot was a new car showroom that left 65
> new cars burned and smashed.
>
> Economic-inspired riots have swept Chinese provinces for the last
> year -- and Chinese officials are concerned about more civil unrest.
> Anecdotal evidence has been bandied about the internet since 2005
> that agents of the Chinese government (and independent rich Chinese)
> are buying U.S. foreclosed houses into which they might move their
> families if civil unrest were to topple the Chinese government or
> if the boom might turn to bust.
when I was in the states I have been lectures on the great China thing. Many people quoted statistics, but used the PPP ones. In the same sentence they believed China would buy US stuff. What they would not understand, that the PPP uses chinese prices, but they will not be able to buy US stuff using nominal values, and if then only US stuff produced in China, where the bosses in US will recieve their payments. The avarage citizen in the US will not have too much benefit of this, for some time to come.
In future we all have to learn to live with less.
On Jul 11 01:17 PM Michael Clark wrote:
> Actually, Hutton's entire article is worth reading, especially by
> those who think China is going to lead the world back to affluence.
>
>
> www.guardian.co.uk/wor...
A. China which is attempting to spur internal Demand? or,
B. The previous recipients, like, the USA which were used to cheap and abundant products?
Without Cheap Chinese products flooding our Markets, will we now have to Pay Up for everything Made In China?
Be Careful of what you wish for.
www.theepochtimes.com/...
Here is cut and paste of "The Truth about China’s Stock Market". Best part is the last paragraph which state thay China’s stock market is like gambling and China’s stock market is manipulated.
The Truth about China’s Stock Market
The truth about China’s stock market is actually not a secret, and most investors probably already knew it. That is, China’s stock market is a tool used by the government to re-distribute and re-organize social wealth on a grand scale, which means that it is a tool to clean out Chinese people’s savings accounts. The biggest winners in this process are, of course, government officials and their relatives who are the most well-informed about the actual value and re-organizing plans of those that control state wealth; as well as institutional investors who collaborate with them and who rely on insider tips to control the stock market. Those people have already made huge fortunes in the process. This is the truth about China’s stock market.
Actually, the goal of China’s stock market was not purely an economic one when it was originally established. When former Premier Zhu Rongji set up stock market in Shenzhen, he said that China’s stock market was meant to get money--to get money in the market and give it to companies that were unable to get money, and because these companies were unable to make money, they needed monetary support.
In Western countries, a fundamental criterion to allow a company to be listed is that the company must have performed well for at least three years while meeting other standards. The company must obtain approval from the Securities Regulatory Commission prior to issuing stock. Under supervision, the issued stock can also be pulled from the market to ensure and safeguard in particular small and medium sized investors.
China’s stock market has been established to operate like an ATM for the listed companies. For the majority of the listed companies, economic reform is nothing but a mechanism to trap money. Many heavily indebted State-owned companies have been listed in the stock market after re-packaging. All of a sudden, they become the new stars in the market with easy loans and finance. The foundation of a stock market is the listed companies. With a weak foundation, how can any high stock price be affordable? The deflation in stock prices is therefore predictable.
Other than the fact that the listed companies would benefit from the weak structure in the Chinese stock market, the true “beneficiary” of this contrived structure is the “interest group” who would profit from the initial establishment of a listed company and the trading thereafter. As for the investors, China’s stock market serves to mentally “entertain and exercise” them. It gets investors far more emotionally involved than any intellectual game could hope to.
In an interview after the market dived for several days prior to the Olympics, economist Tang Min points out that, “No economists can make sense of China’s stock market.”
“I’d advise the investors to give up the illusion that the government would restore the stock market or that the market will rebound. Escape China’s stock market while you can. If you insist on trying to profit from it, go ahead. However, do not complain if you are drained empty.”
Some say that entering China’s stock market is like gambling. That would be over-estimating the capacity of the Chinese stock market. Gambling relies on luck, and sometimes strategies—it still has fairness in it. However, China’s stock market is a manipulated and systematic black market. The majority of Chinese investors seem to have gradually recognized this. This could suggest that the end of this massive robbery is near
On Jul 12 10:38 AM cabaretboltair wrote:
> The truth about the US stock market is actually not a secret, and
most investors probably already knew it. That is, the US stock market is a tool used by the governing elites to increase their wealth at the expense of the lower orders who are required to maintain standards of living through massive borrowing. This means that it is a tool to create the illusion of wealth in the rank and file of Americans, while true economic wealth is shifted to the top 0.5% of Americans. The biggest winners
in this process are, of course, Wall Street, and institutional private equity and hedge funds. These people have already made huge
fortunes in the process. .
In the US, a fundamental criterion to allow a company
to be listed is that the company must have audited financial statements, but these have been proven to be worthless in the collapse of the largest companies in the US stock market, including Citibank, AIG, General Motors...the list goes on. With a weak foundation, how can any high stock price be affordable? The deflation in stock prices is therefore predictable. No economists
can make sense of the US stock market.
The US stock market is a manipulated and systematic
black market. The majority of global investors seem to have gradually and are in the process of a multiyear withdrawal from long-term holdings in US equities. Only the foolish few, the uninformed, and the ignorant zealots believe that the future of investing in the US, USD assets, or US stocks holds any value.
In less than a decade, the US has brought us the Internet bubble, Enron, MCI, and the latest incarnation of delusion: AIG, Citibank, Fannie Mae, etc. The future of the globe must move away from the US to a rebalance with multiple parties, including the EU, the BRICs, and other emerging nations.
'Le roi est mort, vive le Roi!'
On Jul 12 03:26 AM Vienna wrote:
> Your comment is very detailed, but please consider...[snipped]
I have lived in the states for 9 month and have audited over 20 factories all over the states within the last few years. I must say that I have met many people who where very open to new procedures. Besides that I have been learning Chinese and speak it quite well, been there since 1994.
What I want to say, is probably the same that you mentioned. When evaluating a system, you need to take into account the parameters and look into them deeply, without going back to the typical old myth and evaluating a systems this way. What typically is done, and what is completely distracting are the following arguments,
they are communists, no free market like in the US, they don't report correctly ....... e.g. in Michigan factories no argument was ever considered, since they where the inventors of production line manufacturing . DOT
People have to start looking over the plate.
On Jul 12 11:27 AM coreopsis wrote:
> Sadly, Vienna, I must counsel you: you cannot reason with most Americans.
> They live in an island (albeit a very large one) which is quite impervious
> to serious understanding. They work among, and go home to other,
> Americans. This is a tremendous liability when you consider that
> most of the rest of the world is increasing its understanding of
> what is valuable and effective from many systems around the world.
>
>
> In less than a decade, the US has brought us the Internet bubble,
> Enron, MCI, and the latest incarnation of delusion: AIG, Citibank,
> Fannie Mae, etc. The future of the globe must move away from the
> US to a rebalance with multiple parties, including the EU, the BRICs,
> and other emerging nations.
>
> 'Le roi est mort, vive le Roi!'
You have to read "Good Capitalism, Bad Capitalism, Power and Prosperity" to understand why countries like Brazil never prospered like America.
"Brazil: In the Face of Mired-in-Corruption Congress, President Lula Looks the Other Way"
brazzil.com/component/...
"Good government is the magic ingredient that helps all of the other assets actually produces wealth. It’s like two business firms. One succeeds. The other doesn’t. Good management is the difference....Latin America's per capita income in the 1950’s was 25% of the US. Asia’s was 10%. It was thought that the mineral wealth, sophisticated society, education, and people would allow Latin America to catch up in 30 years. Today Asia’s per capita income is 25% of the US, while Latin America is 20%.
Africa has enormous potential and has had since I was born almost 60 years ago. It has never lived up to it."
Poor rule-of-law is also a big problem for China as Michael Clark pointed out above.
This paper was written almost 2 years ago, but it holds true today: "Corruption Threatens China’s Future"
www.carnegieendowment....
And a very recent article just an hours ago exposes the problems of a one-party dictatorship in China:
"...Unsurprisingly, the country(China) is trying to project an image of responsible economic power and although recent events have complex antecedents, they are all linked to the disruption of economic and legal reform in China, exposing how far China still has to go. It only has to look to Japan to see how quickly an economic powerhouse can become something of a basket case without unswerving commitment to reform, independent institutions and an end to cabals and corruption.
All this is hard to get in an authoritarian one-party dictatorship where, as the Uighurs of Xinjiang learned last week, dissent will be met with a loaded gun. Or, in the case of Hu and his colleagues, an unidentified prison cell, without legal representation, perhaps for many months. The Hu arrest comes amid unresolved talks between China's government and iron ore producers, led by Rio. China's leaders have lost their grip on the sector and the situation is confused.
Businesses around the globe are watching closely because China's very broad definition of "state secrets" means they could be next.
The risks and uncertainties of doing business in China have been laid bare...."
www.theaustralian.news...
On Jul 12 02:24 AM Michael Clark wrote:
> 'Smart money' tends to pile in as a group. When 'dumb money' (the
> rest of us) follow they get out. 'Smart money' LOVES relatively
> thin markets they can dominate and they REALLY LOVE stock markets
> that are being actively supported by the government infrastructure
> spending that props up the stock market -- it's like betting with
> the house in Las Vegas.
BTW, your comment includes both, plus your own, Does that mean you are also "Uncivilized"?
The American government lies to its people and the world, no doubt. But America has a (somewhat) free media that sees its own mission as stripping the lies off the government. This they do with greater or lesser degree of effectivenss, at different times in history.
China has no free media to balance the lies of its government.
I actually am NOT criticizing China for being communist, per se. But communism is NOT a two party system. It's a one-party system. It's no different in this way than fascist governments. There is no sharing of power; there are no checks and balances. There is no one to say: "Wait a minute: you say there is 6.1% growth in GDP. I think it's closer to -2% growth."
In China there is no independent business indexes. The U.S. government has been lying about inflation (and many other issues) for years. The difference is: all you have to do is turn on the internet to get a different opinion, and different research. In China, Schiller is in prison or he has already been executed.
What, in this equation, makes you believe the Chinese government is going to publish statistics that make them look bad? Why should they? Out of a sense of fair play?
Vienna wrote:
Your comment is very detailed, but please consider,
> Careful what you believe about China. They tell us what they want
> us to believe.
We believe that the US also tells us and their citzens what they want
> China is still a communist country
Stop riding the communist thing, that was 1950, it does not matter in fact if your capitalist or communist, the US has 2 parties opposed to one chinese, that both do the same, so where is the difference.
> It was explained to me by a Chinese national: 'When a Chinese
> business takes out a loan from the bank, 50% of the loan is
> earmarked for bribes.' In other words, 50% of the loan is non-
> performing from its inception
I wonder how much corruption is going on in the US, these bonuses, the wars and the rest that seems to be quite well nown.
So after you have lectured the world on so many things, I will give you one good suggestion,
Sweep before your own door (a German saying)
please...and i say please...don't do it. don't get into a back and forth. nothing will come from it. you have people looking for your comments as they are pertinent, articulate, and truthful. you will get distracted from writing what needs to be said and focus on the nothing.
keep your opinions (and yes everything here is opinions) coming as i find great quality in them.
stay focused
On Jul 12 12:32 PM Vienna wrote:
> thanks for your reply,
> I have lived in the states for 9 month and have audited over 20 factories
> all over the states within the last few years. I must say that I
> have met many people who where very open to new procedures. Besides
> that I have been learning Chinese and speak it quite well, been there
> since 1994.
> What I want to say, is probably the same that you mentioned. When
> evaluating a system, you need to take into account the parameters
> and look into them deeply, without going back to the typical old
> myth and evaluating a systems this way. What typically is done, and
> what is completely distracting are the following arguments,
>
> they are communists, no free market like in the US, they don't report
> correctly ....... e.g. in Michigan factories no argument was ever
> considered, since they where the inventors of production line manufacturing
> . DOT
>
> People have to start looking over the plate.
---looks like your hate-rant list is expanding to include more than me. The ignorance must be spreading.
On Jul 13 10:36 AM coreopsis wrote:
> Vienna, don't be discouraged by the responses here. Just consider
> them to be the work of people who don't seek facts but are limited
> mentally to sloganeering and posturing. There are some valuable
> insights here into specific business sectors written by experts (such
> as those of us who have worked in the global shipping area) --- but
> most of the posts are mere polemic. Little wonder the leading international
> observers of the US (such as the Financial Times of London) are so
> discouraged about America. One has only to read the chatter of SR,
> GD, MC, MP is see that there is widespread ignorance in today's America.
>
Gee, wouldn't it be great if China was leading the world instead of America, or India, or Brazil...or even better the EU.
Many people identify with China as a future replacement for US leadership simply out of a hatred of the U.S. Of course a lot of people admired the Nazis simply because they hated bourgeois democracy in Europe and England too. It's really not much different.
I don't criticize China's lack of transparency as a way of defending America. America has serious problems too. We've had a lot of greedy bastards running our country for too long -- and running it in to the ground. Europe? The last time they were allowed to play in the world without a chaperone carrying a large stick they set the world on fire twice in twenty years. You seem to forget that a 're-balance of power with multiple partners' was exactly what World War II was all about. This time we'll see Neo-Nazis in Europe attempting to purge Islamofascists from their borders -- and this will engulf the entire world. Perhaps America will stay home for this one. That will be interesting. How does China fit in to this picture? We'll find out.
Nobody liked Paz Romana until it was gone and, ultimately, replaced by the Dark Ages.
On Jul 12 11:27 AM coreopsis wrote:
> Sadly, Vienna, I must counsel you: you cannot reason with most Americans.
> They live in an island (albeit a very large one) which is quite impervious
> to serious understanding. They work among, and go home to other,
> Americans. This is a tremendous liability when you consider that
> most of the rest of the world is increasing its understanding of
> what is valuable and effective from many systems around the world.
>
>
> In less than a decade, the US has brought us the Internet bubble,
> Enron, MCI, and the latest incarnation of delusion: AIG, Citibank,
> Fannie Mae, etc. The future of the globe must move away from the
> US to a rebalance with multiple parties, including the EU, the BRICs,
> and other emerging nations.
>
> 'Le roi est mort, vive le Roi!'
www.hoalantrangallery....
On Jul 14 05:27 AM mkreisel wrote:
> But you never know when a bubble pops, it could last many years or
> even decades...
On Jul 13 09:56 PM Wisdom vs. Information wrote:
> coreopsis fails to see the scoreboard: even with all those financial
> changes (oops, i mean 'collapses', oh dear) the US is still far richer
> and has far more freedom than Europe or Japan; the US has more people
> who are rich who were not born that rich than Europe could ever dream
> about. Europe is great to visit and live in if you are rich, but,
> the FACT is, it has been going down the toilet since we pulled out
> the troops & defense spending in 1990, and then the strong dollar
> boondoggle ended in 2000... Europe will be changing, you just don't
> know it yet
On Jul 14 05:27 AM mkreisel wrote:
> But you never know when a bubble pops, it could last many years or
> even decades...
American brought us these problems...they can hardly be the solution to these problems.
On Jul 13 12:03 PM Michael Clark wrote:
> Clearly, nothing infuriates a Europhile
Jul 14 08:48 AM Michael Clark wrote:
> 18 years according to my research.
Greatly enjoyed your erudite notes...please continue to opine.
One aspect you seem to have ignored though- the manipulation of the Chinese stock market can go on far longer than you and I can stay solvent...or quite possibly, stay alive!
If you believe the end is coming, lets hear about when as well.
On Jul 14 02:38 AM Michael Clark wrote:
> America's s 'protectorate' over Europe for the past half-century
> allowed Europe to become pacifist, moral, sensitive, and kind-hearted.
> It allowed Europe to funnel money into social programs instead of
> military programs. America essentially funded the European peace
> -- and the socially-responsible attitude toward employment and health-care
> (something I admire). But that was decidedly NOT the Europe we saw
> before World War II. Dog-eat-dog was the nature of the European world
> before Pax Americana. I don't see any reason to assume it won't revert
> to dog-eat-dog when America goes away.
Personally I am not sure what to make of it as I think the $Billions are flowing in for a reason...but NG is at historical high's as far as supply goes....I suppose this winter demand could be up and Industrial production as well...could see a pop higher in UNG by October?