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

[coolhand]

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

Have a look at China's debt/GDP absolute ratio and rate of change since 2009. You might reconsider your comment about "the Chinese are being inherently rational". You might...but somehow I doubt it...

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.

American media has done a great job such as in stories above that "China has a problem, America doesn't", but only b/c they separate the "kinds of debt" from the debt calculation. If my mom gets a check with her interest payment from her US Treasury bond portfolio, that's counted as a debt. If she gets a check from social security for $3,000 every month, that is only counted as a cash expense...not debt, & the fact that she (and her 78m Boomer generational cohorts) are owed $3,000 a month every month till the day they die is completely ignored. Why? That is debt too. Ditto the $60-80T Medicare/Medicaid obligation.

It's fun to debate whose debt bubble is bigger than someone else's, but really this is just what the world looks like in the waning days in of a global fiat currency bubble (that has never ever happened before). As far as who is dealing rationally with how this ends, I would contrast what the Fed is doing with the fact that China has been buying ~100% of global gold mine supplies for much of 2013, & that emerging market media (like Canadians) are openly talking about that China will de-peg from the dollar & peg instead to gold, when the time is right:

http://www.nationmultimedia.com/opinion/Prepare-for-a-new-gold-standard-30212197.html

http://m.rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_go ld_47997.html

http://koosjansen.blogspot.nl/2013/09/sge-physical-delivery-equals-chinese_19.html


I'm not a US basher or a China supporter...I'm a proud US national, I love this country...but what has been going on in the US at an accelerating rate - the plundering of the working & middle classes to support an unsustainable currency system & banking class is NOT what America was founded on. The wanton corporatism & domestic espionage going on in the US has a lot more in common with the Nazis my grandfather's generation fought than it does with the principles of what America is supposed to be about. They would be rolling over in their collective graves at what is going on here.

(As a side note, the way the Nazis actually conducted most of the economic plundering of Europe was not with force but rather with the currency system they instituted after they controlled a country...it was exactly the same system as the petrodollar is today - everyone else is given "the gold or the lead" choice to use the dollar for oil, & the US can print it. This is what the Nazis did in Europe...)

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.

Whoever controls the price of gold controls the price of oil. Whoever controls the price of oil controls the world. And also ironically, the US needs higher oil prices to harvest its shale reserves. Breaking the petrodollar will be a win/win for many...but the losers will be US consumers & consumer debt merchants & Chinese export mfrs.

PS: i am not throwing stones at the dying petrodollar system out of bitterness...i have benefited greatly from this system, but since 2008 I have come to see what we are doing in the name of sustaining the unsustainable. I criticize this system b/c I have 3 sons & will not sacrifice them in World War III to defend an unsustainable currency system that only benefits a select number of people...

[GRG55]

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

On a day where the Fed just effectively admitted that they cannot even taper QE a little bit? Perhaps rather than being irrational, the Chinese are being inherently rational, buying hard assets b/c they understand what they are watching, having had a little more recent historical experience with the overprinting of paper money?

Even our Canadian neighbors get it - watch self-made billionaire Ned Goodman's 7-minute speech from 9/12/13 here. He asserts in no uncertain terms that the US dollar will soon be dethroned as a reserve currency (in which case what the Chinese are doing with houses is completely logical) & in the speech, Goodman notes two startling facts:

1. The 1st thing the new Chinese Premier did last year was travel to Russia & sign a large oil agreement with Russia SETTLED IN YUAN, NOT DOLLARS.

2. The Israelis have bombed Syria 4x in the last 24 months, attacking several chemical warehouses & a nuclear power facility.

Enjoy: http://m.youtube.com/watch?t=10s&v=n...u.be%26t%3D10s

Have a look at China's debt/GDP absolute ratio and rate of change since 2009. You might reconsider your comment about "the Chinese are being inherently rational". You might...but somehow I doubt it...

[touchring]

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

China is now a internal consumer driven paradise....consumer of "real estate".

Remember all the chatter that Beijing was going to wave its magical central planning wand and with a sprinkling of pixie dust instantly transform the mercantile, high savings rate, overdependent-on-capital-investment Chinese economy into a virtuous internal consumer driven paradise?

WSJ ASIA BUSINESS
Updated September 4, 2013, 2:12 a.m. ET

In China, Veil Begins to Lift on High Consumer Prices

Resistance to Prices Grows Amid New Ways to Comparison Shop

BEIJING—In China, consumers pay nearly $1 more for a latte at StarbucksSBUX -0.54% than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.

Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

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.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.
"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

With increased travel and e-commerce, consumers are comparing overseas prices with what they see in China-based stores and are waiting to buy goods when abroad, said James Button, a senior manager at Shanghai-based consultancy SmithStreet. This year Chinese shoppers made global headlines by clearing out U.K. and Hong Kong grocery shelves of baby formula, which wasn't only less-expensive than formula found inside China, but was also widely perceived by Chinese consumers as safer.

As China aims to build a more balanced economy that is consumption-driven, regulators have begun cracking down on companies they believe have unfairly swayed pricing in the market.

Authorities recently fined five local jewelry retailers a combined 10.6 million yuan for price manipulation. And in August economic planners launched pricing investigations of the auto, pharmaceutical and baby-formula sectors, looking for prices that were higher in China compared to other locations.

They fined foreign infant-formula makers such as Danone SA and Mead Johnson Nutrition Co., claiming they violated competition laws.

The baby-formula companies responded to scrutiny by slashing prices of products sold in China.
The auto and pharmaceutical investigations are continuing.

Beijing is attempting to ensure that profit margins don't come at the expense of the people, said Rocky Lee, head of the Asia corporate practice at law firm Cadwalader Wickersham & Taft in Beijing.

On luxury goods, authorities have had few qualms about causing sticker shock, boosting prices of import and luxury products like the Escalade, which is slapped with a consumption tax totaling around 386,000 yuan ($63,000).

General Motors Co. GM +0.57% said imported cars make up a small segment of their business in China. A China-built Buick Encore costs Chinese consumers $24,477, while it costs U.S. counterparts $24,160, according to a spokeswoman.
Many companies that have for years earned higher profits in China by selling to consumers who wanted premium products and status symbols, said Yuval Atsmon, a principal at consultancy McKinsey & Co.

Apple Inc. AAPL +2.12% declined to comment on iPad pricing disparities.

Experts say that price tags often also reflect the inefficiencies companies face in the Chinese market. "It can take months upon months—passing tests and getting licenses—to open a retail store in China. Permits and bureaucracy cost; all of that is passed on to the consumer," Mr. Lee said.

Brands such as Starbucks and Häagen-Dazs have set higher prices for Chinese consumers to cast an image of higher quality and create "snob appeal," Mr. Atsmon said.

A scoop of rum raisin ice cream costs $5.40 at a Haagen-Dazs shop in Beijing. In a Chinatown Häagen-Dazs location in Washington, D.C., it goes for $4.68, including tax.

A spokeswoman for Starbucks Corp. said that prices vary by market and in China, customers like larger stores with more seats, which accounts for higher real estate costs built into the price.

A General Mills Inc. GIS -0.20% spokeswoman said the company can't comment on the comparison of the Häagen-Dazs strategy in China versus the U.S. because the ice cream brand is marketed by General Mills in China, while in the U.S. it is run byNestlé NESN.VX -0.49% SA.

Not all goods in China are more expensive than elsewhere in the world. In the keenly competitive beverage market, where volume sales and market share are a top priority, a can of Coca-Cola in a Chinese convenience store is about 2.8 yuan, or $0.46, while in the U.S. it costs more than $1.

[coolhand]

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

Either the Chinese authorities are reveling in the riches they themselves are amassing from this insanity, or they fear stepping in front of a speeding train on a downhill grade.

This article from the FT leaves the impression that the Chinese have been trying to take the froth off the property market in the recent past, but that seems overly charitable given the relentless escalation in the speculation underway.

From the FT:

September 18, 2013 4:30 am

China house price surge raises prospect of steps to cool market

By Simon Rabinovitch in Shanghai

Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the market.

Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year and 8.3 per cent nationally.

The sharp increase in prices in the biggest cities is the latest evidence of a full recovery in the Chinese property market after it was smothered by several tightening measures this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.

Some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

Liu Jianwei, an analyst with the official statistics bureau, said there were divergent trends across the country. While price increases averaged 18-20 per cent year-on-year in first-tier cities, they were 7-10 per cent in second-tier cities and just 6 per cent in third-tier cities...

...Du Jinsong, an analyst with Credit Suisse, said this statement appeared to indicate that the government was not overly worried about the housing market. “[The] continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies,” he said in a note to clients.

Over the past four years the Chinese government has waged a continuous battle to rein in the housing market, raising mandatory mortgage downpayments, placing restrictions on the number of homes people can buy and levying a tougher capital gains tax on sales.

But since the country’s new leaders – Xi Jinping and Li Keqiang – took office in March, there have been no big new tightening policies enacted on top of the measures already in place. Analysts believe this has given developers and investors the confidence to flood back into the property market...

On a day where the Fed just effectively admitted that they cannot even taper QE a little bit? Perhaps rather than being irrational, the Chinese are being inherently rational, buying hard assets b/c they understand what they are watching, having had a little more recent historical experience with the overprinting of paper money?

Even our Canadian neighbors get it - watch self-made billionaire Ned Goodman's 7-minute speech from 9/12/13 here. He asserts in no uncertain terms that the US dollar will soon be dethroned as a reserve currency (in which case what the Chinese are doing with houses is completely logical) & in the speech, Goodman notes two startling facts:

1. The 1st thing the new Chinese Premier did last year was travel to Russia & sign a large oil agreement with Russia SETTLED IN YUAN, NOT DOLLARS.

2. The Israelis have bombed Syria 4x in the last 24 months, attacking several chemical warehouses & a nuclear power facility.

Enjoy: http://m.youtube.com/watch?t=10s&v=n...u.be%26t%3D10s

[GRG55]

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

Difficult to change when there are so many vested interests that have benefited for so long from the system as it is...

Bloomberg News

China’s Shadow Banking Surges as Growth Rebound Adds Risks

By Bloomberg News September 11, 2013

China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.

...

Either the Chinese authorities are reveling in the riches they themselves are amassing from this insanity, or they fear stepping in front of a speeding train on a downhill grade.

This article from the FT leaves the impression that the Chinese have been trying to take the froth off the property market in the recent past, but that seems overly charitable given the relentless escalation in the speculation underway.

From the FT:

September 18, 2013 4:30 am

China house price surge raises prospect of steps to cool market

By Simon Rabinovitch in Shanghai

Residential prices soared in China’s biggest cities in August, raising the possibility that the government will take fresh measures to cool the market.

Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year and 8.3 per cent nationally.

The sharp increase in prices in the biggest cities is the latest evidence of a full recovery in the Chinese property market after it was smothered by several tightening measures this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.

Some investors and analysts have started to express concern about whether China’s property market is veering into dangerous bubble territory, but the government has so far taken a much more dovish line.

Liu Jianwei, an analyst with the official statistics bureau, said there were divergent trends across the country. While price increases averaged 18-20 per cent year-on-year in first-tier cities, they were 7-10 per cent in second-tier cities and just 6 per cent in third-tier cities...

...Du Jinsong, an analyst with Credit Suisse, said this statement appeared to indicate that the government was not overly worried about the housing market. “[The] continued effort to paint a picture of still-benign housing price conditions may imply that the central government wants to deal with other issues first before making a very clear stand on the overall housing policies,” he said in a note to clients.

Over the past four years the Chinese government has waged a continuous battle to rein in the housing market, raising mandatory mortgage downpayments, placing restrictions on the number of homes people can buy and levying a tougher capital gains tax on sales.

But since the country’s new leaders – Xi Jinping and Li Keqiang – took office in March, there have been no big new tightening policies enacted on top of the measures already in place. Analysts believe this has given developers and investors the confidence to flood back into the property market...

[GRG55]

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

Difficult to change when there are so many vested interests that have benefited for so long from the system as it is...

Bloomberg News

China’s Shadow Banking Surges as Growth Rebound Adds Risks

By Bloomberg News September 11, 2013

China’s broadest measure of new credit almost doubled in August from the previous month in a sign leaders are committed to meeting economic goals even at the cost of adding financial risks.

Aggregate financing was 1.57 trillion yuan ($257 billion), the People’s Bank of China said in Beijing yesterday, topping the 950 billion yuan median estimate of 10 analysts surveyed by Bloomberg News. New yuan loans from banks accounted for about 45 percent of the total, down from July’s 87 percent, as non-traditional credit played a bigger role.

The first pickup in credit growth after an unprecedented four straight declines, the fastest gain in industrial output in 17 months and above-forecast exports signal better odds that Premier Li Keqiang will achieve his 7.5 percent expansion target this year. The data also mark a resurgence in shadow banking that poses risks for the financial system after a record credit boom in the first quarter...

[GRG55]

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

Remember all the chatter that Beijing was going to wave its magical central planning wand and with a sprinkling of pixie dust instantly transform the mercantile, high savings rate, overdependent-on-capital-investment Chinese economy into a virtuous internal consumer driven paradise?

WSJ ASIA BUSINESS
Updated September 4, 2013, 2:12 a.m. ET

In China, Veil Begins to Lift on High Consumer Prices

Resistance to Prices Grows Amid New Ways to Comparison Shop

BEIJING—In China, consumers pay nearly $1 more for a latte at StarbucksSBUX -0.54% than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.

Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

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.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.
"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

With increased travel and e-commerce, consumers are comparing overseas prices with what they see in China-based stores and are waiting to buy goods when abroad, said James Button, a senior manager at Shanghai-based consultancy SmithStreet. This year Chinese shoppers made global headlines by clearing out U.K. and Hong Kong grocery shelves of baby formula, which wasn't only less-expensive than formula found inside China, but was also widely perceived by Chinese consumers as safer.

As China aims to build a more balanced economy that is consumption-driven, regulators have begun cracking down on companies they believe have unfairly swayed pricing in the market.

Authorities recently fined five local jewelry retailers a combined 10.6 million yuan for price manipulation. And in August economic planners launched pricing investigations of the auto, pharmaceutical and baby-formula sectors, looking for prices that were higher in China compared to other locations.

They fined foreign infant-formula makers such as Danone SA and Mead Johnson Nutrition Co., claiming they violated competition laws.

The baby-formula companies responded to scrutiny by slashing prices of products sold in China.
The auto and pharmaceutical investigations are continuing.

Beijing is attempting to ensure that profit margins don't come at the expense of the people, said Rocky Lee, head of the Asia corporate practice at law firm Cadwalader Wickersham & Taft in Beijing.

On luxury goods, authorities have had few qualms about causing sticker shock, boosting prices of import and luxury products like the Escalade, which is slapped with a consumption tax totaling around 386,000 yuan ($63,000).

General Motors Co. GM +0.57% said imported cars make up a small segment of their business in China. A China-built Buick Encore costs Chinese consumers $24,477, while it costs U.S. counterparts $24,160, according to a spokeswoman.
Many companies that have for years earned higher profits in China by selling to consumers who wanted premium products and status symbols, said Yuval Atsmon, a principal at consultancy McKinsey & Co.

Apple Inc. AAPL +2.12% declined to comment on iPad pricing disparities.

Experts say that price tags often also reflect the inefficiencies companies face in the Chinese market. "It can take months upon months—passing tests and getting licenses—to open a retail store in China. Permits and bureaucracy cost; all of that is passed on to the consumer," Mr. Lee said.

Brands such as Starbucks and Häagen-Dazs have set higher prices for Chinese consumers to cast an image of higher quality and create "snob appeal," Mr. Atsmon said.

A scoop of rum raisin ice cream costs $5.40 at a Haagen-Dazs shop in Beijing. In a Chinatown Häagen-Dazs location in Washington, D.C., it goes for $4.68, including tax.

A spokeswoman for Starbucks Corp. said that prices vary by market and in China, customers like larger stores with more seats, which accounts for higher real estate costs built into the price.

A General Mills Inc. GIS -0.20% spokeswoman said the company can't comment on the comparison of the Häagen-Dazs strategy in China versus the U.S. because the ice cream brand is marketed by General Mills in China, while in the U.S. it is run byNestlé NESN.VX -0.49% SA.

Not all goods in China are more expensive than elsewhere in the world. In the keenly competitive beverage market, where volume sales and market share are a top priority, a can of Coca-Cola in a Chinese convenience store is about 2.8 yuan, or $0.46, while in the U.S. it costs more than $1.

[ProdigyofZen]

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

Who can possibly know?

ASIA NEWS
August 8, 2013, 11:02 p.m. ET

China's Gleaming Ghost Cities Draw Neither Jobs Nor People

TIELING, China—When this small city in northeastern China launched a plan to build a satellite city six miles down the road, it got off to a promising start.

Urban planners spent millions of yuan to clean up surrounding marshland that had become a dumping ground for the city's untreated sewage. A pristine environment, they hoped, would help attract the businesses that would raise incomes and swell the population.

Four years later, Tieling New City is virtually a ghost town.

Clean waterways weave among deserted residential and government buildings. Housing blocks that won recognition from the United Nations for providing good affordable homes are almost empty. The businesses that were supposed to create local employment haven't materialized. Without jobs, there is little incentive for anybody to move here.

Tieling symbolizes the enormous challenges Chinese Premier Li Keqiang faces as he touts urbanization—a process analysts expect will see 250 million people move from rural areas to cities over 20 years—as the force that will ensure his country's economy keeps growing well into the future...

...In theory, urbanization stimulates growth because city dwellers typically earn more than their rural counterparts, allowing them to spend more on consumer goods and services.

For the government to realize that payoff, though, it must create jobs that will draw people into the cities. Tieling underscores the difficulty.

Among the few business owners lured to a development park in Tieling New City is Bo Yuquan, the middle-aged owner of a flooring store.

"Where are the people? There's no one here," said Mr. Bo. "I'll be out of business soon. My staff and I are discussing moving to Beijing to find work."

Said Hu Jie, the designer of the new city's landscape: "In 10 to 20 years, Tieling could be a good development, but only if you can manage to bring businesses in."...

...China has a record of building first and creating demand later, notably in Shanghai, where a decade ago the towering new Pudong business district initially failed to attract tenants but later became a symbol of China's success.

Many smaller cities lack the pulling power of Shanghai.

"With more and better job opportunities in higher-tier cities, many lower-tier cities have actually been experiencing a net outflow of population, while land sales [to home builders] there increased rapidly, exacerbating the housing oversupply," wrote Credit Suisse property analyst Du Jinsong in a recent note.

According to population data collected by Mr. Du on 287 Chinese cities, about two-thirds, mostly smaller urban centers, had fewer residents than people who were registered to live there, suggesting people have been leaving their home cities...

...A development park set up to attract providers of back-office services to financial firms, such as data storage, was supposed to employ 15,000 to 20,000 people by the end of the this year, according to the park's website.

Situated on the outskirts of the new city, the park is easy to miss. It is home to only two companies, one of which, a bank office, employs fewer than 20, said its security guard...

...Against all this, Tieling is choosing to keep building. The municipal government has rolled out plans to spend a further $1.3 billion on projects in the new city this year, including an art gallery, gymnasium and indoor swimming pool.

That is despite municipal finances coming under increasing stress.

"Financing costs are rising all the time, and raising capital has become even more difficult," the Tieling city government said in its budget forecast for 2013. "Some long-term problems and imbalances have accumulated in the management of the city's finances."...

...Ms. Cui likes the idea of retiring to the new city but isn't optimistic its population will increase. "It still needs more time, but it's really hard to say," she said with a sigh. "They're building a new shopping center, so I hope so."

Apparently they also pass Tibetan Mastiffs off as African Lions, oh those gullible Chinese!

http://www.timeslive.co.za/world/201...ry-dog-as-lion

This made me laugh out loud at my desk.

[GRG55]

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

As bubbles go, how long can this go on?

Who can possibly know?

ASIA NEWS
August 8, 2013, 11:02 p.m. ET

China's Gleaming Ghost Cities Draw Neither Jobs Nor People

TIELING, China—When this small city in northeastern China launched a plan to build a satellite city six miles down the road, it got off to a promising start.

Urban planners spent millions of yuan to clean up surrounding marshland that had become a dumping ground for the city's untreated sewage. A pristine environment, they hoped, would help attract the businesses that would raise incomes and swell the population.

Four years later, Tieling New City is virtually a ghost town.

Clean waterways weave among deserted residential and government buildings. Housing blocks that won recognition from the United Nations for providing good affordable homes are almost empty. The businesses that were supposed to create local employment haven't materialized. Without jobs, there is little incentive for anybody to move here.

Tieling symbolizes the enormous challenges Chinese Premier Li Keqiang faces as he touts urbanization—a process analysts expect will see 250 million people move from rural areas to cities over 20 years—as the force that will ensure his country's economy keeps growing well into the future...

...In theory, urbanization stimulates growth because city dwellers typically earn more than their rural counterparts, allowing them to spend more on consumer goods and services.

For the government to realize that payoff, though, it must create jobs that will draw people into the cities. Tieling underscores the difficulty.

Among the few business owners lured to a development park in Tieling New City is Bo Yuquan, the middle-aged owner of a flooring store.

"Where are the people? There's no one here," said Mr. Bo. "I'll be out of business soon. My staff and I are discussing moving to Beijing to find work."

Said Hu Jie, the designer of the new city's landscape: "In 10 to 20 years, Tieling could be a good development, but only if you can manage to bring businesses in."...

...China has a record of building first and creating demand later, notably in Shanghai, where a decade ago the towering new Pudong business district initially failed to attract tenants but later became a symbol of China's success.

Many smaller cities lack the pulling power of Shanghai.

"With more and better job opportunities in higher-tier cities, many lower-tier cities have actually been experiencing a net outflow of population, while land sales [to home builders] there increased rapidly, exacerbating the housing oversupply," wrote Credit Suisse property analyst Du Jinsong in a recent note.

According to population data collected by Mr. Du on 287 Chinese cities, about two-thirds, mostly smaller urban centers, had fewer residents than people who were registered to live there, suggesting people have been leaving their home cities...

...A development park set up to attract providers of back-office services to financial firms, such as data storage, was supposed to employ 15,000 to 20,000 people by the end of the this year, according to the park's website.

Situated on the outskirts of the new city, the park is easy to miss. It is home to only two companies, one of which, a bank office, employs fewer than 20, said its security guard...

...Against all this, Tieling is choosing to keep building. The municipal government has rolled out plans to spend a further $1.3 billion on projects in the new city this year, including an art gallery, gymnasium and indoor swimming pool.

That is despite municipal finances coming under increasing stress.

"Financing costs are rising all the time, and raising capital has become even more difficult," the Tieling city government said in its budget forecast for 2013. "Some long-term problems and imbalances have accumulated in the management of the city's finances."...

...Ms. Cui likes the idea of retiring to the new city but isn't optimistic its population will increase. "It still needs more time, but it's really hard to say," she said with a sigh. "They're building a new shopping center, so I hope so."

[GRG55]

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

And a couple of articles from this morning expressing some optimism on the restructuring:

From Bloomberg:

China’s Credit Expansion Slows as Li Curbs Shadow Banking

By Bloomberg News - Aug 9, 2013 3:41 AM MT

China’s broadest measure of new credit fell to a 21-month low as Premier Li Keqiang extended a campaign to curb a record expansion of lending that’s added risks to the nation’s financial system.

Aggregate financing was 808.8 billion yuan ($132 billion), the People’s Bank of China said in Beijing today, compared with the 925 billion yuan median estimate of analysts surveyed by Bloomberg News. New yuan loans exceeded forecasts and accounted for about 87 percent of the total, the most since September 2011. M2 money supply growth unexpectedly accelerated to 14.5 percent.

Policy makers are persisting with a crackdown on shadow banking following a government-engineered cash crunch in June even after a two-quarter economic slowdown. A report today showing faster gains in industrial output adds to evidence that growth is stabilizing after data yesterday showed exports rebounded more than estimated.

“Today’s overall outcome is a good one: Credit growth is slowing but real activity, including domestic demand and exports, are picking up,” said Wang Tao, chief China economist at UBS AG in Hong Kong.

While reduced credit may make it tougher for Li to achieve this year’s 7.5 percent growth target, it would ease dangers of a financial crisis. China’s lending surge in the past five years is of a magnitude that tipped Asian nations into crisis in the late 1990s, according to Goldman Sachs Group Inc., and the State Council last month ordered the first nationwide audit of government debt in two years.

Today’s data showed net corporate bond issuance last month was 46.1 billion yuan, down from 248.6 billion yuan in July 2012.

China’s industrial output rose more than estimated in July, adding to signs the economy is stabilizing after unexpectedly strong trade figures yesterday.

Factory production increased 9.7 percent from a year earlier, the National Bureau of Statistics said today. Retail sales advanced 13.2 percent while fixed-asset investment excluding rural households grew 20.1 percent in the first seven months of the year...

And from the FT:

Last updated: August 9, 2013 11:29 am

China slowdown shows signs of abating

China's economy appears to have stabilised amid fears that one of the world’s most important growth engines is close to stalling.

A series of small targeted measures from Chinese policy makers in recent months seems to have at least temporarily reversed a growth slowdown with factory production, investment and real estate construction all picking up in July, according to official data released on Friday

Most economists had expected the July figures to show stabilisation in the world’s second-largest economy, which has decelerated in nine of the past 10 quarters, but some numbers were surprisingly more favourable, suggesting fears of an imminent collapse are unfounded.

However, the composition of the mild rebound appears to rely heavily on construction and investment and undermines Beijing’s stated goal of rebalancing the economy more towards consumption and services.

Industrial production at large enterprises, a closely watched measure that usually tracks China’s gross domestic product, increased 9.7 per cent from a year earlier in July, sharply up from 8.9 per cent growth in June and the fastest pace since February.

The unexpectedly strong performance was driven mostly by rebounding production of steel, cement, power and non-ferrous metals, underscoring the fact that China’s growth remains disproportionately reliant on credit-fuelled infrastructure and property construction.

In contrast, growth in retail sales slipped slightly in July, increasing 13.2 per cent from a year earlier compared with 13.3 per cent growth in June.

Fixed asset investment, a key driver of China’s investment-led economy, stabilised in July with a 20.1 per cent rise in the first seven months from a year earlier, the same pace as in the six months to the end of June, following four consecutive months of deceleration.

Real estate investment increased in July, growing 20.5 per cent in the first seven months, compared with 20.3 per cent growth in the first six months.

Power production, another closely watched indicator, increased 8.1 per cent in July from a year earlier, up from 6 per cent growth in June and the fastest increase since December 2011.

“The July data are moderately positive; they show the economy is stabilising and that downward pressure has eased,” said Hu Yanni, an economist at China Securities. “We expect stable growth in the third quarter with a possible acceleration in the fourth quarter.”

Signs of stabilisation in July come after trade figures released on Thursday showed a rebound last month in Chinese exports and particularly imports, which many economists took as evidence domestic demand has picked up in the country.
Many analysts forecast China will grow by about 7.5 per cent for the whole year, which would be the slowest pace of expansion in the country since 1990.

In July, Li Keqiang, premier, pledged to maintain the country’s year-on-year economic growth rate above an unspecified lower limit, which most analysts believe is around 7 per cent, while keeping consumer inflation below the government’s 3.5 per cent annual target.

On Friday, official figures showed consumer prices in China rose 2.7 per cent in July from a year earlier, the same pace as in June and well below Beijing’s 3.5 per cent upper limit. Meanwhile, producer prices stayed in deflationary territory for the 17th consecutive month, falling 2.3 per cent in July from a year earlier, compared with a 2.7 per cent drop in June.

Taken altogether, July’s numbers suggest a mild, investment and construction-led growth rebound is under way in China and that will boost sentiment in China-dependent markets ranging from the Australian dollar to copper prices.

“By considering the rebounding official PMI and trade data as well as the subdued inflation readings in July, we expect today’s data will have quite positive impact on commodities, commodity-related currencies and some Chinese stocks,” said Lu Ting, an economist at Bank of America Merrill Lynch.

Lower inflationary pressure could provide space for the government to loosen monetary policy and provide more support for the economy but so far Beijing has shown little interest in any major stimulus.

In recent weeks, the government has introduced a series of small targeted measures to arrest the continuing growth slowdown, including temporary tax cuts for small businesses, investment in railways and low-income housing and streamlined customs procedures.

“[Friday’s] data confirmed that the ‘mini-stimulus’ in the past month, including railway and information industry investment, has gradually taken effect,” said Liu Ligang, an economist at ANZ Bank. “We believe the Chinese authorities are unlikely to launch large-scale stimulus.”

[GRG55]

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

Dr Michael Pettis is back on line. First blog from his new site is worth a read.

Excerpt:

Anyone who understands the fundamental problem with the growth model that China has pursued, which has many historical precedents, and why its great success in the 1980s and 1990s could not be sustained once certain parameters were breached, as they inevitably must be, also knows that until those parameters were breached, the interests of the elite and of overall growth for the economy were more or less aligned. Since then, they are in opposite directions. This is why the period of adjustment after rapid growth has always been the most difficult stage for a developing country, and one that very, very few countries have successfully managed, and why it will be particularly difficult for China, and this is why corruption – although perhaps of enormous social and political consequence – is not the fundamental problem.

The debate about China continues to rage, although it has taken a strange twist. No one doubts anymore that China’s imbalances threaten the success of the growth model and some are even insisting – very prematurely, in my opinion – that China has clearly failed and will face a collapse (whatever that means). I think the key division now, however, is over debt and over the recognition of previous losses. The bulls have retreated from many of their more fantastic predictions but they mistakenly think that the problem of debt is localized, and not systemic, and can be administratively resolved by the regulators. They also seem to ignore the possibility that there is an enormous amount of mispriced assets on the balance sheets of the banks and that these losses have to be assigned to some sector of the economy or the other, and that this assignation is at heart a political process.

The skeptics believe that an unsustainable rise in debt is key to continued growth in the economy and do not believe that it can be resolved administratively. High growth means, by definition, that debt is rising unsustainably. The bulls say that growth has bottomed out at 7% or 7.5% and that China can restructure the economy, rebalance towards consumption, and arrest the credit expansion while keeping growth rates above 7% or close to 7%. The skeptics argue that this is impossible, and to the extent that Beijing takes steps to keep growth rates high, it simply increases the risk of a debt crisis and economic collapse.

Last year in one of my blog posts I argued that although I remained very skeptical about the sustainability of the China growth model I nonetheless believed that China bulls could make a plausible argument but were failing to do so largely because they did not address the three questions that were fundamental to the debate on the sustainability of the Chinese growth model.

These questions are:

• How much debt is there whose real cost exceeds the economic value created by the debt, which sector of the economy will pay for the excess, and what is the mechanism that will ensure the necessary wealth transfer?
• What projects can we identify that will allow hundreds of billions of dollars, or even trillions of dollars, of investment whose wealth creation in the short and medium term will exceed the real cost of the debt, and what is the mechanism for ensuring that these investments will get made?
• What mechanism can be implemented to increase the growth rate of household consumption?

...

http://blog.mpettis.com/2013/08/the-...hinas-economy/

[jk]

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

China’s central bank will fine-tune policies and strike a balance between stable growth, structural adjustment, reform and risk prevention, according to a statement posted on its website Aug. 4...

sounds like a job for the flying wallendas.

[GRG55]

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

Copper Falls as Chinese Service Stagnation Fuels Demand Concern

Aug 5, 2013 5:59 AM MT

Copper fell in New York after three sessions of gains as a stagnant index of service industries in China stoked concern about the outlook for demand in the world’s largest consumer of the metal.

A measure of Chinese service industries released today by HSBC Holdings Plc and Markit Economics was unchanged in July. A manufacturing index for the nation published Aug. 1 by HSBC and Markit fell from June. Factory shutdowns for summer holidays curbed demand, according to RBC Capital Markets Ltd.

“Base metals are mixed and directionless as the painful reality of the August slowdown is upon us,” RBC said.

Copper for delivery in September slid 0.6 percent to $3.153 a pound by 7:51 a.m. on the Comex in New York. Copper for delivery in three months fell 0.6 percent to $6,962 a metric ton on the London Metal Exchange.

The government in China pledged last week to prevent growth from slipping below a “reasonable” level. The nation’s economy slowed for nine of the last 10 quarters. China’s central bank will fine-tune policies and strike a balance between stable growth, structural adjustment, reform and risk prevention, according to a statement posted on its website Aug. 4...

[shiny!]

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

As bubbles go, how long can this go on?

[GRG55]

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

Let's take a little trip back in time...to the days of Alan Greenspan before the "Sir" was added. To the bucolic days of the spring of 2005:

Greenspan Is Concerned About 'Froth' in Housing

Published: May 21, 2005

WASHINGTON, May 20 - Alan Greenspan, chairman of the Federal Reserve, suggested on Friday that the red-hot housing market is becoming a little too exuberant for its own good...

...Mr. Greenspan emphasized that he sees no sign of a nationwide housing bubble, but he acknowledged concerns over "froth" in the market and pointed to a big increase in speculation in homes - particularly in second homes. As a result, he said, there are "a lot of local bubbles" around the country...

Just imagine the feeling of "déjà vu all over again" when I read this...

What bubble?

January 19, 2010

Residents of big Chinese cities are worried about bubbles. It's easy to see why: Shanghai mortgages rose 1,600% in 2009 from 2008 to US$15.58 billion, while residential property prices in the city shot up 68% from 2008 to US$4,571 per square meter. The rapid growth has prompted moves to curb speculation, including – in Shanghai at least – tightening of tax and financing policies on second-home purchases.

Such high rates of growth are of course unsustainable, but it remains too early to talk of bubbles nationwide. Yes, Wang Shi, chairman of developer Vanke, warned that property markets in Beijing, Shanghai and Guangzhou were frothy, but there is more to China than first-tier cities...

Still crazy after all these years...

Reforming the Chinese economy may prove just a wee bit more difficult than China bulls might prefer to acknowledge.
Too many vested interests, too much corruption, too much money being made too quickly...all the ingredients to keep the bubble inflating as long as possible, no matter what the wise men in Beijing may command.

Questions as Developers Spend Big on Land Deals

Property firms have been aggressively pursuing new plots, but a slowdown in home sales has raised concerns about their prospects

Caixin
07.23.2013 12:03

(Beijing) – Official statistics show that total land transactions for commercial development in Beijing, Shanghai and Guangzhou in the first half of the year reached 167.5 billion yuan, close to the total for all of 2012.

Since the beginning of the year, land transactions have rapidly revived in larger cities, and auction records have been broken in various cities since the beginning of May...

...Representatives from about 70 developers participated in a recent land auction in the capital,

an auction that offered a highly sought-after plot in Xiajia Hutong in downtown Beijing.

Fourteen property firms participated in the auction of the Xiajia plot. Within five minutes, the

price reached the 1.77 billion yuan cap set by the municipal land bureau. Buyers then started

to compete over proposals for the required building of subsidized housing on the land.

Beijing Maoyuan Real Estate Co. won the bidding by promising to build another 28,000 square

meters of subsidized housing in addition to the required 10,000 square meters. The total area

for subsidized houses promised by Maoyuan accounted for 49.6 percent of the plot.

Excluding the subsidized housing, the price for commercial housing at the plot was 41,000 yuan

per square meter, much higher than the average in the surrounding area.

"I don't know how they calculated the deal," said an employee of a large property firm. "The

sales price will have to be higher than 70,000 yuan per square meter."

With such a target, the Xiajia Hutong project has to be labeled luxury, the source said, but

with such a large area of subsidized housing, it will be quite challenging for the developer to

operate...

...Research by property agent Homelink Real Estate Co. found that during the first half of the year

Beijing reported 100 land deals with a total transaction value of 66.4 billion yuan, 4.5 times

more than for the same period last year. In the first week of July, another six plots were sold in

the city, pushing the total to 74.6 billion yuan, exceeding the figure for 2012.

Beyond the capital, land markets in large cities like Shanghai and Guangzhou have also boomed.
An estimate by Caixin based on public information found that Shanghai has registered more
than 70 billion yuan in land transactions in the first half. In 2012, the figure was 87.6 billion
yuan...

...A survey by Shanghai Yiju found that total land sales revenue in the country's ten largest cities
reached 314 billion yuan in the first half, growth of 160 percent from the same period last year...