Yes Virginia...It's a Bubble...

[Polish_Silver]

Taiwan's train

The problem with stuff in China is when it's new, it always looks good. It's the same with condos built in China. When they are built, they look very nice, but 8-10 years on, it looks like a 20-30 year old building. This is the reason why the secondary housing market in China is very small.

Maintenance is not cheap when equipment disintegrates, remember drywall?

I'm not saying that others do better, but in my opinion, the verdict for the high speed rail project is still open and we won't know real truth until another 15-20 years has passed.

Taiwan is very pragmatic. They use foreign designs. I think their high speed rail locomotive was built by Siemens.

The Taiwan HSR put out of business small airlines.

[GRG55]

Re: Yes Virginia...It's a Bubble...

http://nationalinterest.org/commenta...reat-debt-9677

The Real China Threat: Credit Chaos

Minxin Pei

| January 8, 2014

The spectacle of a game of financial chicken in the world’s second-largest economy is both entertaining and terrifying. Twice in 2013, the People’s Bank of China (PBOC), the country’s central bank, tried to demonstrate its resolve to rein in runaway credit growth. In June, it engineered a sudden credit squeeze that sent the interbank lending rates to more than 20 percent and caused a short-lived panic in the Chinese financial markets. Apparently, the financial turmoil was too much for the Chinese government, which quickly ordered the Chinese central bank to reverse course. As a result, the PBOC lost both face and credibility.
However, as credit growth continued unabated and activities in the most risky segment of China’s financial sector – the so-called shadow banking system – displayed alarming recklessness, the PBOC was left with no choice but try one more time to send a strong message that it could not be counted on to provide unlimited liquidity to the banking system...

...Thus, in the first two rounds of a stand-off between the PBOC and China’s shadow banking system, the latter is widely seen as the winner. The PBOC blinked first each time...

...Of these dynamics, two deserve special attention. The first one is the rapid rise in indebtedness (or financial leverage) in the Chinese economy since 2008. In five years, the country’s total debt-to-GDP ratio (including both public and private debt) rose from 130 percent to 210 percent, an unprecedented increase for a major economy...

...Staggering under an unsustainable debt burden of roughly 160 percent of GDP (equivalent to $14 trillion), these borrowers are expected to default on a significant portion of their bank debt in the coming years...

...Specifically, Chinese banks peddle new “wealth management products” – short-term securities promising high interest rates – to their depositors. The issuers of such securities, which are not protected or insured by the government – are typically high-risk borrowers, such as local governments (and their financing vehicles) and real estate developers.

In the meantime, these borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP)...

[touchring]

Re: Partial agreement with Coolhand

Ironic, isn't it? The US gov't/banking industry has convinced the American public that gold is useless & inflation should be measured ex-food & energy. When the very core of the system is gold & the only inflation that matters to geopolitical powers are food & energy...

In the 21st century, gold is just another jewelry. People buy it for wedding bands. Gold is not consumed because almost all the gold that is mined remains.

One can't eat gold. If the economic malaise in India is not resolved, we can anticipate massive gold selling by the Indians in exchange for food and clothing. At least over the next 1 year, the outlook is bearish.

[touchring]

Re: Partial agreement with Coolhand

There is an old say in my country: "chinito sabe" (the China boy knows)


http://www.nytimes.com/2013/09/24/bu...-for-china.htm

http://www.nytimes.com/2013/09/24/bu...it_th_20130924

http://www.nytimes.com/2013/09/24/wo...it_th_20130924

The problem with stuff in China is when it's new, it always looks good. It's the same with condos built in China. When they are built, they look very nice, but 8-10 years on, it looks like a 20-30 year old building. This is the reason why the secondary housing market in China is very small.

Maintenance is not cheap when equipment disintegrates, remember drywall?

I'm not saying that others do better, but in my opinion, the verdict for the high speed rail project is still open and we won't know real truth until another 15-20 years has passed.

[coolhand]

Re: Partial agreement with Coolhand

Here's where I agree:

1) China may be moving towards some kind of gold standard, at least for international transactions. Why else all the gold hoarding? This behavior also acknowleged repeatedly by EJ.


2) China may want to destroy the petro dollar system.


Here's where I disagree:

1) China's debt may be comparable to the US. They do have lots of municipal, regional, and private sector debt. Their accounting is so opaque, nobody knows for sure. And the opaque accounting is itself an important signal.

Opposite of Singapore---totally transparent accounting and low debt levels.

2) China's motivation is probably not "to raise standards of living", but to increase their national power.

3) More than just the banking class benefited from the PD system. The benefits spilled over into the military industrial complex, USA as a whole, etc. (of course, the USA had many losers, such as gulf war casualties) . The system is so hard to break because the beneficiaries are so numerous and influential.

I could never argue China's debt v. US debt - I have no background on how China's debt is structured & as you note, the accounting is opaque, even if i was qualified to comment.

I do know that China does not have much of a social safety net, while the US does, & the US's social safety net present value is estimated at $200-220T...IMO, given that China doesn't have a social safety net, that makes it hard for me to believe that China has accumulated $200T economy wide without having any kind of social spending to drive that...it's a lot of money.

On your 2nd point, i agree, but would only note that increasing national power/increasing standards of living are both accomplished the same way - increasing oil consumption.

Finally, on your 3rd point, you make a great point. The losers of course have been the US working classes...real incomes/living standards for the working & middle classes peaked from 1971-1988, depending on income level, & have continued falling ever since.

The system has been hard to break b/c anyone in a position to do so would lose too much by doing so, as you note. However, the difference now is that those in a position to break it (BRICS, EU) would BENEFIT from it breaking...

One need only watch what the bankers are doing - DB, JPM, Barclays & others began moving their gold to Asia en masse two years ago: http://www.bloomberg.com/news/2011-0...mmodities.html

When taken together with GS's 2Q13 purchase of $500m of GLD (which they can easily convert into bullion - watch for stories in 3Q that GS "sold" $500m of GLD in 3Q when filings are filed & the 2Q ownership of GLD by GS is "gone"), the rulers of the system see the inevitable...the BRICS are the majority of global economic activity & are dictating terms.

The bullion banks & the BRICS are indifferent if the global reserve asset is UST's or gold. China doesn't care if they have 1,000 tons of gold & $3T in UST's, or UST's worth $0 & 1,000 tons of gold worth $3T. They just want to make sure they can buy their oil & food...

Ironic, isn't it? The US gov't/banking industry has convinced the American public that gold is useless & inflation should be measured ex-food & energy. When the very core of the system is gold & the only inflation that matters to geopolitical powers are food & energy...

[Southernguy]

Re: Partial agreement with Coolhand

Further on: Robots May Revolutionize China's Electronics Manufacturing

Machines in Pipeline to Supplant Workers as Pay Soars and People Age

• By
• PAUL MOZUR and
• EVA DOU
• CONNECT

A new worker's revolution is rising in China, and it doesn't involve humans. Delta Electronics has developed robots that can work on assembly lines that it hopes to sell for as little as $10,000. The WSJ's Eva Dou reports. Video by Neil Wade.


A new worker's revolution is rising in China and it doesn't involve humans.
With soaring wages and an aging population, electronics factory managers say the day is approaching when robotic workers will replace people on the Chinese factory floor.
A new wave of industrial robots is in development, ranging from high-end humanoid machines with vision, touch and even learning capabilities, to low-cost robots vying to undercut China's minimum wage.
Photos: Swapping Laborers for Robots

Neil Wade for The Wall Street Journal A concept robot by Delta Electronics, which is among developers in Asia seeking to build better, cheaper robots.





Over the next five years these technologies will transform China's factories, executives say, and also fill a growing labor shortage as the country's youth become increasingly unwilling to perform manual labor. How the transformation plays out will also go a long way in deciding how much of the electronics supply chain remains in China.
It's not just traditional robot makers like Zurich-based ABB Group and Germany's Kuka AG pushing forward. Electronics suppliers in Asia such as Delta Electronics Inc. and Foxconn Technology Group are also seeking to build a better robot, along with smaller players like Denmark's Universal Robots A/S.
But some industry executives caution that China's automation shift will likely take years and there are plenty of challenges, including the high price of advanced robots, continuing technical limitations and even the lack of flexibility that comes with bringing robots into the factory.
"If your orders decrease, you can lay off workers," said Tim Li, senior vice president of Taiwanese PC contract manufacturer Quanta Computer Inc. "You can't lay off robots."
One of the newest companies in this field, Taiwanese firm Delta, has long made power adapters for brands like Apple Inc., but last year it began a more ambitious project: to build robots cheap enough to replace human workers in China's electronics factories.
"It's clear that automation is the future trend in China, but the big question is how to bring down the costs for robots," said Delta Chairman Yancey Hai in an interview. "We believe we can do that because we manufacture two-thirds of the components ourselves."
Delta is testing a one-armed, four-jointed robot that can move objects, join components and complete similar tasks. By 2016, Delta hopes to sell a version for as little as $10,000, which would be less than half the cost of current mainstream robots.
That price is also cheaper than the salary of a Chinese worker, and the robot can work around the clock.
Delta believes it can achieve the low price through cost advantages at its Taiwan facility, in-house component production and a shorter target life span for its robot.
Outside Taiwan, there are also more futuristic robots in the works designed to be easily reprogrammable and smart enough to work alongside humans without risk of injury. For instance, ABB's concept humanoid robot has two 7-jointed arms that perform precise tasks and halt when touched by a person.
These robots are more expensive than factory workers, but the cost gap is shrinking, with China's wages rising by a double-digit percentage annually.
The advancements in robotics has led to hopes that electronics firms will bring some manufacturing back to the U.S. But industry followers say electronics assembly is likely to stay in China even as automation becomes easier because the larger component supply chain is in the country.
To be sure, robots have long been technically capable of the tasks required for final assembly: placing components on circuit boards, affixing circuit boards into casings, screwing together the casings and cleaning off the devices.
But human hands are still considerably cheaper for such jobs in China. People are also better at switching tasks than a robot, which requires reprogramming.
There are also logistical obstacles to automation.
Because of the short sales cycle of electronic devices, products are only in production for around 9 to 18 months, with production settings requiring change afterward, said ABB China Senior Vice President Chun-yuan Gu.
"There's a fast ramp up and a fast ramp down, and that is the key challenge," he said.
Even Foxconn, the industry's loudest proponent of automation, continues to rely on city-sized factories where more than 1.1 million workers do the bulk of the assembly of iPhones and other devices by hand. Foxconn originally planned to install 1 million robotic arms in its factories by 2014, but executives said it would take much longer to reach that target.
Automation would help companies like Foxconn that are continually beset by criticism over worker conditions. Indeed, Pegatron Corp., another Apple supplier that makes iPhones, was recently accused by New York-based nonprofit organization China Labor Watch for alleged labor rights violations.
The Taiwanese company is focusing its automation efforts on the most dangerous and laborious tasks, said Chief Financial Officer Charles Lin.
Pegatron has invested around $100 million in the past year to automate production of electronic device casings, which involves harsh chemicals.
Quanta, the world's largest PC contract manufacturer, expects to make a massive automation shift in "the next two years or so" as labor costs rise, said Chief Financial Officer Elton Yang.
For robot makers like Kuka, that spells opportunity.
"Twenty percent of our business is in China and we see that rising," said Kuka Chief Executive Till Reuter. He said Kuka is investing in a new Chinese factory that can churn out at least 5,000 more robots a year from 1,500 to 2,000 currently.
Universal Robots and ABB also said they're boosting their China investment, and with good cause: China's industrial robot shipments will rise to 35,000 units in 2015 from 26,000 in 2012, the largest increase of any country, according to estimates from the International Federation of Robotics. While robots are used in many different types of factories in China, analysts and robotics companies point out growing demand to automate the electronics supply chain is giving demand a decided boost.
Kuka's Mr. Reuter says it's easy to see how robots can give factories a helping hand. "We have industrial robots…which we work 24 hours a day, seven days a week for seven to 10 years," he said.
Write to Paul Mozur at paul.mozur@dowjones.com and Eva Dou at eva.dou@dowjones.com
Corrections & Amplifications
A Danish company seeking to build a better robot is called Universal Robots A/S. A previous version of this article incorrectly gave the name as Universal Robotics A/S.
A version of this article appeared September 24, 2013, on page B5 in the U.S. edition of The Wall Street Journal, with the headline: Robots to Revolutionize China.

[Southernguy]

Re: Partial agreement with Coolhand

There is an old say in my country: "chinito sabe" (the China boy knows)


http://www.nytimes.com/2013/09/24/bu...-for-china.htm

http://www.nytimes.com/2013/09/24/bu...it_th_20130924

http://www.nytimes.com/2013/09/24/wo...it_th_20130924

[touchring]

Re: Partial agreement with Coolhand

2) China's motivation is probably not "to raise standards of living", but to increase their national power.

I would like to add to this - And also to increase personal wealth. This being a priority to the former.

[Polish_Silver]

Partial agreement with Coolhand

Ironically, the preponderance of the evidence (above, etc.) suggests China understands that if they break the petrodollar, they will end this unsustainable system & improve standards of living for most people in the world except for the banking classes in the US & UK,..

Here's where I agree:

1) China may be moving towards some kind of gold standard, at least for international transactions. Why else all the gold hoarding? This behavior also acknowleged repeatedly by EJ.


2) China may want to destroy the petro dollar system.


Here's where I disagree:

1) China's debt may be comparable to the US. They do have lots of municipal, regional, and private sector debt. Their accounting is so opaque, nobody knows for sure. And the opaque accounting is itself an important signal.

Opposite of Singapore---totally transparent accounting and low debt levels.

2) China's motivation is probably not "to raise standards of living", but to increase their national power.

3) More than just the banking class benefited from the PD system. The benefits spilled over into the military industrial complex, USA as a whole, etc. (of course, the USA had many losers, such as gulf war casualties) . The system is so hard to break because the beneficiaries are so numerous and influential.

[shiny!]

Re: Yes Virginia...It's a Bubble...

Thanks, coolhand!

[coolhand]

Re: Yes Virginia...It's a Bubble...

coolhand, can you please explain your reasoning on this point? I don't see the Chinese gov't caring about anyone's standard of living. Or are you saying that improved living standards would simply be an inevitable consequence of breaking the petrodollar?

Shiny!-

Sure. I don't think China is doing this out of some sense of obligation to the world...i think it is extreme self-interest at the heart of it.

Basically, under the petrodollar system, there are two groups of people. The people that can print money for their oil (the USA), & the people who can't (everyone else on the planet.)

Vastly oversimplified, that means that the US' oil (& by extension, food) is cheaper than it should be ("exorbitant privilege"), & everyone's else's oil & food are more expensive than it otherwise would be (as everyone else must engage in trade via underpricing US-made goods to earn dollars to acquire oil (& by extension food.))

The Chinese are interested in breaking the COMEX & LBMA b/c that whoever controls the pricing of gold controls the pricing of oil...people will only take the dollar for oil under the petrodollar b/c of the GAGFO concept EJ has laid out, under which it is critical to maintain the pretense that gold isn't as valuable as dollars...they do this by managing gold prices using massively levered COMEX & LBMA...levered as much as 100-1.

If either/both of those break, the pretense will be gone, physical gold will be much, much higher in price & GAGFO will break. Only gold will be good for oil, not dollars anymore. Everyone will have to earn gold through trade to pay for their oil.

If everyone suddenly has to earn gold through trade to pay for their oil, then that is nothing new for everyone in the world...but the one nation that could formerly print dollars for its oil will no longer be able to do so. I suspect at that point, the USA's ~10m b/d imported oil habit will dry up fairly quickly, freeing up massive quantities of oil on the global export markets, which will cheapen imported oil prices for the 2nd biggest oil importer in the world...China...and as a side benefit, anyone else who benefits from cheaper oil.

Greater consumption of cheaper oil = higher living standards (for China & everyone else globally that imports oil under the petrodollar.)

Lower consumption of much more expensive oil = lower living standards (for USA).

[shiny!]

Re: Yes Virginia...It's a Bubble...

Ironically, the preponderance of the evidence (above, etc.) suggests China understands that if they break the petrodollar, they will end this unsustainable system & improve standards of living for most people in the world except for the banking classes in the US & UK, & that the easiest way to break the petrodollar system without World War III is by breaking the UK LBMA &/or US COMEX gold exchanges by buying up all the physical gold at prices never meant to transact physical volumes in size at.

coolhand, can you please explain your reasoning on this point? I don't see the Chinese gov't caring about anyone's standard of living. Or are you saying that improved living standards would simply be an inevitable consequence of breaking the petrodollar?

[touchring]

Re: Yes Virginia...It's a Bubble...

Of course, social security checks don't exist in China or Asia for that matter (except Japan) because everyone needs to work and there's a job for everyone.

I don't have statistics but I believe human labor is still cheaper than machine or even farm animals, how much do you think the bosses of these people need to spend to keep their workers alive and fit enough to work?

I would never argue that there is a debt bubble in China - of course there is. But is their debt worse than the US? No way, not even close.

If you just look at Federal debt, yes it is. But then factor in the state/muni debt. Factor in the $3T in public & private pension underfunding (China doesn't have those I believe). Factor in the $200T in Medicare/Medicaid/Soc Security obligations the US has that China doesn't have. You quickly get the US total debt ratio to something 800-1000% of GDP, by far the worst in the world - worse than Japan, Greece, anyone.

[GRG55]

Re: Yes Virginia...It's a Bubble...

That's pretty easily fixed.

As GRG55 should know - Canada is one of the more intrusive nations regarding customs and import duties.

Only for eggs, chicken and cheeze...

[c1ue]

Re: Yes Virginia...It's a Bubble...

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

That's pretty easily fixed.

As GRG55 should know - Canada is one of the more intrusive nations regarding customs and import duties.