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  • Debating Growth In China  [View article]
    I would also like to give my opinion on the arguement that china's internal market is huge and we have yet to see it fully maturing. I would have to say I disagree, if there is something I have learnt about the chinese culture is that they have very strong fixed minds towards their behaviour patterns. A lot of chinese people had 4 properties double/treble in value - yet they did not change there consumption patterns. Net worth will never jump by this amount again, so to say as the chinese become more affluent they will buy more is simply not true.

    If anything as GDP grows, it will mean that the Chinese consume more oversees and hence create further outflow of money. I am sure the top 1% will carry on buying luxury goods - however that does not help consumption overall.

    China has a very large social security problem, large pending health epidemic and some pretty serious food, natural resource and clean water supply chain issues. It is my bet that the next government will be busy trying to resolve this rather than making huge sums of money on economic growth. The golden dragon opportunities are truly over...
    Jun 23, 2012. 05:11 PM | Likes Like |Link to Comment
  • Debating Growth In China  [View article]
    China has not been growing in real terms for a few years now.
    Growth has not exceeded inflation and hence china has been stuck in a stagflation for a while now..
    To say China will grow for the next 20-25 years is fundamentally flawed. China has a very inefficient economic structure that is only kept solvent by low wages, large population and strong work ethic of chinese people and the ability to hide problems in the banking sector with the huge accumulation of chinese savings built up because a lot of the older chinese people have been so traumatised during the past 50 years they save everything and spend nothing.

    Let me tell you that right now China has slowed considerably and there is a severe excess of consumer goods leading to price deflation among many goods. In the 7 years I have been in China i have never seen china slow down as much as it has. Far more than the slowdown during the financial crisis.

    Inflation is starting to fall, yet still social tension is on the rise. And there has been a definite expansion of xenophobia. This is all indicative of displacement of social agression because the people are not happy and the main reason for this is that money is harder to make and people are very jealous of the rich. Chinese people have all been told they can be rich one day and generally are a culture that is not jealous of the rich - in fact chinese people look up to the rich and powerful in the past. THAT HAS CHANGED. And this dynamic is very worrying.

    The government is fully aware of the serious serious problems they have. This is why they have already implemented loosening loans to developers, blocking foreign work visa applications where they can and are running as fast as they can to open up the financial markets to foreigners to stop the stock market collapsing.

    They have also devised a masterplan that i feel will shape Chinese economic growth for the next few years - their plan is to expand car ownership to as much of the population as they can through multiple incentives and maybe even non secured finance vehicles. The chinese will only borrow money to buy big ticket items like property/cars. The plan obviously will create downstream economic growth in many industries and create a need for increased roads and other infrastructure. I feel this will take the pressure off China for a few years and keep things from collapsing, however europe and the USA will not be buying anywhere near the amount of Chinese goods they have in the past - so 8% economic growth will only be obtained through lying of statistics, So far economic growth is around 8%. The government has gone into overdrive about lying about how bad things are. Which of course is a smart and sensible thing to do as they can sell out of their assets and move the money abroad at the inflated RMB value.

    So those that are bullish on China i suggest you think again.
    I am sure in the next 10 years China will reduce the gap (not close it) with the USA in terms of GDP merely as function of their huge population. But this will not come easy and China will not be able to escape the middle income trap.

    The next government will liberalise the financial sector and wages will increase faster than consume price inflation and investment/exports will decrease as a share of GDP. However this will not in anyway be up to the expectations of the China bulls.

    The money in china has already been made, there is still some on the table. BUT NOT A LOT...
    Jun 23, 2012. 05:02 PM | Likes Like |Link to Comment
  • China Real Estate Unravels  [View article]
    the way to short it is to buy put options in hong kong on mainland real estate developers. we are discussing economic risk, but actually the main issue is political/social/geopo... risk right now with China.

    This will dictate the scenario that will unfold in China's property market. They have managed a soft landing, but the manufacturing sector is so weak right now that unemployment is rising. And this is causing a huge amount of SME damage creating a rising NPL's in the shadow banking system. like the rest of the world, China is waking up to a hangover because of the hyper growth in lending.

    So there is measured weakness coming through, if external situation in China's main customers does not improve - China's revenue generator will be screwed and the banking system will come under pressure. China will then have to cut interest rates to stave off deflation.

    Of course if the political situation worsens (and make no mistake its very bad) - then many interconnected systems will unravel and social issues with grow - this will cause a flood of money out of China and China's aspirations to be number one will be destroyed. This will stop FDI improving and give China's trading partners to pay China back for being so accommodative and fair when they were in need. (im being sarcastic).

    If things stabilise here politically, socially, externally. Then the inventory wil be worked off over the next 3 years. But this will not like MH001 states create price increase as even if inventory is reduced it will be filled by the second hand market as the chinese who bought as 5 year investments (no tax investment strategy) will start to unload creating secondhand supply to the market (pseudo new as the units have never been lived in)

    There will not be huge pent up demand unless new areas of the economy are created (as those in the current economic structure that can afford to buy homes have already done so).

    I have been commenting on the chinese property market since 2004. I was hugely bullish 2004-2010. 2010 turned neutral. 2011 I was neutral-bullish. Now I dont see property being a good investment in China in most places for at least 5 years.
    Maybe 10 years...

    whether it crashes has nothing to do with economic policy but rather politcial/social realities. but be clear it could drop 20-30% if things get out of hand and this is possible. Even if it does one thing is for sure, china's growth will stagnate for at least 5 years at the very best. and socially chinas situation will get worse and worse. standard of living will drop and the people will not be as happy as the japanese were because what has been built frankly stinks and has made living standards worse. the japs have high debt, but also have decent salaries, efficient infrastructure, happy society, high standard of living (dont be fooled by the small apartments, living in japan is very comfortable) - china does not have this.

    All in all China developed badly. i have sat and watched the process first hand. I am not impressed. the people have not developed spiritually which is meant to happen as standard of living moves people away for the need to use their animal instincts. this bodes for a poor standard of society.

    for those coming to china to make money - i say good luck.
    the golden dragon opportunities are gone.
    Jun 2, 2012. 02:27 PM | 1 Like Like |Link to Comment
  • The Japan Debt Disaster And China's (Non)Rebalancing  [View article]
    This is of course why some are worried we are headed to war.
    The governments are preparing for war through that military departments and the central banks are trying to avert war by printing money.

    bascially if the beijing faction were still in power in 2013 there would be a huge world war. but because the shanghai faction is coming back into power (think jiang zemin, zhao xiaochuan, zhu rongji et al) the central bank and cbrc will take over power from SAFE and the beijing right wong of the party. this means a few things -

    RMB will be floated - thereby creating a extra 3 trillion usd in the world financial markets.

    A new explosion in lending through new leverage into the chinese financial system.

    Property and stock market revaluation - thereby increasing collateral in the chinese banking system. marking the system solvent again.

    point here everyone is looking for rebalancing - when the key is how much money everyone can print. if every country in the world devalues their currency by 20% by creating a bigger float of electronic money. then world gdp raises by 20% at the expense of the poor and lower middle class. my view in the next 6-7 years - total world money supply will increase by 50% (aka inflation of 50%). This will bring debt levels under control and make the system solvent. 50% inflation over 5 years is not hyper inflation. but it will drive the poor more into the ground.

    while everyone argues we have a debt crisis, balance of payment issue blah blah blah - the real issue is the lower and lower middle class in every country in the world is being pushed more into the ground. human civilisation is going backwards not forwards - this is the real problem.

    mass socialisation of economic inbalances.

    my advice is imple - make sure your not in the lower tiers of society or your in deep trouble. you will not have any rights and life will be tough and miserable. this of course is what economic repression/depression means.

    the only thing that will fix this issue is mass innovation.
    but if this is privatised - then the poor will not have access to it anyway.
    Apr 21, 2012. 07:40 AM | 1 Like Like |Link to Comment
  • The Japan Debt Disaster And China's (Non)Rebalancing  [View article]
    i think this is why we are headed to war
    Apr 21, 2012. 07:29 AM | Likes Like |Link to Comment
  • Are The U.S. And Europe Headed Down Japan's Road?  [View article]
    The position that europe finds itself in is very different to any financial crisis in history. the reason is they have a fragmented system that has no centralised power structure. to argue that the USA empire is dead is a discussion to have 5 years in the future. the point is europe union and its associated imperial framework is over. i am sure the fed, central banks and transnational institutions will take the edge of this sharp knife of crisis. but what will remain is a union that is dysfunctional, unconnected, unfriendly and saddled in debt that will lead to stagflation of their economy. any imbalance in an economy that leads or is exposed through a financial crisis has a long standing painful fate.whatever the source of the crisis (be it as a result of an investment or consumption debt binge). essentially private, corporate and sovereign balance sheets are impaired as debt/solvency is moved around the system. each party tries to push the liability onto the other party.

    europe's fall will impair the usa in that its operations/investments... will flow to the usa. this will create a soft enviroment for the usa which is already trying to clean up its housing market mess and unemployment issue. the usa cleaned up its banking sector by pushing the adjustment on the lower class, squeezing the middle class. and putting a stealth tax on energy/commodities/food on every citizen of the world via its quantitaive easing programs. at this point they hoped to ease unemployment by exporting their way out of trouble and creating loose enough financial conditions to push the property market up and creating a cycle of growth. now europe has put that plan on hold, so the usa will move back into stagnation until some pretty aggressive action is taken. at this point the usa will move back into growth, probably 3-4 years down the line

    the net conclusion is europe is in for another decade of stagnant growth which will take down the mighty germany. germany will learn that mercantilism followed by predatory moves to secure loans it gives with debtor countries assets can backfire. germany's quiet imperial moves will be quashed by this crisis. exporting to asia will soften the blow, but will not in anyway make up for lost demand from europe where manufacturing output exported to other eu countries is conducted on german soil. remember exports to asia are conducted on asian soil so the host country also profits from the production process and added value.

    the usa will have to sit through another number of years of stagnation, but this will pave the way for brighter future for the usa albeit with a smaller monopoly on financial power when the time comes.

    china's investment has been excessive, however due to the socialisation of the investment costs - if china can raise wages fast enough to stimulate domestic consumption. then a great deal of this investment over time may become profitable. with such a huge population and the ability to create a reinforcing positive link of passing money on for services/domestic consumption - these appartments/high speed railways/offices/shops can be used. japan had a far smaller population and the ratio of infrastructure/investment spending per capita was a lot larger than chinas infrastructure/investment spending per capita. the truth is china has so many people and large enough financial resources that it can afford excessive investment. the act of forced urbanisation i am sure will fill a lot of the property once wages are raised.

    I do see china going through a few bumps along the way, the development of the consumer sector i think will be smooth. but when the capital account is liberalised/yuan freely tradeable and interest rates are liberalised i think the shanghai political faction are going to create excessive volatility as they try to enrich themselves and monopolise benefits through development of the financial sector. i feel that this will create a number of asset bubbles in property and stock markets 3-5 years down the line as the enitre system will leverage itself up. which will usher in a a few years of extreme prosperity followed by a pretty harsh landing similar to what the usa had in 2006. economists will not call the hard landing, having been proven wrong by the next 4-6 years of chinese growth and prosperity that lies ahead.

    the hard landing i see in china in 4-6 years, will push europe head back under the water and also push the usa back into a recession. which will pave the way for the usa to rise once again through a further relaxation of monetary policy. it is at this point the tables will turn on the east and the luck cycle will move back to the usa.

    us humans believe the systems we create dictate our fate, we fail to realise that natures systems actually dictate our fate. we try to find explanations for financial crisis' from actions we have taken, but fail to realise nature is far bigger than we are. and it is nature that blows our straw houses down.
    Sep 20, 2011. 12:50 PM | Likes Like |Link to Comment
  • Why China's Property Bulge Is Nothing Like the U.S. Mortgage Implosion  [View article]
    So 537736 - it has now been one year since your post -

    Has you real estate bubble theory based on a ponzi scheme come true. infact do you even understand what a ponzi scheme is.
    tell me how borrowing money when true interest rates are negative and inflation is high and purchasing physical real estate is a ponzi scheme.

    i will call back in one year and we can get an unpdate on your stupid posts. in the meantime i am going to purchase a property in shanghai if we get a meaningful dip.
    Aug 17, 2011. 09:38 AM | Likes Like |Link to Comment
  • China: Incentives and Debt  [View article]
    The question is can the debt expansion and underlying value destruction and mis-allocation of investment (driven by corruption as well as bad investments) be neutarlised by innovation, increase in productivitiy and socialisation of this wastage and misallocation.

    In China the underclass of at least 500 million people have in real terms seen their living conditions/standards drop compared to where they were in 1990. Their rivers are polluted, their land has been taken, their food quality is lower quality and more expensive. Their education level has not risen in rleation to the growth of the country and their power as citizens and their human rights have dropped. Essentially their families two or three generations into the future have been affected, they will always remain an underclass.

    This underclass use to be part of the collective class that contained 98% of chinese citizens before the industrial revolution. The industrial revolution essentially reduced their living standard and push them down to the underclass.

    This is a function of allocation of wealth, benefits, living standards through the human ecosystem. Essentially the connected, rich, educated have redistributed wealth from the poor, weak and uneducated on such a mass scale that China has been able to develop (alebit very badly) in 30 years what took Europe and America 100 years. This misallocation of living standards/happiness through the human ecosystem in China is the reason why economists continually can not guage how come China is able to continue its ascent without the normal peaks and troughs of the business cycle and investment cycle.

    The point is the landing of each of the cycle is being socialised within their huge population. The poor and weak are essentially paying for all these wasteful projects.

    As we enter a supercycle of increases in the price of food and oil, the speed at which China can socialise the mis-allocation of investment and bad lending drops. Inflation is making it unbearable for normal people to pay high price for food while their wages are 100% lower than they should be. Inflation is making it impossible for savers to finance their lives with negative interest rates.

    This puts China in the positon that they have to innovate massively and increase the adding of value in theiur manufacturing. Especially as exports to the rest of the world have a very hard chance of increasing while the global economy is weak.

    Or manage to create a more consumption orientated based economy, which can only be created by a sharp sharp drop in investment and a sharp increase in wages.

    This is a very hard process, because increase in wages will make all apparent the wasted investment over the past few years and create a problem in the manufacturing sector that is reliant on underpriced labour. Bringing interest rates to the level of inflation will kill off even good investment projects and make debt servicing practically impossible for a lot of SOE who are financed on floating rate basis.

    The banks are essentially bankcrupt because they are sitting on a ta least 1-1.5 trillion USD of bad loans. They can not expand lending to increase asset values to correct their balance sheet problems. Also the big soverign funds and banks are selling stock in the chinese banks as well, so only the central government and other government organs can bail them out.

    This leaves the option of devaluing of the RMB and put a stop to increase of wgaes in order to increase cashflow into the system from export orders , in order to keep the bank ponzi scheme going. This could be politically very sensitive.
    And create further inflation, further polarisation of wealth, further social strife.

    China has already began its landing process, if its a soft landing economically. Then you can be sure it will be a hard landing socially. They say that long cycles usually average 60 years, China's revolution lasted 62 years. But the cycle has ended, the go-go days of China's huge economic rise have ended. Now comes the retracement.
    Jul 8, 2011. 01:32 AM | 4 Likes Like |Link to Comment
  • How China's Yuan Has Appreciated: A Scorecard  [View article]
    Migrant workers and the lower class in China are now so upset with income equality that China has met their Lewis turning point. Where wages rise faster than productivity and where workers will no longer work for such small amounts of money. On a real term basis, chinese wages for the unskilled have been falling for the last 5 years. It is this respect and this respect only that the RMB has been undervalued from the view point of trade competitveness.
    The nominal exchange rate is only about 20% of the equation where trade competitivity comes in, if wages are 150% beliw where they should be. Instead of everyone shouting about the yuan being 20-40% undervalued. Everyone should be shouting about wages being 150% undervalued. The nonimal rate of the rmb is not undervalued at all, its overvalued against the GBP/Euro. And maybe at some sort of equilibrium against USD.

    If you look at a hybrid CPI measure, using a full basket scenario that includes buying property (which everyone in China is trying to achieve), real food increases (significant portion of chinese consumtpion) - you will see the hybrid CPI running at least 15%.
    Let me repeat - at least 15%. I live in China, buy in China. And to say that prices have gone up 5-6% is a insulting joke.
    Garlic is up more than 100%, Vegatbles are up 50-100%, meat is up 25%-30%.Shampoo is up 15%,Jade is up 400%, houses are up 20%. Tell me how we get 5.5% from the above. You know Its cheaper to buy USA organges with huge import duties than to buy oranges that are farmed 200 miles away from the supermarket.

    In China there has been serious staglation (inflation exceeding growth) for at least 18 months that has benefited the rich with wide asset bases, which has diverted income from the system from the poor without asset bases. Why do you think everyone is scrambling to borrow at artifical low rates and purchase assets with it.This has been the simplest form of moving from the 'have-nots' to the have's.

    Going back to wages, wages will have to increase over the next 5 years by 100% or China will implode with social unrest or the CCP will have to repress the population so much that foreign investors will pull money out of the country and trading partners will use this as an excuse to bring out protectionist policies. On this basis of 20% wage increases per year and the USA stagnant employment market it is pretty obvious that the ULC-deflated rate will be overvalued very quickly. The question is how will this affect the nominal rate in the next few years when the ULC defalted rate is too high, not how much the PBOC will use the nominal currency rate to dent inflation.

    The above moves will create a very interesting landscape.
    Internally the lower underclass will be promoted to the middle class, bringing living conditions down in the middle class area.

    The higher middle class will also have their standard of living reduced as well. Especially as property will certainly fall in real terms going forward and most of their wealth is conatined in property not from income generating investment/salary. This is of course a good thing, anyone that has travelled China will see that the higher middle class are acting and living like nobility and share financial comfort like the higher class does in the west.

    The super rich have a split of fate, those that are too heavily invested in property/land in Hong Kong and China are about to take a very large hit. Their leverage will decide how large the hit is. Thise that have invested oversee with their overalued nominal yuan will do well.

    Its time to move money out of China, not in China.
    The monetary bubble is about to come to halting stop, this landing will hurt.
    Jun 15, 2011. 01:50 AM | Likes Like |Link to Comment
  • Is Bernanke Pitching a Perfect Game?  [View article]
    I agree with your analysi
    Jun 7, 2011. 03:29 AM | Likes Like |Link to Comment
  • China's Real Estate: Looking for Debt  [View article]
    Ben Gee does not even live in china.
    He thinks because he is Chinese he has the answers.
    It is not nationalism, because he has oversees citizenship.

    Having visited over 50 places in China I can tell you, that currently the real estate that is being built in most 2/3/4 tier cities and 'new towns' does not match the demand from the local people who live there. There is a mismatch between what is being built and what is needed and can be purchased. Wen knows this, thats why he is mandating huge building of low cost housing.

    I would like to give an example, mots would agree that UK property in rural areas should be more expensive than chinese property in rural areas. after all, in rural area being a maid or working in restuarant will get you a salary of around 11$/hour. Where as in most rural artea a wgae of 1-1.5$ is paid in china.

    Well property is rural areas and new towns is the same price as property in UK.
    This dynamic does not show in shanghai property which is cheaper than london property, but in a lot of other local markets in China, the supply does not match the demand need.

    There are huge demand dynamics in the chinese economy going forward 10 years, but if the supply is geared at the wrong segment and the waste is big enough. Then the banking sector government will run out of money to provide for the upcoming demand. This is why Wen and Hu are mandating low cost housing.

    Of course if we are all smart, the fact that low cost housing is being built will meet significant demand from urbanisation and will reduce demand for overpriced private full cost housing. Hence less property will need to be built in the private domain and there will be larger inventory to work through that will cap price rises. This will cap 'demand expectactions' from urbanisation and hence make funding for private developments harder. Less land will be purchased and hence the cycle will stop.

    Dont expect a property crash, but stagnation for 5 years in most areas is almost definite.
    Jun 1, 2011. 11:14 PM | Likes Like |Link to Comment
  • U.S. Small Businesses Reevaluate China Outsourcing Strategy  [View article]
    This is not a true reflection on the overall trend. There is a trend for high labour intensive operations to move to other low cost asian and south american countries. But certainly not back to USA. Also supply chains are becoming more multi-dimensional and include more moving parts in different countries. But the USA and other western countries still lack serious competitive advanatge in all areas except high technology, agirculture and service based businesses.

    Therefore I expect the USA to push harder with its plan to drive up the RMB in real and nominal terms. Drive down the USD in real and nominal terms and carry on trying to monopolise resource sources.
    Apr 9, 2011. 07:49 AM | Likes Like |Link to Comment
  • Today in Commodities: Fighting Against the Dollar  [View article]
    This is the point, Central Banks have printed money and now scrambling to purchase commodities/Gold etc with it. The US government/fed are front running this process. China likes the plan as they hold lots of gold. The indians like the plan because they always buy lots of gold. The brazilians/canadians have other natural resources. The Australians like the plan because they have lots of resources. You have the central banks and governments cornering the commodities markets.

    This is the perfect storm and maybe we will come out the other side intact. But one thing is for sure, the poor are paying for the riches mistakes and adventures and that is global. So next time you smile because gold has gone up and you hate fiat currencies, think of all the poor people getting destroyed.
    Apr 9, 2011. 07:26 AM | 3 Likes Like |Link to Comment
  • The Euro: Trichet vs. Bernanke  [View article]
    awful article that ignores the extremly complicated, multi faceted financial and economic issues we find ourselves in.

    The fact that the author does not realise the ecb and fed are working in absolute concert in trying to target interest rates and currencies values with other countries like china makes me question why he is posting here.

    The USA wants weaker dollar to expand exports, it has deflationary forces and hence wants inflation. a weaker dollar and low interest rates is the perfect fix for the US disease.

    Europe wants a relatively strong currency to tame inflation, keep other central banks buying bonds of peripheral countries and so they can carry on their oversees investments. Not to mention stop the crows circling around trying to destabilise the euro by destroying the common currency.

    The USA is happy creating inflation elsewhere, because it forces other countries to strengthen their currencies and is the only means to get them to strengthen their currencies (China). So why would Bernanke tighten early and strengthen the USD prematurely.

    As a result of Bernanke, unemployment in US is falling.
    Other countries are having to adjust their economic models so their prosperity does not come from pain from the USA. And its working. China's domestic consumption economy is starting to develop, China is starting to import more and the economies in the west that export are starting to mending.

    No one has lost confidence in Bernanke. Infact I would say the opposite. This man may have well saved the demise of the US financial and economic system.

    You see now cost of capital in the USA is so low, that the USA corporate sector is regaining its dominant role in world trade. You see the USA has created so much new money they have fixed the bad investments in the past and reinvested so much capital into emerging economies that they very well could be sitting on dividends from this investment cycle for the next 30 years. The USA now has a very large position and trade on with emerging asia. If Asia does well, so will the USA. Capital is at the source of this.
    Apr 6, 2011. 03:43 AM | 3 Likes Like |Link to Comment
  • Does It Make Sense to Be Bearish on China?  [View article]
    Not bad article on China, at least you have been here.
    However it is not a good idea to extrapolate an opinion on the stockmarket based on the economy. The two are very much apart.
    China could have another 5 years of 7-10% grwoth but you could still lose 30% on the stockmarket. This is the nature of the stockmarket here. It is an administrative organ rather than a free market allocation of resources tool.

    In terms of consumption, the Chinese do consume. They are just a lot more restrained. The fact that Voltswagen makes more money in China is indicative of this fact. I see no problem with the middle class becoming more consumption orientated. The question is how much of the lower class can they move into the middle class.
    Mar 30, 2011. 06:52 AM | 1 Like Like |Link to Comment