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Posts Tagged ‘China miracle

DB Briefs: Danger of a deteriorating social mood / China’s shifting economic sands / Is bank recapitalization the answer?

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from The Daily Bell
Posted August 30, 2011

The deflationary hurricane of deteriorating social mood

Deteriorating social mood is like a very slow-building, very slow-moving hurricane: The longer it goes on, the stronger it gets. And while some policymakers may be praying like St. Augustine for chastity, and others for a book of dry matches, I’d be moving to higher ground to stand on. The path I am most worried about is not the long-term sustainable inflationary economic one, but the much nearer-term deflationary storm path that comes with deteriorating social mood. For the northeast, Irene may have now passed. But for all of America, there is another, much bigger storm that bears watching closely. – Minyanville.com

Dominant Social Theme: Everything is OK and don’t you worry. The elites know how to handle the economy, and you will retire rich, even if you don’t think so now.

Free-Market Analysis: The writer of this article, Peter Atwater, has hit upon a kind of anti-meme. He believes that “Everything we [in the West] need to do for long-term economic, if not societal, success and stability comes with very severe short-term consequences.” And thus it has not been done. Fed Chairman Ben Bernanke‘s monetary stimuli are not the answer, he argues. More radical solutions are required. What is necessary is a severe reinforcement of economic “chastity.” Banks must be strengthened; nations must cease to spend; citizens must accept austerity.

Of course, this is a power elite theme of itself: that the larger world (and Western) economy is an irresponsible one and that the West’s leadership has proven inadequate to the task. Here at the DB, we disagree. The issue is not austerity or cost-cutting. Responsible leadership in our view is that which demands an end to the elite’s ruinous central banking economy and a return to some sort of competitive money, which would inevitably feature silver and gold.

Somehow, despite Atwater’s concerned gloom, we don’t sense he’s ready for the really radical reconfigurations necessary to build healthy economies. He apparently feels that reshuffling the proverbial deck chairs is a revolutionary act.


China’s shifting economic sands

Is China’s economic miracle built on sand or cement? It won’t exactly make world headlines, but in the Chinese port city of Dalian there was another accident today in the city’s sprawling petrochemicals development zone. This time a fuel tank caught fire in an oil refinery belonging to state major PetroChina. This is the same city, you’ll remember, that was hit by serious protests a fortnight back after a paraxylene chemical plant was nearly breached by a storm surge caused by a passing typhoon. In that case, the local government caved in and agreed to shut down the plant. What’s amazing – and disconcerting for many living in Dalian – is that this is the FOURTH major safety alert in the petrochemicals complex in the last 12 months or so. – UK Telegraph

Dominant Social Theme: Don’t worry about China. This is one powerful and far-sighted country.

Free-Market Analysis: This article in the Telegraph about China is an interesting one because unlike many mainstream articles it dares to ask the question whether the “Chinese Miracle” is nothing but hype and the proverbial madness of crowds.

Every night when he goes home to his Beijing apartment, the author writes, he catalogues the way that the apartment is “quietly crumbling.” Look carefully, he writes, “and you’ll see the flagstones in the public areas are subsiding drunkenly, the access road to the rear is shot to pieces, the bathroom fittings are corroding and the façades are starting to peel. With an apartment that hardly matters, but when it comes to railways, bridges, petrochemical complexes, 40,000 dams (as my colleague Malcolm Moore reported this week) and even nuclear power stations, we’ll have to pray higher standards have been enforced.”

Actually, the article’s feedback comments are even more alarming, speculating that the same sort of sloppy construction may doom modern Chinese dams to catastrophic failure within the next ten years. As for domestic harmony, we find the article has generated the following feedback from Scott Jensen: “In 2005, China stopped publicly reporting how many riots occur each year in its country because the rate of increase was rapidly increasing year after year. Some now speculate there are at least 120,000 riots in China a year. That’s over 10,000 a month.”

We’ve been writing about the demise of the Chinese Miracle for several years now. And articles like this one only reinforce our conclusions. China’s old communist leaders simply don’t know what to do. They’ve thrust China into the modern era, but in a manipulative and controlled way (see Sino-Forest Corp.) that is merely storing up problems for the future. Eventually, the dam is likely going to break – metaphorically and in reality. The catastrophic results may shake the world.


Is bank recapitalization the answer?

European banks set cash test by IMF chief … European banks face ordeal by fire this week after the International Monetary Fund called for “urgent” action to shore up their defences, if necessary with state money and under legal compulsion. Recovery is in danger if we don’t shore up defences, says Christine Lagarde – UK Telegraph

Dominant Social Theme: Strengthen the banks to strengthen the EU.

Free-Market Analysis: One of the problems with gaining Christine Lagarde as the IMF’s new chief, is that she seems to believe it is incumbent on her to be vocal about the Western economic system. Thus, she set off what the Telegraph calls “tremors” at a recent financial conference by warning that the global economic system was on “thin ice.”

“We are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed, so we must act now,” she said. “Banks need urgent recapitalisation. If it is not addressed we could easily see the further spread of economic weakness to core countries, even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalisation,” she said.

Lagarde is a lawyer by training, so perhaps we should give her the benefit of the doubt. But such warnings are merely part and parcel of a larger elite charade in our view (and Lagarde now works directly for the elite). The “reserves” a bank holds in the modern era are nothing but paper certificates. It is difficult to see how holding more or fewer of them contributes to a bank’s solvency.

If she were to demand that banks hold gold or silver reserves, we would be more impressed. But that would be too sensible. Instead, she will no doubt continue to offer this sort of nonsensical rhetoric. In the age of central banking, a bank’s solvency is far more dependent on the largesse of central banks.

If Lagarde were truly sincere about bank recapitalization, she would examine the linkages between central bankers and their commercial banking brethren. Those with the strongest relationships would been seen as having the healthiest banking prospects. No doubt, this is an overly cynical recipe. But it is a realistic one.

Chinese Real Estate and the Civil Unrest Powder Keg

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by Justice Litle
Editor, Taipan Publishing Group 
Posted 20 July 2011

In China, a massive real estate bubble has left 64 million apartments vacant – and millions of laborers angry.

Things are getting heated in western China. Via The Wall Street Journal:

BEIJING — Chinese police “gunned down” several rioters after four people were killed in an attack on a police station in the northwestern region of Xinjiang, the state media reported, in what appeared to one of the most violent incidents in the mostly Muslim area since it was shaken by ethnic rioting in 2009.

Two security personnel and two hostages were killed, and one other security officer was injured in the attack, which began around midday Monday in Hotan, a small, remote oasis city on the edge of the Taklamakan desert, the state-run Xinhua news agency said. The agency gave no details of how many attackers were killed or injured.

It is hard to know the frequency or intensity of “civil unrest” incidents, due to media suppression and spotty regional coverage. But it is clear the necessary conditions for sparking unrest – a civil unrest brushfire if you will – are in place.

One dynamic that could touch off the inferno – empty Chinese apartments.

By some estimates, China has as many as 64 million apartments that remain unlived in. This is a function of the “ghost cities” phenomenon (more on that in a minute), in which vast metropoli are constructed with no rhyme or reason.

Why would this be a factor for unrest? Because even as these apartments go empty, gathering dust waiting for renters who never come, poor Chinese laborers are living in epically crowded conditions. For all of China’s phantom real estate, there are multiple families sharing tiny domiciles, with as many as 11 in a two-bedroom apartment.

It doesn’t make sense. With so many residences barren and empty, why is the Chinese labor class packed in like human sardines?

Because the shiny new apartments are far too expensive for the average Chinese worker to afford – orders of magnitude more than the average salary, with very strict payment terms (50% up front, 36 months for the rest).

The Chinese real estate market is booming, nonetheless, because property developers keep finding ways to finance construction – and wealthy Chinese investors keep buying. Empty buildings will often see units snapped up by out-of-town buyers, only to have “for rent” signs go up in the windows a short time later.

The vast majority of apartments remain empty. Sold by Ponzi real estate developers… bought by Ponzi investors… a self-sustaining cycle in which prices go up because the buyers are making them go up. It’s the “greater fool theory” in full effect.

Here’s a thought: Why don’t Chinese officials just order large price markdowns on these expensive, empty albatrosses, so that the crowded laboring class can move into them and have nice places to live?

There is just one big problem with that notion: A wholesale markdown on Chinese real estate, to levels anywhere near what real buyers can afford, would potentially bankrupt China’s property developers… thoroughly outrage the well-connected property investor class… and lead to a full-blown banking crisis as hundreds of billions in loans went bad.

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China: That urban empty feeling

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from The Daily Bell
Posted originally December 16, 2010

And Now Presenting: Amazing Satellite Images Of The Ghost Cities Of China … The hottest market in the hottest economy in the world is Chinese real estate. The big question is how vulnerable is this market to a crash. One red flag is the vast number of vacant homes spread through China, by some estimates up to 64 million vacant homes. We’ve tracked down satellite photos of these unnerving places, based on a report from Forensic Asia Limited. They call it a clear sign of a bubble. – BusinessInsider

Dominant Social Theme:
Nothing to see here. Just investments.

Free-Market Analysis:
Even at the height of the mortgage boom in America, US builders were not erecting empty cities, were they? Did we miss something? In China, apparently they are. In our quest to present what’s going on, we’ve documented some uncanny occurrences over the past two years, including the vacant city of Ordos in Mongolia. But what Business Insider has provided us, courtesy of Forensic Asia Limited is a series of satellite images that prove that Ordos is not a unique event.

China is actually littered with what Business Insider calls ghost cities, and the satellite pictures provided would seem to prove it. It’s a pretty amazing presentation, showing how the power of the Internet, when married to space technology, can come up with important results. Photo captions from the article include:
• Here’s China’s biggest ghost city: Zhengzhou New District. Like Ordos, Zhengzhou New District has glamorous public buildings EMPTY
• See that orange area to the north-east of the Xinyang? It’s a giant new development, which doesn’t even have a name yet.
• The ghost city of Dantu has been mostly empty for over a decade. There are no cars, no signs of life

• The mostly empty city of Bayannao’er, which boasts a beautiful town hall and World Bank sponsored water reclamation building
• Now here’s Kangbashi, a new city with capacity for 300,000 –that houses 30,000
• Finally, here’s a giant new campus for Yunnan University, which was built to accommodate 2.3 million students. It has 11,000 enrolled.

The crazy photos march past, each one more surprising than the next. Whole swaths or empty developments, unrolling for what appears to be miles. Desolate city centers. Empty modern art museums. The largest mall in the world has now sat empty for nearly a decade now. Ordos has been vacant for years as well. Other “ghost cities” with little or no habitation. The argument is that these developments will fill up.

Chinese speculators are buying apartments – perhaps sight unseen – that exist in empty cities, are unfurnished and perhaps not even hooked to utilities; and we would think this sort of news would be on the cover of every business magazine in existence. It’s a darn important story. Here are some headlines we can think of: China Bust Will Topple Western Economies Into Even Deeper Depression; What Happens to the Wretched World When China Founders?

OK, let’s try to make our point a different way. Here’s a fictional conversation between a reporter at a major, mainstream publication and his editor:

Reporter: I’ve been trolling through the Internet. I’ve noticed there are nearly 65 million unoccupied homes in China.
Editor: 65 million houses. Whoa! That would house nearly one-fifth of the Chinese population.
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China’s going the way of Spain, Ireland and Japan

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by Merryn Somerset Webb
Originally published: January 15 2010

IT IS THE FASTEST-GROWING CONSUMER of luxury goods in the world. It will have an economy bigger than the US by 2027 (or maybe 2030, depending on who you listen to). It has 70 big cities, all crammed with new-build apartment blocks. It is home to the world’s largest dam. It buys more cars than America and produces half the world’s steel. It has grown somewhere between 8 and 10 per cent every year for decades and can keep doing so. It is the world’s second-largest consumer of energy. It produces 60 per cent of the world’s buttons in just one of its towns. It has a huge population with a growing middle class poised to gobble up every consumer good in sight.

Yes, it’s China – the world’s current miracle economy, the country that will dominate the decade, and the best possible home for your savings during that decade. That, at least, is the hype. But how much of it stands up to scrutiny? At the end of last year, I wrote here that while I agreed with much of the China story, I wouldn’t touch its markets because they were far too expensive.

But having looked at things in more depth, I’m beginning to doubt the status of the economic miracle itself. Why? Because, right now, it rests on about the most unstable of foundations there is: rampant credit growth.

China has been growing fast – at around 10 per cent a year – for about 30 years. That, says a note from Pivot Asset Management, combined with the fact that the growth has mostly been investment led, means that, “both in its duration and intensity”, China’s capital spending boom has now outstripped all other “previous great transformation periods”, such as those of postwar Japan and Germany.

The point? That China’s growth cycle is more mature than emerging: 
it has most of the infrastructure it needs already, and so should be slowing rather than accelerating its capital spending.

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Written by aurick

19/01/2010 at 11:18 pm