Noah's ark

China is experiencing a "V" shaped recovery, central bank advisor Fan Gang says: "After the economy is back to normal in 2010, the government will adjust the macro-economic policy. But before that happens, the current stimulus policy should stay to sustain the recovery."

Fan Gang can't seriously be treated as an independent economist due to his intimate involvement with the Chinese government's economic policy making, as well as the Chinese central bank. It is a given that he would speak along the party line.

Another Confirmation of China's Not-So-Miracle Growth

Relax, and show some numbers to back up your claims.


On Sep 02 01:47 PM Tony Daltorio wrote:

> Another one from one of the "professional" China haters on Seeking
> Alpha.
>
> Much of the drop in the electricity number you quote for China is
> due to increased energy efficiency in China. China's industries were
> notoriously energy inefficient and that is slowly improving.
>
> Maybe the US should go down the same path toward increased energy
> efficiency too?
>
> Maybe next time the author should dig a little deeper into the "facts".

Xie: Chinese Stocks Are a Ponzi Scheme

Thanks, doubleshortetf! good resource and analysis!

I was about to post something then find out you have just published a new comment which makes my piece a little redundant. I will put it here anyway as complement, so here we go:
______________________...
The short clip really doesn't do the justice. I have been closely following Andy Xie's publications, as well as other independent economists in China.

China's stock market is much different from that of all the major markets in the world. One cannot simply assume that the Chinese stock market is much like the US stock market. They are not made equal. We have our shares of problems here in the US, but that is another discussion.

Here are some facts:

1. Stock markets in China are run by the government;

2. There are very limited investment tools to use for an average person in China: Stocks or real estates;

3. It is very difficult to enlist a company in China in the public market. There is a long waiting list, high cost, complicated rules, and you have to know how to bribe to get in;

4. Innovations are not encouraged in China. Small businesses are constantly harassed by the government and taxation authorities, and whatever agencies you can think of. Again, if you don't bribe, you lose; if you do, not only your intangible cost would be much higher, you are risking being taken out eventually, if you don't have some higher up figures to back you up. It is a lose-lose situation. An average person with little money is very discouraged from starting small businesses. So the logically thing and easy thing to do is to invest in the stock market;

5. The majority of the public companies cook their books, just like the government does. So don’t ever trust what they publish;

6. The majority of the stimulus funding has gone to the State Owned Enterprises (SOE), not the small businesses;

7. It is estimated that at least one quarter of that funding has gone to (leaked to) the stock market, and the real estate market. Already over capacity, many companies hesitate to invest more in their business so they turned to the stock market, or even real estates. One needs to understand that in China there are two things that they don’t consider as assets for borrowing purposes: IP and equipment. Land and real estates properties are, which is much different from the US;

8. The SOEs use the stock market to repeatedly raise funds, of course with the government's consent. For example, the recent phenomena of commercial land auction yielding record prices in and around some of the major Chinese cities, is a result of those State-owned real estate companies using stock market to raise huge amount of money to buy land. With the land in inventory they can make their book look very attractive so they can go to the market to raise more - now a widely known fact in China;

9. Keep in mind the government is the seller of the land. The more expensive the land, the more income it will receive. Same story with the residential and commercial property development: The government sets the land price, tax rate, lending rate, etc.. Of course all the money is originally from the stock market, from the working class people;

10. There are two giant check books in the hands of the Chinese government: the land, which is the main income source of the local government, and the stock market, where most of the government run funds and SOEs get their money. With the pump and dump scheme (which is much more effective in China since everything is controlled by the same government), they can always successfully rip the hard earned money legally from the average Wang's and Li's;

11. This cycle has been going on for a long time. It is very clear who are the winners and losers. In the process, a strange way of wealth redistribution took place. The government and the officials who are directly or indirectly involved in the process benefited tremendously. It is estimated that about 15-25% of all the money traveling through the government trail are in the pockets of those very few officials. Do you know what the best job is in China? A government job! As far as the potential for making it rich once you are in: the sky is the limit!

If this is not a Ponzi scheme, what is?!


On Aug 31 06:33 PM doubleshortetf wrote:

> Good primer on Chinese stock market from an insider:
>
> www.theepochtimes.com/...
>
>
> Here is cut and paste of "The Truth about China’s Stock Market".
> Best part is the last paragraph which state that 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.<br/>
>
> 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.

What China Can Buy for $2 Trillion

I believe some of that money will be used to save the banks down the road. It has been observed that much of the loans made by the banks in the past few months may have been misused or abused. I anticipate some major default hits when those loans mature. Typically the Chinese bank loans need to be renewed in one year. So we should start to see the effect by the end of this year.

Fed Up with the Fed

If you had read the book "the Creature form Jekyll Island" you might draw a different conclusion.


On Jun 19 11:02 AM Longinvestor wrote:

> The Federal Reserve is the central bank of the United States. Its
> unique structure includes
>
> * a federal government agency, the Board of Governors, in Washington,
> D.C., and
> * 12 regional Reserve Banks.
> See: federalreserveonline.org/
>
> "The seven members of the Board of Governors are appointed by the
> President and confirmed by the Senate to serve 14-year terms of office.
> Members may serve only one full term, but a member who has been appointed
> to complete an unexpired term may be reappointed to a full term.
> The President designates, and the Senate confirms, two members of
> the Board to be Chairman and Vice Chairman, for four-year terms."
>
>
> "On December 23, 1913, the Federal Reserve System, which serves as
> the nation's central bank, was created by an act of Congress. The
> System consists of a seven member Board of Governors with headquarters
> in Washington, D.C., and twelve Reserve Banks located in major cities
> throughout the United States."

China Continues to Funnel U.S. Dollars into Commodity Investments

22% of the agricultural population reside in the two regions I mentioned (North and NW). If you consider four other provinces included in the Greater West Development Program the number would go up to 41%.

There have been two major national development programs going on in China (not including any stimulus projects): the Greater West Development Program and the The North East Revival Plan. Because these two regions have been pretty much left behind. Most of the poor people live within those regions.

Your logic of "Not arable = No agriculture = no farmers" does not apply to Asia.

Do your home work.

On Jun 14 11:11 AM coreopsis wrote:

> Readers of SA: I don't think this is a real post at all. Please
> note that this is the first time post of this 'individual'.
>
> From the very beginning, he seeks to cast aspersions of those of
> us who are active in China.
>
> Yet the suspicion begins right at the start: he cites the farmers
> of the 'North or Northwest'. Just where would these farms be? Inner
> Mongolia (north), Xinjiang, Gansu, Qinghai, Shaanxi (northwest) are
> largely Gobi desert. Google agricultural map China and you'll see
> this land is not arable. These areas are, in fact, used for wind,
> solar, energy conversion (methane) and other resource-related projects
> that supply the eastern cities.
>
> The guy is probably SoberRealist under another name (the arguments
> are very similar) or other right-wind polemicist, maybe CIA or ex-CIA.
>

China Continues to Funnel U.S. Dollars into Commodity Investments

I feel compelled to say a few words, since from what I know, many in this forum don’t seem to have a clue of what is really going on in China.

Glen, I suggest that you go to China and live with an average family for at least 6 months to learn the truth, or if you are interested in how the poor farmers are suffering go to the North or Northwest of China and visit a farmer's family. If you are really sincere I can hook you up with a family who lost their beloved ones in the Tiananmen Square massacre. One of my friends who were not a “baby student” but a factory worker at the time had a bullet hole on his leg. A spectrum of people ranging from government officials to news anchors to workers to students were thrown in jail, and many lost their life in that horrific event. If you study the modern Chinese history you will know that all major political evens have had the support of the industrial labor force. The reason the Chinese government went that far as to kill its own people in the thousands, is because they were sensing some major danger to dethrone their regime. Quoting one article to smear the fact and blame the US propaganda for misleading the people is rather naive and irresponsible to say the least. Hongwei might be a little harsh but only people who really understand what was and is going on can react like that.

"China" is a very popular word nowadays especially when discussing the economy and the current recession. Who do you believe when it comes to the numbers? The numbers from the US government, the Fed, or the numbers from the Chinese government? Let's say be careful with both. Many commentators sound they truly know what is going on in China. Let me entertain you with some info/numbers that you will not likely to see here in the US. Much has been said about the impressive progresses made in China, so I won’t waste my time here. The following may sounds negative but it really is just meant for giving a more realistic view of China. They are not in any particular order. I will try to be as subjective as possible, and let you be the judge of China’s reality. It should give you a sense of magnitude, if you don’t quite agree with the numbers being quoted:

1. The two major reforms embarked by the government have both failed by the government's own admission: the education reform and health care reform. The percentage of university students from the rural area (mostly the country side) has dropped more than 50% in the last 30 years, due to inability to pay for the tuitions. Is not uncommon to read the news of people with severe injuries or diseases die in front of a hospital because the hospital pushed the patient out when they found out the patient had no money to pay for the emergency visit. These two areas happen to be among the most corrupted professions in China. If you don't know how to bribe, the chances are you may not get into the best universities even if you qualified, or get the best medical treatment. The moment you run out of money in the hospital, even if you may die, all treatment would stop until you wire in more money, or you simply have to leave;

2. The theme for the government 's current 5-year plan cycle is to promote stability. The reason is because the majority of the population has really been left behind in this accumulation of wealth. There is a very popular saying in China: "the richer the country, the poorer the people." so there is a need to distribute some of the money to the poor to ensure the social stability;

3. A news clip from a couple of weeks ago: More than a 100M tons of iron ore were stock piled in China in recent months. They even discovered a shipment in Tianjin harbor apparently without a buyer! It turns out that that particular shipment was from Australia, because the transportation cost is very low so why not just put the inventory in a cheaper location – China. The Chinese government thus had to warn the industry to stop such a chaotic activity because the domestic demand actually has been dropping!

The China demand theory is flying all over the place because there is such a need for those who pump the market, not necessarily a fact;

4. The money from the government to any project typically will go through a few layers and get 5-25% thinner, depending on the size of the project. Billions of dollars actually went into the pocket of very few. That money will eventually leave China and go somewhere else (US or Canada). I remember a few years ago when I was telling a friend how much money can an athlete make in the US, he laughed at me and said “Michael Jordan’s wealth is nothing. There are so many Chinese hiding in the US with dirty money, who are many times richer than him”! The total amount of money funneled out of China by corrupted government and bank officials exceeds 500B USD while millions of Chinese people are struggling to feed their children;

5. By the government’s own admission, there are 6 million prostitutes in China (Per quote from WHO). The real number far exceeds that. It is estimated that it is a 100B - 150B USD industry if you include other services (hotels, restaurants, bars, etc, that are benefiting from it). Guess who is really behind all this and who is making the big bucks? 10 out of 10 have police backing or they would never survive and prosper. Now you should understand why it is not stopping: It is an income for the government and job opportunities!

6. The official non-farm unemployment rate published in Jan. 2009 is 4.2%. If you do some math yourself based on indirect official numbers you will get a far more different picture:

a. New unemployment: official number: in 2008 in Southern China there were more than 670 thousand factories closed their doors and more than 6.7M workers lost their jobs. Unofficial number: more than 1m factories closed and more than 20m lost their jobs.
b. New to the market: more than 10.3m new graduates with bachelor or master degrees are in the market, plus at least 6m-7m high school graduates, so the total is at least 16m-17m looking for jobs.
c. The total for people in the job market: 36-37m;
d. There are two versions of so called official numbers in China when it comes to the unemployment rate: one version is THE official one with 2008 number as 32m out of the 0.8b who can work. The other version is from the Chinese Academy of Science: 76.8m out of 0.8b, which accounts for about 9.4% unemployment rate, a more believable number in reality. All in all, we would have a total of 0.13b people unemployed, and this is being conservative! The unemployment number in China being mentioned for the rural area is as high as 34.7%!
e. The salary drop per survey in Southern China is about 10%, and many companies eliminated overtime pay and bonus.

The bottom line: if you really want to have something to say about China, do your homework first.

Enough about the Chinese politics. China has made much progress. That is a fact. But if you think everyone is better off nowadays in China, or socialism is better off, you are wrong. Talk to a high school graduate with top score in the national entrance exam who had to settle for the rest of his life working the hard labor to support his family and forget his dreams. I can assure you that it is not hard to find one at all. A significant percentage of the population actually has suffered, because they can no longer afford the medical and education cost.

It doesn’t mean I am a fan of the current US economic policy myself either. I am becoming a believer of the conspiracy theory. All of sudden, all the market manipulation seemed so apparent, right in your face. The government, the banks and the Fed are choreographing a temp fix， in the name of the people. They are so desperate this time that they don’t even bother doing it with a little more subtlety, a testimony of the word “brings the worst out of them”. Look at the timely upgrade, news leak, who got bailed out who got closed, the GM case, and predictable unemployment number adjustment. We are in deep s**t in the long run. All we can do is be alert and protect ourselves. Don’t fall for the pump and dump scheme. Don’t listen to the CNBC bull-s**t. Do your own homework.

We need to attract investment into the US with preferable tax treaty, and create more jobs for the millions of Americans who are in dire need, but not more government jobs. I do believe China did a much better job in attracting foreign investment in the past three decades. Our current system does not encourage investment and innovation. We keep losing our manufacturing base, our technologies to Asia, mostly China. We will pay heavily because of this mistake.

I very much agree with Mr. Moon Kil Woong’s analysis. He still has the coolest head.

You may wonder what makes me qualified to discuss anything about China? I spend 30-40% of my time in China nowadays. I have been to the most developed cities and the most underdeveloped villages. I do have tons of stories to tell, but I digress.