Living in a bubble

Good doco, I agree China is in a bubble, however I don't think it will burst anytime soon, its a closed banking system, the governments owns the major banks there. a lot of the money stays in China because its not  a free market in the western sense. I believe due to this system it can bubble away for years before it blows up. 

Like I said they are in a bubble, however I still believe it has a way to run. They are the biggest exporter of goods to the world. I am not prepared to write them off tomorrow. I think they have a few year to run. in my opinion markets always go further than people predict.

http://www.bloomberg.com/news/2013-11-21/ten-predictions-for-china-s-economy-in-2014.html

China Update…

China Is Running Out Of Money

• So how bad is the situation?  Anne Stevenson-Yang of J Capital Research reports that the tax bureau of one of China’s largest cities “has no money.”  Its officials, incredibly, have been told to collect their own salaries from taxpayers directly.  The breakdown of government in that city is also evident across the country, where localities are now desperate for revenue.
• When shops close to avoid predatory officials, we know China’s coffers are almost empty.  And to make matters worse, the country’s financial problems will be harder to solve now that the country’s balance of payments has turned negative.  The net outflow in the second quarter of this year was the first since 1998.  The country’s reserves also dropped in Q2.  We should not be surprised: there was perhaps $110 billion of capital flight during that period, and the gusher outflow looks like it continued in June.  Chinese citizens are losing confidence fast.

China Halts Bank Cash Transfers

• Banks are evidently scrambling for cash.  They have, in the past, resorted to desperate maneuvers at the ends of calendar quarters to meet regulatory requirements.  The current crunch is even more alarming because it cannot be occurring for quarter-end reasons.

  Something is very wrong in China at the moment.  Banks’ apparent need to conserve cash, coming just weeks after the last incident, looks ominous.

If these incidents aren't evidence of a financial system under extreme duress and on the verge of collapse I don't know what is.

'has shown signs of stabilising,' ….

.(…wiping coffee off of keyboard)

If you believe that you'll believe anything.

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

China's debt is nothing compared to a lot of western counties in percentage terms of GDP to debt & their GDP is growing at 7% plus (giving them the ability to service debt). I am aware the dollar figures thrown around in these articles are huge sum's of money, but in relation to the size of their economy and a 1.3 Billion population it is relative.

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

By the way NZ (where you are I believe) is comparable in percentage terms of GDP to debt without the growth to China . It also has lower unemployment levels 4% in stead of NZ 6%

Awesome doco, something I have seen first hand in China. Anyone taken the bullet train from Bejing to Shanghai? empty plains, then bang the new month there are 100 apartments going up. They have a interesting 'incentive' system to 're-populate' with small business owners obtaining cash incentives and ownership then make a killing when they sell it two years later.

The developer discount of 1/3 was pretty sad though.

Thanks for sharing.

Cheers, Ivan

http://www.youtube.com/watch?v=rwvmru5JmXk

Another reason I won't write them off. Try doing this in Australia or NZ. 

Chinese data is widely considered to be BS and the fact they have no social welfare system and consequently no data on unemployment kinda makes the point moot. There is far more relavant indicators namely income levels which are stagnant and have been for years, SME bankruptcies, etc etc.

It wasn't a main point. Just one of many. The fact that one was deliberate misinformation should pose more interesting questions as to why. 

I have no idea what tomorrow means. That's anywhere from the next day to infinity. China has been in measurable decline for around 2 years now. If you don't understand that the PBOC has lost control of the economy you're looking at it through rose colored glasses.

When the PBOC has to print $200B/mth to keep this baby afloat a little bit longer we're way past 'dire'

This could be the trigger

A Wave Of Chinese Trust Defaults Might Be Underway And Things Could Get Scary For Chinese Banks

• When we take these waves of trust defaults, WMP defaults, the credit crunch we saw in December and back in June, and the surge in local government debt at a time when China's economy is slowing, the picture gets a little scary.

  "People have said for some time that China's shadow banking sector, including trust sector, are an accident waiting to happen and now it's happening," Chovanec said.

The reality is that China is collapsing now. What you're seeing out there is the PBOC fighting fires everywhere trying to get this thing under control but failing. They are at a point where they'll will have to choose which fires to fight and which to leave to burn. They just bailed out the first mega trust and have set themselves up for a world of hurt now after creating a precedent.

China isn't the only sick economy to worry about either. US is looking decidedly dodgy of late. Markets are slipping, rates are rising, Big Business is in layoff mode again and earnings forecast are pretty grim – all on a tenny wenny little taper. Jeez. Throw in EM's falling into FX collapse left right and center and rioting in the streets and you get the feeling things are really starting to unravel.

Economic growth is so furry as to be almost useless. GDP has always been one of those popular stats that poly's and academic economists like to quote but every country has a different way of calculating it to suit their needs;

• Macroeconomic Transparency

  There is a worldwide obsession with Chinese gross domestic product (GDP). GDP is a poor measure of national wealth and economic performance. This is especially true in China where so many transactions are “empty”: China’s official benchmark of fixed asset investment for 2012, for instance, was about $1.75 trillion higher than the State Statistical Bureau’s (SSB) number for gross fixed capital formation, the standard international measure.[2] Land or used machinery changes hands but creates no additional value. Funds are said to be spent, with no identified benefit. Fixed asset investment is dutifully reported every month, while gross fixed capital formation appears only once a year.

China's growth came off an extremely low base consequently high growth looks impressive but is small in scale. As it's economy scaled up over the years that growth becomes a destabilising factor. You can't double your economy every 5 – 10 years indefinitely without running into major problems. China drove growth by stipulating growth rates required of regional leaders. Consequently much of this growth was driven by misallocation of capital simply to fulfill demands from Bejing. Other strategies involved fraudulent invoicing to make their GDP figures meet targets.

Low unemployment. Reality check because employment is a poor indicator of financial wealth and health –

http://www.china-mike.com/facts-about-china/facts-rich-poor-inequality/

• China has about 150 million people living below the United Nations poverty line of one US dollar a day.
• Nearly 500 million Chinese people live on less than $2 a day.
• 85% of China’s poor live in rural areas, with about 66% concentrated in the country’s west
• 99% of China’s poor live in or come from rural areas, according to national statistics, which count migrant workers in cities among the rural, not urban poor. Even if migrant workers are excluded from the rural population, 90% of poverty is still rural.
• Over half of China’s population lives in rural areas…but they share less than 12% of the country’s wealth.
• Levels of poverty are higher and more severe in China’s western regions, but nearly half of the poor are in other parts of the country.
• China’s poverty among ethnic minorities is two to three times higher than among the Han Chinese.
• Up to 200 million Chinese workers and peasants suffer from occupational ailments, according to data from the Ministry of Health.
• China’s middle class is estimated to between 100 million and 150 million people.
• China has about 55 million middle-class households
• China ranks #53 worst worldwide in terms of income inequality, with a Gini index (measuring wealth inequality) of 41.5. In comparison, the U.S. ranks #40 worst with a Gini index of 40.
• In the mid-2000s, China’s top 10 percent of the population controlled 45 percent of the country’s wealth.
• In 2009, China’s urban per capita annual income of about US$2,500 was nearly three times that of rural residents. The gap is much more extreme in larger, wealthier cities such as Beijing ($9,085 in 2008) and Shanghai ($10,529 in 2008).
• The average annual income in China’s cities is now more than three times the average income in the countryside, according to the National Bureau of Statistics.

  China Daily, the government-run newspaper, reported that it was the widest disparity for more than three decades.

• Real estate and manufacturing together make up more than half of China’s wealth creation among the richest Chinese individuals.

2nd largest economy and largest exporter. Big is only an advantage when demand exceeds supply. It is a major hindrance when supply exceeds demand. China is currently experiencing over production and over capacity in the range of 30%. Business defaults are accelerating as global demand continues to contract for China's 'stuff'

One of the reasons I came back to NZ was that I believe that when a global correction comes NZ is small enough and diverse enough with its exports to still function at a better than average level comparatively.

NZ's primary exports are largely in growth areas regardless of economic conditions.

The down side is that the countries we export to are extremely vulnerable to economic crashes. China falls over Australia will feel a lot of pain and that will rub off on NZ from both sources. You might note that not so long ago the US was NZ's primary market but it's now slipped to 3rd.