James Lewis's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/174754/comments http://seekingalpha.com/article/175451-the-next-phase-of-the-crisis-is-beginning-with-an-eye-on-china?source=feed#comment-781127 781127
People do sell proeprty to themselves/realtives in China. I myself was going to do a 'ownership transfer' like this. The reason this is done is there is no home-equity loans and property transaction process is still 'thrid-world'.

In terms of the argument that China does not rely on exports that much. And the statistics that accompanied it. I would like to make clear the statistics mean absolutly nothing.

When crisis started to freeze the economies in the west and export in China dropped. 20-25 million people were made unemployed immediatly. It was aboslute mahem, train stations could not handle the amount of rural workers going home. There were mass riots. Wages dropped by 25%. Government officials were handing out money to keep rural workers quiet. Factory economic zones that were once vibrant were full of grave-yard factories. Restaurants that were in economic zones (that were once full of people drinking chinese wine and eating seafood were completly empty) The industrial sector was paralysed. PARALYSED. So to say, exports to west only account for 4% is total rubbish. China's subsidised industrial sector got destroyed when exports dropped off. If it happend again, it would not be as bad in the smaller industrial sectors as the bosses have gone into real estate speculation. But large industries like steel etc would get hit just as hard.

The fact we are talking about china property being a bubble suggests there is not a bubble. China's property affordability is not a function of property being too expensive, but a function of the government holding down wages. Foreigners can get jobs in Shanghai pay $2500-3000/month, the true expats working for big companies are getting $30 000-35 000/month + expenses. Ask foreign expats if they can afford to buy property in shanghai. They will laugh at you and tell you to go to Hong Kong and try and buy property.

The point here is wages are too low, if there is a bubble. It will be with Chinese characteristics. And very few people will see it coming.

I do believe there is a chance of a price correction in Chinese property. However I believe this will be a function of the way prices have moved up not fundamentals. Believe me there are lots of middle class families who have enough money to buy property for their children. I know this from experience.

I feel very sorry for those that can not get on the property ladder.
But be clear this is because the government manadates low wages. Not because property is too expensive.]]> Sun, 29 Nov 2009 02:36:22 -0500
People do sell proeprty to themselves/realtives in China. I myself was going to do a 'ownership transfer' like this. The reason this is done is there is no home-equity loans and property transaction process is still 'thrid-world'.

In terms of the argument that China does not rely on exports that much. And the statistics that accompanied it. I would like to make clear the statistics mean absolutly nothing.

When crisis started to freeze the economies in the west and export in China dropped. 20-25 million people were made unemployed immediatly. It was aboslute mahem, train stations could not handle the amount of rural workers going home. There were mass riots. Wages dropped by 25%. Government officials were handing out money to keep rural workers quiet. Factory economic zones that were once vibrant were full of grave-yard factories. Restaurants that were in economic zones (that were once full of people drinking chinese wine and eating seafood were completly empty) The industrial sector was paralysed. PARALYSED. So to say, exports to west only account for 4% is total rubbish. China's subsidised industrial sector got destroyed when exports dropped off. If it happend again, it would not be as bad in the smaller industrial sectors as the bosses have gone into real estate speculation. But large industries like steel etc would get hit just as hard.

The fact we are talking about china property being a bubble suggests there is not a bubble. China's property affordability is not a function of property being too expensive, but a function of the government holding down wages. Foreigners can get jobs in Shanghai pay $2500-3000/month, the true expats working for big companies are getting $30 000-35 000/month + expenses. Ask foreign expats if they can afford to buy property in shanghai. They will laugh at you and tell you to go to Hong Kong and try and buy property.

The point here is wages are too low, if there is a bubble. It will be with Chinese characteristics. And very few people will see it coming.

I do believe there is a chance of a price correction in Chinese property. However I believe this will be a function of the way prices have moved up not fundamentals. Believe me there are lots of middle class families who have enough money to buy property for their children. I know this from experience.

I feel very sorry for those that can not get on the property ladder.
But be clear this is because the government manadates low wages. Not because property is too expensive.]]> http://seekingalpha.com/article/175444-repairing-chinas-financial-system?source=feed#comment-778634 778634
Also some chinese politicians have stated they will aim for 2 trillion worth of loans next year as well. If that happens then we really see a spike in NPL's. It is accurate to predict quite serious financial fallout if this happens.

Things look at bit rocky, If the global markets get hit. I think china will fall pretty hard, but only short term. Infact a little financial system problem now could be quite healthy for China medium and long term.

If excesses are allowed to build and structural change does not happen without a short term corrcetion now. Then we could see longer terms problems.

Of course the advantage with holding down everyones wages i that investment wastage on projects where few make it big take longer to come back as bad investments.

all very interesting..]]> Thu, 26 Nov 2009 13:46:51 -0500
Also some chinese politicians have stated they will aim for 2 trillion worth of loans next year as well. If that happens then we really see a spike in NPL's. It is accurate to predict quite serious financial fallout if this happens.

Things look at bit rocky, If the global markets get hit. I think china will fall pretty hard, but only short term. Infact a little financial system problem now could be quite healthy for China medium and long term.

If excesses are allowed to build and structural change does not happen without a short term corrcetion now. Then we could see longer terms problems.

Of course the advantage with holding down everyones wages i that investment wastage on projects where few make it big take longer to come back as bad investments.

all very interesting..]]> http://seekingalpha.com/article/175252-drooping-vietnam-dong-devalued?source=feed#comment-777018 777018
I am not entirely sure why the Vietnam government did not devalue the dong by 30% 5 months ago. Then peg it to dollar. Can you imagine the amount of new manufacturers that would go there. And the holiday visitors

Never mind...
lets do it this way]]> Wed, 25 Nov 2009 09:47:42 -0500
I am not entirely sure why the Vietnam government did not devalue the dong by 30% 5 months ago. Then peg it to dollar. Can you imagine the amount of new manufacturers that would go there. And the holiday visitors

Never mind...
lets do it this way]]> http://seekingalpha.com/article/175285-will-obama-replace-geithner-with-dimon?source=feed#comment-777001 777001
I figure Obama is going to replace Geithner because he has no real guaanxi to talk about and quite frankly knows f**k all about how to get the Chinese to play a little fairer. I also figure that Obama is more interested in opening up China's financial system as apposed to trade wars. Who better to do this, than a banker? One who has spent time in China.

If it was upto me I think I would put someone from Asian or African decent. White people antagonise the Chinese far too easily.
Especially Amercian white people.]]> Wed, 25 Nov 2009 09:41:11 -0500
I figure Obama is going to replace Geithner because he has no real guaanxi to talk about and quite frankly knows f**k all about how to get the Chinese to play a little fairer. I also figure that Obama is more interested in opening up China's financial system as apposed to trade wars. Who better to do this, than a banker? One who has spent time in China.

If it was upto me I think I would put someone from Asian or African decent. White people antagonise the Chinese far too easily.
Especially Amercian white people.]]> http://seekingalpha.com/article/175193-investing-in-china-why-the-nine-nations-matter?source=feed#comment-776591 776591 I know a huge amount about China, its culture and am very very well travelled.

But I am pale into comparsion to you.
Please please keep on posting further pieces to this article.

Very interested for you to start breaking down and talking about the new trends emerging in the nine nations. Hangzhou developing into financial backend (administration) centre to support Shanghai's as the front end financial operator.]]> Wed, 25 Nov 2009 07:18:42 -0500 I know a huge amount about China, its culture and am very very well travelled.

But I am pale into comparsion to you.
Please please keep on posting further pieces to this article.

Very interested for you to start breaking down and talking about the new trends emerging in the nine nations. Hangzhou developing into financial backend (administration) centre to support Shanghai's as the front end financial operator.]]> http://seekingalpha.com/article/174623-25-reasons-we-will-not-have-a-depression?source=feed#comment-772012 772012
be careful, especially emerging markets]]> Sun, 22 Nov 2009 13:08:58 -0500
be careful, especially emerging markets]]> http://seekingalpha.com/article/174640-the-king-canute-economy-governments-futile-attempt-to-stem-the-tide?source=feed#comment-771471 771471 can the masters of the universe hold back the tides indeed.

of coruse as negative as all this is, if the OECD countries can generate enrgey using clean technology and take away flows of USD to the oil countries. Then we could see a re-emergence of wealth back to the west. Also if the west shuts off imports into their markets, more domestic manufacturing could fuel added value in the western economies.

The point here is that the USA has more faith in making money in the Chinese market and by doing so become closer to China. Then to block off chinese exports and make them in their own country.

I agree that the asset bubbles created a veil of untruth and hid the underlying weaknesses of the west economies but be clear these asset bubbles were financed by the east as well. So in effect the east paid a great deal towards this fake wealth. Also the IT and technology revolution did add a great deal of real value to the western economies.

Innovation and technological advancement adds so much to an economy. More than economists can ever believe. This is why R+D pays off. The USA strategy of getting low value added goods madeinthe East while spending its time/money on R+D may pay off.

From where the US is standing I belive they know they have to create real value added to their economy. So I do not think their arrogance is blinding them. They better hurry up and they better hope they can generate 2-3 trillion/year from clean energy. If they create enough money through QE and hyperinflate the money supply by 100-150%. Then in 2020 they may be able to wipe out all their debt.]]> Sun, 22 Nov 2009 05:08:09 -0500 can the masters of the universe hold back the tides indeed.

of coruse as negative as all this is, if the OECD countries can generate enrgey using clean technology and take away flows of USD to the oil countries. Then we could see a re-emergence of wealth back to the west. Also if the west shuts off imports into their markets, more domestic manufacturing could fuel added value in the western economies.

The point here is that the USA has more faith in making money in the Chinese market and by doing so become closer to China. Then to block off chinese exports and make them in their own country.

I agree that the asset bubbles created a veil of untruth and hid the underlying weaknesses of the west economies but be clear these asset bubbles were financed by the east as well. So in effect the east paid a great deal towards this fake wealth. Also the IT and technology revolution did add a great deal of real value to the western economies.

Innovation and technological advancement adds so much to an economy. More than economists can ever believe. This is why R+D pays off. The USA strategy of getting low value added goods madeinthe East while spending its time/money on R+D may pay off.

From where the US is standing I belive they know they have to create real value added to their economy. So I do not think their arrogance is blinding them. They better hurry up and they better hope they can generate 2-3 trillion/year from clean energy. If they create enough money through QE and hyperinflate the money supply by 100-150%. Then in 2020 they may be able to wipe out all their debt.]]> http://seekingalpha.com/article/174488-why-krugman-is-wrong-about-the-yuan?source=feed#comment-770872 770872
Purchasing power of US consumers is taking a hit as credit is being withdrawn. However it US consumer purchasing power was at such highs this had to happen. After all a few years ago, people with very low monthly income had the ability to buy exceptionally expensive properties with no downpayment. In China if you have no money, you can eat with no problem but you can not buy things like high end computer goods, cars and certainly/certainly not property. You have people earning 1000USD/Month buying 600 000USD houses. Bloody rediculous.

This being said the USA will trade its way out of trouble, but by the time it does so. China would have cemented its power as number two.]]> Sat, 21 Nov 2009 17:22:23 -0500
Purchasing power of US consumers is taking a hit as credit is being withdrawn. However it US consumer purchasing power was at such highs this had to happen. After all a few years ago, people with very low monthly income had the ability to buy exceptionally expensive properties with no downpayment. In China if you have no money, you can eat with no problem but you can not buy things like high end computer goods, cars and certainly/certainly not property. You have people earning 1000USD/Month buying 600 000USD houses. Bloody rediculous.

This being said the USA will trade its way out of trouble, but by the time it does so. China would have cemented its power as number two.]]> http://seekingalpha.com/article/174488-why-krugman-is-wrong-about-the-yuan?source=feed#comment-768549 768549
I have to say however I do not agree with what you have stated in this article. The USD is not weak on any long-term relative basis, purachins power basis. If you look at long term currency charts you will see it is exactly in the middle of its range. Not expensive, not cheap. Not high, not low.

You also go to say that the market is taking the USD lower due to its structural imbalance. High trade deficits, budget deficits etc. This by your own definition means you understand that fundamentalyl the USD is stronger than it should be. The truth is the USD is overvalued because Asian countries are running large trade surpluses and buying the USD, this is artifical demand because the Asian currencies are weakening their currencies by buying the USD. This is the source of the problem as a lot of Asian currencies are not based on market pricing mechanism. We all know that the USD is maniuplated by the FED through polciy from time-time. But this is different from direct peg and guided price levels.

The point here that has been missed is that Obama is ok with the RMB-USD exchange rate. As long as it goes in the right direction. 4-5% revaluing per year is exactly what Obama wants. Anything more than that will create huge issues for US companies, inflation (important when you are creating new money through QE) and the funding mechanism for the US through selling Treasury Bonds. You have said this but missed that Obama is playing lip service to hide the fact that the Europeans are being forced to take the adjustment. The USD is falling against Euro, pegged to the Yuan means that Chinese goods in Euros are cheaper. And US goods are cheaper in Euros. The US and China share common goals in this respect, I would dare to say that both parties know this at the top level.

The US does have a lot to export to China but the exports are being blocked through protectionism. Import tariffs, lack of access to supply chains, no way in to distrubution networks, technology requirements that shut US companies out, subsidy loans, local laws that require joint ventures be set up (always bad for interntional partner). This is the true issue that Obama is focusiing on. The rmb is a red herring. It allows China to show it is not bowing down to US pressure, so Hu and Wen can keep face inside the Politburo and to the nation. It also gives them a little more room to allow some advantage to the US in China's rise.

Relations between the two countries are probably better than most people think. However there are very large risks, after all Hu and Wen do not hold all the power and there are a lot of right wing policitcans abd business leaders that want to see China hold all the cards in everyway. Hu knows that the best tactic is to concede some ground in negotiations, so's not to start a trade war with the US (its best customer). Being a surplus country starting trade wars with the main party who is a deficit country does not make sense. This has nothing to do with the China-US arguement, just pure economics.

The RMB is 15-20% undervalued due to the amount fo USD reserves it holds. The USD is overvalued, in part because one of its largest trading partners, China holds a peg.

Expect 5% revaluing on the Yuan per year for next three years.
Expect USD to go down a little lower, before making long term base. If this does not happen there will be serious trade wars and the US may retailate not by stamping duties of chinese imports but destroying the value of the dollar.

All very interesting]]> Fri, 20 Nov 2009 07:07:19 -0500
I have to say however I do not agree with what you have stated in this article. The USD is not weak on any long-term relative basis, purachins power basis. If you look at long term currency charts you will see it is exactly in the middle of its range. Not expensive, not cheap. Not high, not low.

You also go to say that the market is taking the USD lower due to its structural imbalance. High trade deficits, budget deficits etc. This by your own definition means you understand that fundamentalyl the USD is stronger than it should be. The truth is the USD is overvalued because Asian countries are running large trade surpluses and buying the USD, this is artifical demand because the Asian currencies are weakening their currencies by buying the USD. This is the source of the problem as a lot of Asian currencies are not based on market pricing mechanism. We all know that the USD is maniuplated by the FED through polciy from time-time. But this is different from direct peg and guided price levels.

The point here that has been missed is that Obama is ok with the RMB-USD exchange rate. As long as it goes in the right direction. 4-5% revaluing per year is exactly what Obama wants. Anything more than that will create huge issues for US companies, inflation (important when you are creating new money through QE) and the funding mechanism for the US through selling Treasury Bonds. You have said this but missed that Obama is playing lip service to hide the fact that the Europeans are being forced to take the adjustment. The USD is falling against Euro, pegged to the Yuan means that Chinese goods in Euros are cheaper. And US goods are cheaper in Euros. The US and China share common goals in this respect, I would dare to say that both parties know this at the top level.

The US does have a lot to export to China but the exports are being blocked through protectionism. Import tariffs, lack of access to supply chains, no way in to distrubution networks, technology requirements that shut US companies out, subsidy loans, local laws that require joint ventures be set up (always bad for interntional partner). This is the true issue that Obama is focusiing on. The rmb is a red herring. It allows China to show it is not bowing down to US pressure, so Hu and Wen can keep face inside the Politburo and to the nation. It also gives them a little more room to allow some advantage to the US in China's rise.

Relations between the two countries are probably better than most people think. However there are very large risks, after all Hu and Wen do not hold all the power and there are a lot of right wing policitcans abd business leaders that want to see China hold all the cards in everyway. Hu knows that the best tactic is to concede some ground in negotiations, so's not to start a trade war with the US (its best customer). Being a surplus country starting trade wars with the main party who is a deficit country does not make sense. This has nothing to do with the China-US arguement, just pure economics.

The RMB is 15-20% undervalued due to the amount fo USD reserves it holds. The USD is overvalued, in part because one of its largest trading partners, China holds a peg.

Expect 5% revaluing on the Yuan per year for next three years.
Expect USD to go down a little lower, before making long term base. If this does not happen there will be serious trade wars and the US may retailate not by stamping duties of chinese imports but destroying the value of the dollar.

All very interesting]]> http://seekingalpha.com/article/174460-dollar-yuan-peg-means-china-gains-on-all-fronts?source=feed#comment-768533 768533 better still look at my comments of the unfloding of China as I see it day-day,]]> Fri, 20 Nov 2009 06:34:17 -0500 better still look at my comments of the unfloding of China as I see it day-day,]]> http://seekingalpha.com/article/173881-roubini-says-don-t-forget-about-me?source=feed#comment-767501 767501 Thu, 19 Nov 2009 12:26:27 -0500 http://seekingalpha.com/article/173881-roubini-says-don-t-forget-about-me?source=feed#comment-767494 767494 They judge on what they see, not who they are inside.

Roubini is very smart but internally morbid.
Guys like this always are perma-bears.


Whitney is a strong women, so wants to be right all the time.
Putting down her male colleagues in the industry motivates a lot of her calls.

The market will move to 10 700, then sell off back down to 10 000.
It will hold 10 000. If it does not more liquidity will be put into the system. There is enough liquidity in the system anyway, so it will hold 10 000. Dollar will make its low around 10 700 and they trade sideways. Gold will make its high when market is sitting up at 10 700. It will be interesting how this sells off.

Maybe we will get winter of storage as apposed to winter of discontent. Whatever way expect boring 2/3 months ahead.]]> Thu, 19 Nov 2009 12:23:52 -0500 They judge on what they see, not who they are inside.

Roubini is very smart but internally morbid.
Guys like this always are perma-bears.


Whitney is a strong women, so wants to be right all the time.
Putting down her male colleagues in the industry motivates a lot of her calls.

The market will move to 10 700, then sell off back down to 10 000.
It will hold 10 000. If it does not more liquidity will be put into the system. There is enough liquidity in the system anyway, so it will hold 10 000. Dollar will make its low around 10 700 and they trade sideways. Gold will make its high when market is sitting up at 10 700. It will be interesting how this sells off.

Maybe we will get winter of storage as apposed to winter of discontent. Whatever way expect boring 2/3 months ahead.]]> http://seekingalpha.com/article/174332-check-up-on-china-and-the-baltic-dry?source=feed#comment-767443 767443
China's exports have been ok the last 2-3 months.
Not great, not as bad as last year.
The Shanghai market is awash with liquidity.
The Shanghai property market is awash with liquidity.

Hot money flows are quite high.
Savings are coming out the bank.

Expect things to slow down as we enter winter, ]]> Thu, 19 Nov 2009 12:00:47 -0500
China's exports have been ok the last 2-3 months.
Not great, not as bad as last year.
The Shanghai market is awash with liquidity.
The Shanghai property market is awash with liquidity.

Hot money flows are quite high.
Savings are coming out the bank.

Expect things to slow down as we enter winter, ]]> http://seekingalpha.com/article/173969-china-currency-issue-a-red-herring?source=feed#comment-767438 767438 Blah Blah Blah Blah...

The USA does not care about China's fx policy. If China was to allow its currency to strengthen, they would have to sell USD Debt. That would take the value of the USD down too quickly and make the USA funding ever harder at a time that ample liquidity is needed in this market.

The USA is taking its currency down against other currencies to improve its trade deficit. By China keeping the peg with the USD and the US taking its currency down against the Euro. What is happening is that Europe is taking the burden of the adjustment. The USA is happy to let China slowly revalue the Yuan, instead pressing for access to its financial sector and to allow the USA multinationals to get a piece of the pie. Think Boeing/GM.

The US has to make out that it is trying to get China to revalue, or Europe its main ally will get frustrated and annoyed. The US knows that the currency is not the big issue. But the main issue is protectionism on every leval, subsidising the manufacturing sector and various trade barriers. The US also knows that China is scared of devaluing its currency after what happend to Japan after the Plaza accord. The US knows China does not want this to happen to them and they fear being forced to, so will not press too hard even if they wanted swift re-balancing. Which they don't. To reblance trade, China just needs to stop blocking US products and give fair access. Simple as that..

Love you work Patrick, ]]> Thu, 19 Nov 2009 11:55:19 -0500 Blah Blah Blah Blah...

The USA does not care about China's fx policy. If China was to allow its currency to strengthen, they would have to sell USD Debt. That would take the value of the USD down too quickly and make the USA funding ever harder at a time that ample liquidity is needed in this market.

The USA is taking its currency down against other currencies to improve its trade deficit. By China keeping the peg with the USD and the US taking its currency down against the Euro. What is happening is that Europe is taking the burden of the adjustment. The USA is happy to let China slowly revalue the Yuan, instead pressing for access to its financial sector and to allow the USA multinationals to get a piece of the pie. Think Boeing/GM.

The US has to make out that it is trying to get China to revalue, or Europe its main ally will get frustrated and annoyed. The US knows that the currency is not the big issue. But the main issue is protectionism on every leval, subsidising the manufacturing sector and various trade barriers. The US also knows that China is scared of devaluing its currency after what happend to Japan after the Plaza accord. The US knows China does not want this to happen to them and they fear being forced to, so will not press too hard even if they wanted swift re-balancing. Which they don't. To reblance trade, China just needs to stop blocking US products and give fair access. Simple as that..

Love you work Patrick, ]]> http://seekingalpha.com/article/174040-u-s-and-china-lecturing-each-other-on-trade?source=feed#comment-766942 766942
This is certainly the truth. The higher the wastage resulting from expansion of credit, the higher the chances of instability in the banking system from balance sheet issues. Which of course leads to financial crisis due to the connectedness of the system.

We have as yet no proven that the expansion of credit in China is excessive. Yes the numbers are huge, but so is China's saving. I would say as large as the expansion has been, in ratio terms against domestic savings. The numbers have really not been that big. This ratio is the true way to decipher how large expansion of credit has been.

Insteas of a financial crisis, the most likely outcome of this lending boom is stagnation as the chinese savings are eaten up from all the bad loans in the banking system. I get the sense that as long as savings stay high and china maintains its trade advantage. We will not get the bust everyone predicts.

Saying this China does face a number of important destabilising forces. One of which is its aging population, so it better keep its investment wastage under control. Of course investment in a developing economy with the 1.3 billion people is easier to keep under control than a developed nation that is in debt that wastes money day in day out on things they dont need.]]> Thu, 19 Nov 2009 08:04:11 -0500
This is certainly the truth. The higher the wastage resulting from expansion of credit, the higher the chances of instability in the banking system from balance sheet issues. Which of course leads to financial crisis due to the connectedness of the system.

We have as yet no proven that the expansion of credit in China is excessive. Yes the numbers are huge, but so is China's saving. I would say as large as the expansion has been, in ratio terms against domestic savings. The numbers have really not been that big. This ratio is the true way to decipher how large expansion of credit has been.

Insteas of a financial crisis, the most likely outcome of this lending boom is stagnation as the chinese savings are eaten up from all the bad loans in the banking system. I get the sense that as long as savings stay high and china maintains its trade advantage. We will not get the bust everyone predicts.

Saying this China does face a number of important destabilising forces. One of which is its aging population, so it better keep its investment wastage under control. Of course investment in a developing economy with the 1.3 billion people is easier to keep under control than a developed nation that is in debt that wastes money day in day out on things they dont need.]]> http://seekingalpha.com/article/173747-china-s-yuan-not-the-u-s-dollar-is-too-cheap?source=feed#comment-763314 763314 Chin after all has printed some serious amount of yuan over the last few years.]]> Tue, 17 Nov 2009 08:21:20 -0500 Chin after all has printed some serious amount of yuan over the last few years.]]> http://seekingalpha.com/article/173472-dollar-vs-yuan-exchange-rates-aren-t-the-problem-or-the-solution?source=feed#comment-761908 761908
All this being said, if the USA takes its currency a lot lower.
Europe will start kicking up a fuss and action protectionsim against China. This is the USA real plan, kill their currency - get worldwide support against China's mercantilist policies. In doing so the USA improves it trade deficit situation as europeans will buy their goods. And wins because China will carry on buying their debt allowing them to re-inflate the economy. The secret weapon here though is the USA is trying to overheat the chinese economy with low interest rates in the meantime. Sending huge hot money flows from its banking system. Their plan is to drive up asset prices, then pullout.
Hoping that the Chinese banking system will be hit as a result of real estate loans going bad.

Markte Access is key in China. But the USA is not going to get this in any large way. So for now the issue is on the currency.]]> Mon, 16 Nov 2009 09:39:12 -0500
All this being said, if the USA takes its currency a lot lower.
Europe will start kicking up a fuss and action protectionsim against China. This is the USA real plan, kill their currency - get worldwide support against China's mercantilist policies. In doing so the USA improves it trade deficit situation as europeans will buy their goods. And wins because China will carry on buying their debt allowing them to re-inflate the economy. The secret weapon here though is the USA is trying to overheat the chinese economy with low interest rates in the meantime. Sending huge hot money flows from its banking system. Their plan is to drive up asset prices, then pullout.
Hoping that the Chinese banking system will be hit as a result of real estate loans going bad.

Markte Access is key in China. But the USA is not going to get this in any large way. So for now the issue is on the currency.]]> http://seekingalpha.com/article/173240-two-more-myths-about-business-in-china?source=feed#comment-760853 760853
Shaun's main data set is in effect the lower/higher middle class and upper class in China. These people usually have favourable hukou and it is fair to say they have seen a huge increase in their living standard. The lower/under class in China has been left behind and it is fair to say there standard of living has only improved as a consequence of the evolution of the various aspects I described above. Which can not be atributed to government policy. These people were left behind and in effect used in order to develop China into the powerhouse it is today. Of course this is a normal consequence of development. Every country has gone through this process. The bottom of the hierarchy always gets a raw deal. This is the reason for many of the 'revolutions and peasant uprisings in history of the world as it has developed.

Real progess is being made in trying to improve living standards of the working/lower classes now in China. The central government is fully committed to this, but still is keeping wages down to avoid giving the lower class too much financial freedom. From a dvelopment perspective you need lots of cheap labour to develop the country. Progress is being made, it is too slow.

There is a two-tier system.
Things are great for some and terrible for others and te inequality divide in china is great.

However in summary Hu and Wen are making progress. In terms of Shaun assertion there is great opporutnity from selling goods to the Chinese, he is spot on. Getting market access however is harder.

Make no mistake the US government knows the many faces of China. Those who believe they are naive and ignorant are wrong. However their challenge to balance growth and exchange of benefits is very difficult especially as the stakes are so high.]]> Sun, 15 Nov 2009 10:37:27 -0500
Shaun's main data set is in effect the lower/higher middle class and upper class in China. These people usually have favourable hukou and it is fair to say they have seen a huge increase in their living standard. The lower/under class in China has been left behind and it is fair to say there standard of living has only improved as a consequence of the evolution of the various aspects I described above. Which can not be atributed to government policy. These people were left behind and in effect used in order to develop China into the powerhouse it is today. Of course this is a normal consequence of development. Every country has gone through this process. The bottom of the hierarchy always gets a raw deal. This is the reason for many of the 'revolutions and peasant uprisings in history of the world as it has developed.

Real progess is being made in trying to improve living standards of the working/lower classes now in China. The central government is fully committed to this, but still is keeping wages down to avoid giving the lower class too much financial freedom. From a dvelopment perspective you need lots of cheap labour to develop the country. Progress is being made, it is too slow.

There is a two-tier system.
Things are great for some and terrible for others and te inequality divide in china is great.

However in summary Hu and Wen are making progress. In terms of Shaun assertion there is great opporutnity from selling goods to the Chinese, he is spot on. Getting market access however is harder.

Make no mistake the US government knows the many faces of China. Those who believe they are naive and ignorant are wrong. However their challenge to balance growth and exchange of benefits is very difficult especially as the stakes are so high.]]> http://seekingalpha.com/article/173063-china-housing-market-it-s-2005-all-over-again?source=feed#comment-758219 758219
The hot money flows that will come into China over the next 3 months will take propertyt up another 10-15%. Anymore than that then we can say property is above fair value. Not a bubble..

Certainly not a bubble, certainly not like USA real estate. In the USA no one would even dream of putting down large downpayment. Here in China downpayment average is around 40-50%. Property would have to drop in excess of 50% for people to be in negative equity and start foreclosure avalanche. Also it is now clear China is the second richest, second most powerful country in the world. Fundamentally prices are fully illustrative of this reality.

I wish people would stop shouting bubble.]]> Fri, 13 Nov 2009 03:22:37 -0500
The hot money flows that will come into China over the next 3 months will take propertyt up another 10-15%. Anymore than that then we can say property is above fair value. Not a bubble..

Certainly not a bubble, certainly not like USA real estate. In the USA no one would even dream of putting down large downpayment. Here in China downpayment average is around 40-50%. Property would have to drop in excess of 50% for people to be in negative equity and start foreclosure avalanche. Also it is now clear China is the second richest, second most powerful country in the world. Fundamentally prices are fully illustrative of this reality.

I wish people would stop shouting bubble.]]> http://seekingalpha.com/article/172797-the-global-oil-scam-50-times-bigger-than-madoff?source=feed#comment-757451 757451
Going to war to secure oil is certainly worthwhile when other government arms are manipulating the price of what you are fighting for.

It seems however Obama is looking to take on these cheating bankers/traders. He is also going to take on the private health care companies making money out of other people's misery. Breaking up large banks. Could we be actually seeing government taking back power from the corporate sector. If Obama pulls this off, he will go down as the best USA president in modern times.

I salute you Obama...]]> Thu, 12 Nov 2009 13:24:50 -0500
Going to war to secure oil is certainly worthwhile when other government arms are manipulating the price of what you are fighting for.

It seems however Obama is looking to take on these cheating bankers/traders. He is also going to take on the private health care companies making money out of other people's misery. Breaking up large banks. Could we be actually seeing government taking back power from the corporate sector. If Obama pulls this off, he will go down as the best USA president in modern times.

I salute you Obama...]]> http://seekingalpha.com/article/172639-if-fed-is-looking-to-inflate-what-should-asia-do?source=feed#comment-755762 755762
Japan will strengthen ties with India. However Japan and India are already very close. I think Japan will make it seems they are moving towards China, but this can only really occur economically. As the USA has treaty with Japan to protect them if they come under nuclear attack. Nuclear treaty like this does not come undone in less than 10 years. Also Japan knows full well that China's friends dont do very well out the relationship.

In terms of where the economy goes. I think we get mild stagflation in places and some growth in others. I do not see deflation as lots of new money has been created and the world economy is growing in size as economies get more developed (think Africa/South Amercia/Middle East). This will add to the demand side of the equation.

The USA will inflate but not by too much. After all, a lot of USA money is invested abroad and the USA wants to carry on printing fiat money through the fed; feeding it into the financial system and buy up large parts of emerging economies. Destroying the value of the USD is counter-productive. However a strong USD policy also is wrong.]]> Wed, 11 Nov 2009 15:00:17 -0500
Japan will strengthen ties with India. However Japan and India are already very close. I think Japan will make it seems they are moving towards China, but this can only really occur economically. As the USA has treaty with Japan to protect them if they come under nuclear attack. Nuclear treaty like this does not come undone in less than 10 years. Also Japan knows full well that China's friends dont do very well out the relationship.

In terms of where the economy goes. I think we get mild stagflation in places and some growth in others. I do not see deflation as lots of new money has been created and the world economy is growing in size as economies get more developed (think Africa/South Amercia/Middle East). This will add to the demand side of the equation.

The USA will inflate but not by too much. After all, a lot of USA money is invested abroad and the USA wants to carry on printing fiat money through the fed; feeding it into the financial system and buy up large parts of emerging economies. Destroying the value of the USD is counter-productive. However a strong USD policy also is wrong.]]> http://seekingalpha.com/article/172764-taiwan-wrestling-with-the-flood-of-portfolio-capital-inflows?source=feed#comment-755738 755738
NICE WAY TO DEVELOP THE WORLD HOWEVER

I question whether there is a very smart man at the top of the FED with a very extreme masterplan to eradicate poverty..]]> Wed, 11 Nov 2009 14:47:03 -0500
NICE WAY TO DEVELOP THE WORLD HOWEVER

I question whether there is a very smart man at the top of the FED with a very extreme masterplan to eradicate poverty..]]> http://seekingalpha.com/article/172737-did-china-buy-too-much-copper?source=feed#comment-755734 755734
Basically purchased a lot of this inventory at below-value prices due to the financial crisis. By doing so gave everyone confidence they could be relied on to pull the world out of recession. The confidence boost making financial systems and businesses stronger and increasing business activity which increases their export volumes.

Not when prices are high, they will start shifting some of their inventory to London. a) London spot prices are far higher than Shanghai spot prices. b)sitting on nice profit. c) they will get some more fx reserves for their troubles.

China has lots of reserves for sure. What does this say though?
China has lots of everything.

Lots of people.
Lots of USD.
Lots of Gold.
Lots of factories.
Lots of stimuls projects.

People that think they can project China's commodity demand need to stop smoking dope. With the property boom that started 8 months ago and has at least 5-10 years to go, China will need a lot more copper in the years to come.

FACT]]> Wed, 11 Nov 2009 14:43:38 -0500
Basically purchased a lot of this inventory at below-value prices due to the financial crisis. By doing so gave everyone confidence they could be relied on to pull the world out of recession. The confidence boost making financial systems and businesses stronger and increasing business activity which increases their export volumes.

Not when prices are high, they will start shifting some of their inventory to London. a) London spot prices are far higher than Shanghai spot prices. b)sitting on nice profit. c) they will get some more fx reserves for their troubles.

China has lots of reserves for sure. What does this say though?
China has lots of everything.

Lots of people.
Lots of USD.
Lots of Gold.
Lots of factories.
Lots of stimuls projects.

People that think they can project China's commodity demand need to stop smoking dope. With the property boom that started 8 months ago and has at least 5-10 years to go, China will need a lot more copper in the years to come.

FACT]]> http://seekingalpha.com/article/172771-china-s-recovering-export-sector-less-than-meets-the-eye?source=feed#comment-755712 755712
From what I can see the property markets are now priced at fair value and as a result there are a lot of the lower middle class starting to have decent net worth. As this trend continues and the government carries on pushing its subsidised housing agenda. Disposable incomes will rise, especially if base wages can move up to a higher level.

Development of this size will have a very large effect on GDP.
The retail/domestic consumption infrastructure is there and ready. Habits need to change and disposable incomes need to rise.
We are seeing this on both fronts and there is no reason to believe it will not carry on happening.]]> Wed, 11 Nov 2009 14:26:04 -0500
From what I can see the property markets are now priced at fair value and as a result there are a lot of the lower middle class starting to have decent net worth. As this trend continues and the government carries on pushing its subsidised housing agenda. Disposable incomes will rise, especially if base wages can move up to a higher level.

Development of this size will have a very large effect on GDP.
The retail/domestic consumption infrastructure is there and ready. Habits need to change and disposable incomes need to rise.
We are seeing this on both fronts and there is no reason to believe it will not carry on happening.]]> http://seekingalpha.com/article/171754-there-s-no-bubble-in-china?source=feed#comment-747529 747529
I dont like corruption and the shafting of the ordinary man on the street either. But do try to keep my views on asset markets outside my political, social leanings.

The author however has some exceptional points in this article.
If the stats are true, then in effect bank lending in China is in line with standardised norms. I have argued for a very long time bubbles do not exist in the real estate market here in China. The markets are now priced at about fair value. For a long-term (5-10 years) now is still a good time to invest.

Also there is very little chance of a debt implosion at the banks because they are controlled by the government, have guarantees by the government. And the government is sitting on 2.3 trillion usd of reserves.

Further to this, all the QE that has been going on worldwide makes a banking system default in the next 10-15 years very unlilely. Unless of course we do actually get some real bubbles.

And by bubble I mean the property market going up 25%+ for 3-4 years. Based on the exit strategies that will come into fruitation in europe over the next 6 months, the US/UK/China over the next 12 months. I very much doubt that we will see extreme asset price spikes. If we do, no doubt conditions will be tightened. Not 3 continuos years of these price spikes being allowed.

So:-

Underweight - Gold
Overweight Property/Certain sectors in China/food
Neutral - US/Europe Equities/industrial metals.

I get the sense we are in for a boring 10 years in most areas.
The Boom Camp and The Doom Camp will all be proven to be wrong.]]> Fri, 06 Nov 2009 05:45:20 -0500
I dont like corruption and the shafting of the ordinary man on the street either. But do try to keep my views on asset markets outside my political, social leanings.

The author however has some exceptional points in this article.
If the stats are true, then in effect bank lending in China is in line with standardised norms. I have argued for a very long time bubbles do not exist in the real estate market here in China. The markets are now priced at about fair value. For a long-term (5-10 years) now is still a good time to invest.

Also there is very little chance of a debt implosion at the banks because they are controlled by the government, have guarantees by the government. And the government is sitting on 2.3 trillion usd of reserves.

Further to this, all the QE that has been going on worldwide makes a banking system default in the next 10-15 years very unlilely. Unless of course we do actually get some real bubbles.

And by bubble I mean the property market going up 25%+ for 3-4 years. Based on the exit strategies that will come into fruitation in europe over the next 6 months, the US/UK/China over the next 12 months. I very much doubt that we will see extreme asset price spikes. If we do, no doubt conditions will be tightened. Not 3 continuos years of these price spikes being allowed.

So:-

Underweight - Gold
Overweight Property/Certain sectors in China/food
Neutral - US/Europe Equities/industrial metals.

I get the sense we are in for a boring 10 years in most areas.
The Boom Camp and The Doom Camp will all be proven to be wrong.]]> http://seekingalpha.com/article/171051-u-s-in-worse-shape-than-japan-was?source=feed#comment-746551 746551
Due to the USA effective control on the monetary system and trading system through its ability to print the reserve currency. The USA can circumvent deflation without any trouble what so ever. They can create 15 trillion USD overnight and in the short term no one could do anything about it. China, Japan and Russia, OPEC countires are all holding so much treasury debt that in effect prisioners. They can not, will not dump USD in retailation because it would destroy their countries reserves. If they did, such a hostile move would prompt the FED and the US government to freeze these soverign countries holdings.

So unlike Japan the USA has unlimited short-term ammuntion. I am not discussing medium and long term consequences of creating 15 trillion USD. Merely giving an example that defaltion can be conquered very easily if need be. Of course creating such a huge amount of new money could cause stagflation if structural/trade balances persist. But this is not what Japan experienced and from where we stand now is the main threat facing the US.

The Japanese also had an export-led model going into their crisis, unlike the USA who have a consumption based economy. These two systems are so structurally different that it is impossible to say similar outcomes will emanate.

The Japanese were high savers, the US people spent too much.
Another huge difference. It is a lot easier to get people to spend less than to spend more.

The size of the US is different to Japan as well as natural resources. The US is the major military power, which in effect gives it the power to colonise countries in order to add net assets and net wealth to the US.

Further to this, Japan giant GNP before it collasped was compeltly and utterly fake due to the enourmous asset price bubble Japan went through. GNP was overstated around 30% due to the rediculous bubble, the USA property, asset bubble (as large as it was) really does not compare to what happend in Japan. Property in Japan feel 80% in some places. Real Estate Asset values were not even justified by sales/purchases. Just phantom fake asking prices.

The USA will face very difficult challenges:

Mainly Stagflation - the extent dependent on how it learns to protect its trade inbalances.]]> Thu, 05 Nov 2009 12:50:49 -0500
Due to the USA effective control on the monetary system and trading system through its ability to print the reserve currency. The USA can circumvent deflation without any trouble what so ever. They can create 15 trillion USD overnight and in the short term no one could do anything about it. China, Japan and Russia, OPEC countires are all holding so much treasury debt that in effect prisioners. They can not, will not dump USD in retailation because it would destroy their countries reserves. If they did, such a hostile move would prompt the FED and the US government to freeze these soverign countries holdings.

So unlike Japan the USA has unlimited short-term ammuntion. I am not discussing medium and long term consequences of creating 15 trillion USD. Merely giving an example that defaltion can be conquered very easily if need be. Of course creating such a huge amount of new money could cause stagflation if structural/trade balances persist. But this is not what Japan experienced and from where we stand now is the main threat facing the US.

The Japanese also had an export-led model going into their crisis, unlike the USA who have a consumption based economy. These two systems are so structurally different that it is impossible to say similar outcomes will emanate.

The Japanese were high savers, the US people spent too much.
Another huge difference. It is a lot easier to get people to spend less than to spend more.

The size of the US is different to Japan as well as natural resources. The US is the major military power, which in effect gives it the power to colonise countries in order to add net assets and net wealth to the US.

Further to this, Japan giant GNP before it collasped was compeltly and utterly fake due to the enourmous asset price bubble Japan went through. GNP was overstated around 30% due to the rediculous bubble, the USA property, asset bubble (as large as it was) really does not compare to what happend in Japan. Property in Japan feel 80% in some places. Real Estate Asset values were not even justified by sales/purchases. Just phantom fake asking prices.

The USA will face very difficult challenges:

Mainly Stagflation - the extent dependent on how it learns to protect its trade inbalances.]]> http://seekingalpha.com/article/171125-china-2010-is-clouded-in-uncertainty?source=feed#comment-744500 744500
Their aim is simple, keep growth growing so there is no possible chance of a double-dip recession. Whilst at the same time not risk future economic growth by allowing an acceleration of asset prices. The stock markets and property market are strong, but not strong enough to cause serious worries to policy makers. The overcapacity issue is more pressing however this is something the government feels it can manage by controlling SOE participation and tweaking policy.

Therefore there will be a very gradual move to re-balance the economy, get asset price inflation under control. But not to start exiting from fiscal/monetary stimulus. Infact the exit from these will only come when the government becomes:

a) confident the west will not cause risk to the economy through protectionsim. Until this happens domestic policies will always be ready to protect the chinese against what the see as agressive moves against them.

b) The world starts to recover and export increase, which in turn stimulates employment and decreases social risk.

The fiscal stimuls is in effect a permanent policy and will last until 2012. Monetary stimulus will be fine tweaked based on developments.

The only possible way that Chian will begin to tighten monetary policy outside of the factors above is if hot money flows start to de-stabilise the system by re-inflating assets to undesirable levels. If this occurs I am sure China will try and use more unconventional tools to control it. The first being capital controls, the second being more arcane protectionsim against forign money being used in China.

The chinese do not inact such huge stimuls programs with the view of having them run 1 years. The time horizion planned would have been around 3 years (until Hu Jinato steps down). So do not expect large moves. In fact if we start to see large policy changes it will either be because the world economy recovers or because there is a hot-money issue at hand.

**Probably a good time to invest here still**]]> Wed, 04 Nov 2009 12:17:19 -0500
Their aim is simple, keep growth growing so there is no possible chance of a double-dip recession. Whilst at the same time not risk future economic growth by allowing an acceleration of asset prices. The stock markets and property market are strong, but not strong enough to cause serious worries to policy makers. The overcapacity issue is more pressing however this is something the government feels it can manage by controlling SOE participation and tweaking policy.

Therefore there will be a very gradual move to re-balance the economy, get asset price inflation under control. But not to start exiting from fiscal/monetary stimulus. Infact the exit from these will only come when the government becomes:

a) confident the west will not cause risk to the economy through protectionsim. Until this happens domestic policies will always be ready to protect the chinese against what the see as agressive moves against them.

b) The world starts to recover and export increase, which in turn stimulates employment and decreases social risk.

The fiscal stimuls is in effect a permanent policy and will last until 2012. Monetary stimulus will be fine tweaked based on developments.

The only possible way that Chian will begin to tighten monetary policy outside of the factors above is if hot money flows start to de-stabilise the system by re-inflating assets to undesirable levels. If this occurs I am sure China will try and use more unconventional tools to control it. The first being capital controls, the second being more arcane protectionsim against forign money being used in China.

The chinese do not inact such huge stimuls programs with the view of having them run 1 years. The time horizion planned would have been around 3 years (until Hu Jinato steps down). So do not expect large moves. In fact if we start to see large policy changes it will either be because the world economy recovers or because there is a hot-money issue at hand.

**Probably a good time to invest here still**]]> http://seekingalpha.com/article/170625-wsj-most-jobs-for-chinese-wind-farm-in-texas-to-go-to-china?source=feed#comment-741699 741699
Of course the only way the US is going to be able to enter win-win is if it strengthens its negotiating position.]]> Tue, 03 Nov 2009 00:34:36 -0500
Of course the only way the US is going to be able to enter win-win is if it strengthens its negotiating position.]]> http://seekingalpha.com/article/170516-the-risk-in-relying-on-the-chinese-consumer?source=feed#comment-740630 740630 Mon, 02 Nov 2009 12:46:19 -0500 http://seekingalpha.com/article/170431-china-in-a-bubble?source=feed#comment-739987 739987
In reference to his comments on urban growth and population trends in relation to house buidling activity I would like to bring everyones attention to the fact he did not substantite his calculations. His conclusion was that enough property capacity could be built in a few years to house every chinese person. Having read the entire reserach report, I would like to once again state he did not substantitae this. It can not be substantiated, as in 10 years China;s population will be larger than it is now. And it will take an awful lot of building to house China's population if the government wishes to improve living conditions.

Having been involved in the property market in Shanghai, i would like to make it very clear that higher middle class chinese can afford to buy property in good areas of Shanghai and do so with 50% LTV mortgages. Of course the rich have built up a lot of speculative inventory but this is perfectly normal. One needs to be clear that private ownership is relatively new, so there will be extreme price inflation at the start of the private property reform. especially based on the fact China has gone from 'sick man of Asia' to the worlds creditor. Make no mistake property prices in Shanghai and Beijing are in line with China's financial and political power. Shanghai is still a lot cheaper than Mumbai, Hong Kong, Singapore, New York, London, Paris etc etc. Stating that wages are low and justifies that property prices are overvalued is incorrect. China will shortly have second biggest economy on GDP basis, the government holds 2.3 trillion USD of reserves and the Chinese people are sitting on 2 trillion USD of personal savings. This amount of wealth has to be somewhere. The bottom line is the middle class and upper class have amassed a fortune during the last 30 years. Property prices are where they should be. And will grow at around 10% per year on average for the next 10 years.

Those that are on low wages in the rural areas already have been prescribed land that they can build their homes on. They are not homeless, they have their own homes (without the right to sell). Those that are city-dwellers on low wages can not afford to buy property and as a result are an underclass but this does not fuel the arguement of a property bubble. It fuels the arguement that there is serious and very disturbing social inequality and as a result the risk of sever social unrest. The government is above scared of such social risk and as a result is building low cost homes. In effect subsidising property for low wage people. They are only doing this to reduce risk of social problems, but be clear this is happening.

As infrastructure is improved more property will be built in suburbs. This will have the effect of releasing more property to the public at lower prices. Anyone familar with Shanghai will know this has already happend in areas such as Nanhui.

So as we stand, forgot about a property bubble bust. There is no bubble in the property market or the stock market. There IS a credit loan bubble, which if it bursts could hamper the functioning of the banking system and cause property to fall. But with savings on local and government level and the banking system being an organ of the Chinese government. The loan situation would have to be very serious. The Chinese government could pump 500 billion into the banking system quite easily. (it would cause the Yuan to rise in value however).

If property goes up in value past the 10% per annum increase, then it could be said that property prices are being removed from fundamental reality. But as they stand are about fair value.]]> Mon, 02 Nov 2009 07:55:18 -0500
In reference to his comments on urban growth and population trends in relation to house buidling activity I would like to bring everyones attention to the fact he did not substantite his calculations. His conclusion was that enough property capacity could be built in a few years to house every chinese person. Having read the entire reserach report, I would like to once again state he did not substantitae this. It can not be substantiated, as in 10 years China;s population will be larger than it is now. And it will take an awful lot of building to house China's population if the government wishes to improve living conditions.

Having been involved in the property market in Shanghai, i would like to make it very clear that higher middle class chinese can afford to buy property in good areas of Shanghai and do so with 50% LTV mortgages. Of course the rich have built up a lot of speculative inventory but this is perfectly normal. One needs to be clear that private ownership is relatively new, so there will be extreme price inflation at the start of the private property reform. especially based on the fact China has gone from 'sick man of Asia' to the worlds creditor. Make no mistake property prices in Shanghai and Beijing are in line with China's financial and political power. Shanghai is still a lot cheaper than Mumbai, Hong Kong, Singapore, New York, London, Paris etc etc. Stating that wages are low and justifies that property prices are overvalued is incorrect. China will shortly have second biggest economy on GDP basis, the government holds 2.3 trillion USD of reserves and the Chinese people are sitting on 2 trillion USD of personal savings. This amount of wealth has to be somewhere. The bottom line is the middle class and upper class have amassed a fortune during the last 30 years. Property prices are where they should be. And will grow at around 10% per year on average for the next 10 years.

Those that are on low wages in the rural areas already have been prescribed land that they can build their homes on. They are not homeless, they have their own homes (without the right to sell). Those that are city-dwellers on low wages can not afford to buy property and as a result are an underclass but this does not fuel the arguement of a property bubble. It fuels the arguement that there is serious and very disturbing social inequality and as a result the risk of sever social unrest. The government is above scared of such social risk and as a result is building low cost homes. In effect subsidising property for low wage people. They are only doing this to reduce risk of social problems, but be clear this is happening.

As infrastructure is improved more property will be built in suburbs. This will have the effect of releasing more property to the public at lower prices. Anyone familar with Shanghai will know this has already happend in areas such as Nanhui.

So as we stand, forgot about a property bubble bust. There is no bubble in the property market or the stock market. There IS a credit loan bubble, which if it bursts could hamper the functioning of the banking system and cause property to fall. But with savings on local and government level and the banking system being an organ of the Chinese government. The loan situation would have to be very serious. The Chinese government could pump 500 billion into the banking system quite easily. (it would cause the Yuan to rise in value however).

If property goes up in value past the 10% per annum increase, then it could be said that property prices are being removed from fundamental reality. But as they stand are about fair value.]]>