Richard Brubaker

China: A Look at the Real Estate Picture

Going to take a crack at a few of these:

1) Yes the Chinese love real estate. Part of that is a cultural affinity I supposed as land has always been seen as an asset families should hold, but there is also the structural issue that there are few options outside of real estate... and when the stock market is down, that goes double.

2) Before comparing Guiyang to another city, it is importnat to understand that it is the provincial capital and that as the provincial capital will see growth.

The fund manager, while familiar with real estate valuations, is perhaps too much of a tourist to accurately pick up the trends that are clear as day to the average Chinese resident of X town. Sure, 10km outside of the town is a new town, and right now it is bare, but what about in 3-5 years?

This is a well laid path for many cities (Hangzhou, Chengdu, etc)

3) Bank handouts are clearly occurring. Look at Beijing, and you will see a market that has more stock than it can absorb in 10 years.. but new developments are still breaking ground. At some level, this is about jobs... At another,it is about believing that the domestic market will grow.

4) As to the timeline, and how long the gov't can continue along this path, I myself am growing more concerned about this as well. When fixing the problems 4-5 years ago, China had a lot of free cash flow to draw on without touch reserves. Tax receipts were climbing, trade was booming, and the stock markets were diversifying the pools... but now it is a different story, a different time, and the depth of the pool is being reduced. A pool already earmarked by many who use the mantra that China has "2 trillion in reserves".

R
allroadsleadtochina.com

Is a Hard Landing in Store for China's Economy?

Jegan

1) I am not sure I understand your point here.

"Maybe 'All Roads Lead to China" should consider that no-one was upset when workers here in the US lost their livelihood to offshore factories."

People have been angry about offshoring for the last 5 years, and Schumer's bill 3 years ago was in response to that

2) We are not talking about a few container management jobs. We are talking about thousands of dock workers, truck drivers, and freight forwarders. Nearly every firm has internally hired logistics and quality professionals who potentially are at risk now as well. Cargo firms, airline firms, shipping firms... and so on.

I am not trying to imply that there is not an imbalance, or that Obama's administration should not look to spur domestic investment in Jobs. What I am saying is that a "Buy Ameican" campaign is not a way to do that.

That to bring in a protectionist movement, the risk of hurting American firms producing offshore, and those people who have jobs supporting the movement of those goods, will pay the political price.

With regard to your anecdote about the Wal-Mart demographic, keep in mind that consumers play a huge role in this. That American consumers have as a collective group been looking for "everyday lower prices", and as collective decisions were made, many firms were force to look globally to find cheaper sources.

There are other options on the table.

R
allroadsleadtochina.co...

Is a Hard Landing in Store for China's Economy?

“We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs, including jobs in manufacturing,” said Jen Psaki, a spokeswoman for Obama’s transition team.

Notes to Obama transition team:
1) There is a difference between "Made in the USA", American made in China, Chinese made in America and Chinese made in China

2) Going back to "Buy American, it could be your job" could potentially be a problem for some of America's biggest firms (read: biggest employers) as their products made in China are boycotted, and their profits fall

3) Why is it that no one speaks about the huge gains that have occurred in the US logistics industry as a result of trade? Has anyone considered the thousands of logistics professionals that could be laid off once containers stop flowing, the thousands of construction workers who would have been expanding ports, the truck drivers, and so on?

Protectionism is a bad idea all around, especially when those in the drivers seat are unable to see a lot of blind spots. "Buy American, it could be your job" will result in a lot more downside than up, and it is my hope that the Obama team drops this idea before they find themselves with a few thousand dock hands asking for a bailout.

R
allroadsleadtochina.co...

Global Impact of the Fed Funds Slash

Hank Paulson is going to grow hair before the Chinese citizens fullfill his dreams.

r
allroadsleadtochina.co...

China: Credit Is Contracting Rapidly

Excellent piece.

One quick follow up on the informal lenders.

Where have they lost money that would cause them to tighten up?

Is the trend coming from the fact that informal lenders are not able to tap their sources as easily, or are they also just being more cautious of how they lend money?

R
allroadsleadtochina.co...

Reports Indicate China's Ecosystem Is Too Far Gone to Support a Growing Economy

"China’s water and soil woes appear to have now reached the point at which food and water shortages leading to a health crisis could be possible at any moment, leading in turn to a reduction in GDP at the exact wrong time."

- this is already occuring in many areas of China. SEPA published a stuning report last year showing that China's GDP suffers greatly from environmental issues, there are regular water shortages/ outages in China, and with 70% of water unfit for INDUSTRIAL use, it is clearly impacting investment.

I am covering all this and more at Cleaner Greener China (cleanergreenerchina.co...) and All Roads Lead to China (allroadsleadtochina.co...)

r

Can China Take Up Consumption Slack From the U.S.?

Michael.

My personal belief is that Chinese consumers are simply a tool that some are using to give people some hope.. and a scapegoat should things go wrong.

I have been speaking with friends who are in China's pubic and private sector, some rich.. but primarily middle class, to see what their thoughts are.. and I am farily confident that Nike and GM are not going to like what they hear.

the market is down.. the real estate market is down... global demand for Chinese production is down.. 70,000 factories have closed down.. and people are unsure if this is the beginning, middle, or end... they are even less sure of what can/ will be done to turn this situation around.

Scared from what they know, and possibly scared more by what they don't, they will continue to save money to ensure that they are protected to weather the storm. Perhaps if the US provided real leadership and the world was able to develop a "plan", consumers would feel more confident, but until that day I would expect it to be a cold consumer season....

not saying cabbage will find its way under the bed yet...but not out of the realm of possibilities either

r
allroadsleadtochina.co...

China's Snowstorms Expose Infrastructure Shortcomings

This is a topic I have been covering for a while on All Roads Lead to China and it is an issue that I believe will not just catalyze infrastructure investment, but also energy investment.

While many have focused on China's push to purchase resources from around the world, where we are seeing the biggest hurdles is in the fact that China's domestic production and economy is far outstripping its local resources and logistics capabilities.

To learn more, I invite readers to view my post China’s Power Crisis. What is Happening. What the Impact Is/ Could be. And What You Should Do to learn more.

This is a problem that China has been fighting for 3 years, and unless heavy rains produce a glut of hydro capacity this spring, China will continue to experience power shortages through the summer.

China's Dependence on Exports: An Old Chinese Myth?

As metioned in my original posting, Jon Anderson at UBS was not trying to say that China is not dependent. Through his article he is trying to show that China has become less and less dependent on trade, and that unlike some have said, China will not simply implode should the US market retract.

With that said, a lot of the wealth in China is linked to trade and will continue to be so. Therefore if trade takes a big hit, there will be ripple effects.

Will it spell disaster for China? I think the answers is no. that perhaps 10 years ago China was much more sensitive, but that in the past 10 years China has built in some economic stability and dependence from trade that would allow it to weather the storm much better.

R
allroadsleadtochina.co...

Slamming the Brakes on China

With regard to the bank lending freeze, this was something I posted on All Roads last week and had some very interesting comments from members of the Shanghai community. In short, this is a phenomenon that occurs yearly, however they have decided to make a bigger case of it due to a higher level of concern that there is too much money in real estate. If interested in seeing the comments of 2 old China hands, go to allroadsleadtochina.co....

R
allroadsleadtochina.co...

China Tip: Early Warning on the Property Sector

The property market (and investing in it) have been one of the hottest topics in China.

Non-performing properties are nothing new to many cities, however before believing the tail of the dragon is hollow consider that Chengdu and Kunming are both expected to roughly double in size by 2010, and that many of the properties being built now are in anticipation of this.

This point was driven home during a trip I made to Chengdu 3 years ago and I toured a town that was about south of the city center, had about 15 - 20 high rise properties , and it was empty... completely empty.

But, today the occupancy rates are 70-80 % according to a local friend, and retail podiums are full.

The second tier cities are the future, and for those outside of China it will always be difficult to see the dream. The dream will fulfill after the Olympics as (1) the Olympics passes by; (2) manufacturers begin moving inland; and (3) the distribution infrastructure - Rail, road, and river- fill in.

Vincent Lo is a man who has done an excellent job at spotting opportunities in China, and as he said in a recent interview with CNN, you have to be in China to identify, cultivate, and execute on those opportunities.

No doubt, property will be a hot topic up until the Olympics, but do not expect the bottom to drop out of the boat. Expect there to be limited opportunities that developers like Vincent Lo take up, but also expect that a lot of the empty space will be taken up as regional economies develop in Chengdu, Chongqing, and other cities; as manufacturers open up 2nd and 3rd facilities inland; as migrant workers from the countryside chose to move to regional cities rather than the coast; and as wealth is accumulated in the regional cities rather than on the coast.

China Passes Law Bolstering Private Property Rights

The test of this new law is currently being held in Chongqing as I type this.

the "Nailhouse" story has really gained some steam in Blogosphere as the gov't has ended coverage on what will be a landmark decision (i.e. either they uphold the law or the law becomes worthless in a week).

For background, visit www.globalvoicesonline.../

The Inevitable Collapse of China's Banks

Aparently, the banks have not really learned much in the 5 years since they have "turned around".

Is China Growing Old Before It Grows Rich?

Richard,

sorry, I am not very tech savvy.

allroadsleadtochina.co... is the general site
allroadsleadtochina.co... is the site for Going Big on Going Gray
allroadsleadtochina.co... is the site for the map of graying trends in China

Thanks
rich

The Inevitable Collapse of China's Banks

As Lei points out, the people in Beijing are neither idiots nor are they going to always get it right... but they are trying.

This is an excellent post, and I commend Nicholas on his write up.

Through my previous work, I was involved on several of the early NPL project valuations and it was just plan scary. What has always been the biggest concern since that point is how a bank can go from 40% bad debt to 11% in just under 12 months. Well, in the middle of a property boom where the middle class looks for leverage, it is not difficult to see how the denominator on the equation was able to ridiculously fatten itself and bring those numbers down.

Remember that while the government did assign each big 4 bank a AMC to help clean up that bank's balance sheets, those AMCs are under PBOC. It is a shell game really where the PBOC, the AMCs, and the big 4 just hide their non-performing loans and wait for the day that they just magically disappear.

The first three years of resolving these assets properly (i.e. through public auction and private placement) were a mess. the data provided through the cautions was often incomplete and that drove valuations through the floor. Match that with the rule that you cannot sell State owned assets below book value, and you end up with failed auctions. CCB magically got around this by offering a buy back on assets without clean title 30 days after the auction. What happened? investors weighted those as 90% valuation levels (knowing the courts would never clean the assets) just to drive the 5% valuation to 45%. Amazingly, all three closed.

The problem root of the problem, as suggested above is that the banks do not have the internal structures in place for effective risk analysis and management, and that is before political favors are called in.
If the banks are unable to root out the rot, China is in for a rude awakening. At some point they will run out of lifelines.

Kudos to Nicholas