China's economy is in trouble....

Swiffness!
Swiffness! Members Posts: 10,128 ✭✭✭✭✭
"From Morgan Stanley comes the latest must read bearish China report. The outlines here are right but MS underestimates the impact of a Chinese hard landing upon the world."

We have described in detail over the past two years how we believe China’s twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China’s economy, significantly below market expectations. In recent weeks, a trip to the region and further research into China’s shadow banking system have convinced us that China is approaching its “Minsky Moment,” (Display 1) which increases the chances of a disorderly unwind of China’s excesses. The efficiency with which credit generates economic activity is already deteriorating, as more investments are made in non-productive projects and more debt is being used to repay old debts.

...one of the more controversial conclusions of our analysis is that global economic growth could be impacted severely enough to cause a global earnings recession....

china_minsky.jpg

Our analysis indicates that China’s economy has arrived at that unstable state where speculative and Ponzi finance appear to dominate. From a macroeconomic perspective, very few economies have ever created as much debt as China has in the past five years. China’s private sector debt has increased from 115% of GDP in 2007 to 193% at the end of 2013.3 (Display 2) That 80% increase over five years compares to the U.S.’s 26% in 2000-2005. In recent years, only Spain and Ireland have achieved debt growth greater than China’s. Every year, China is now adding $2.5 trillion of private sector debt to a $9.7 trillion GDP.

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The sheer volume of debt alone is unsustainable. You can't create 1/4 of a nation's GDP every year in debt without consequences.

The source of this Minsky Moment was in the days immediately following the 2008 crash. The central bank of China created immense amounts of easy credit (much more than in the United States) in their effort to prevent any slowdown of any amount in their economy. It worked, but it didn't produce sustained development. Most of it got sucked into real estate.

china-peak-residen.jpg

Those consequences are malinvestments.

Most of those malinvestments have been funneled into speculative real estate, exceeding Japan in the late 80's and the United States in the mid 00's.

China_ghost_city4.jpg

The stories of "ghost cities" in China are legendary by now, although it might be nothing compared to what is coming:

Nomura said the number of ghost towns has spread beyond the well-known disaster stories of Ordos and Wenzhou to at least eight other sites. Three developers have abandoned half-built projects in the 2.5m-strong city of Yingkou, on the Liaodong peninsular. They have fled the area, a pattern replicated in Jizhou and Tongchuan.

Li Kashing, Hong Kong’s top developer and Asia’s richest man, has been selling his property holdings in China, including the Duhui Palace in Guangzhou and the Oriental Financial Centre in Shanghai.

Optimists hope that the country’s urbanisation drive will stoke demand for years to come, but this too is in doubt. China’s workforce contracted by 3.45m in 2012 and another 2.27m in 2013 as the demographic crisis began to bite. The number of fresh rural migrants to the cities each year has already halved from 12.5m to 6.3m since 2010. Nomura said there could be net outflows by 2016.

The mounting stress in the property sector is a test of President Xi Jinping’s vow to impose market discipline, however painful. Beijing allowed the solar group Chaori to default earlier this month, the first failure on China’s domestic bond market.

The authorities are trying to wean the economy off excess credit after a $16 trillion spike in loans since 2009 - equal in size to the entire US banking system - but lending curbs are beginning to expose the sheer scale of bad debt in the system.

http://youtu.be/rPILhiTJv7E

^^^ - i knew this crazy ? was gonna bite them in the ass eventually. lol @ ? actin like the U.S the only ones with srs problems

http://www.dailykos.com/story/2014/03/20/1286182/-The-Minsky-Moment-has-arrived-in-China

http://www.macrobusiness.com.au/2014/03/morgan-stanley-chinas-minksy-moment-is-here/

http://www.telegraph.co.uk/finance/china-business/10703990/Looming-property-default-in-China-raises-fears-of-broader-crisis.html

Comments

  • jono
    jono Members Posts: 30,280 ✭✭✭✭✭
  • Jabu_Rule
    Jabu_Rule Members Posts: 5,993 ✭✭✭✭✭
    edited March 2014
  • Darth Sidious
    Darth Sidious Members Posts: 2,507 ✭✭✭✭✭
    I had just read this story yesterday talking about the credit pull back in China.

    As credit tightens at home, Chinese sell Hong Kong luxury real estate
    http://www.reuters.com/article/2014/03/19/us-hongkong-property-chinese-idUSBREA2I23Q20140319



    Lol at people thinking a centrally managed govt\economy with rampant corruption could navigate the complexities of transitioning from communism to 'practically' Laissez-faire capitalism in some cases without a big bubble and crash.

    unfortunately, China's problems will be the world's problems in a global economy.

    I think this is the biggest mall in the world and a ghost town in China.

    http://www.youtube.com/watch?v=5zPkm2SU1DM
  • twatgetta
    twatgetta Members Posts: 6,705 ✭✭✭✭✭
    If China's economy is in trouble I'm ? Clark. They OWN America literally, WE are the ? in bankrupt status.

  • zombie
    zombie Members Posts: 13,450 ✭✭✭✭✭
    NOW this ? is a problem
  • kingblaze84
    kingblaze84 Members Posts: 14,288 ✭✭✭✭✭
    edited March 2014
    Damn, now China REALLLLLY needs America to keep buying its products. Unless China has some clever tricks up its sleave, America is gonna have the world's reserve currency for a long time. The really bad thing about this though is that growth worldwide is gonna slow down, since China was buying so many things around the world. Africa may be hurt by this, or maybe not
  • kingblaze84
    kingblaze84 Members Posts: 14,288 ✭✭✭✭✭
    edited March 2014
    twatgetta wrote: »
    If China's economy is in trouble I'm ? Clark. They OWN America literally, WE are the ? in bankrupt status.

    China doesn't owe 17 plus trillion true, but they also can't print dollars the way America does, so China could be in some serious trouble in the short and long term. I'm sure America will take advantage of this some how
  • 2stepz_ahead
    2stepz_ahead Guests, Members, Writer, Content Producer Posts: 32,324 ✭✭✭✭✭
    they were building too fast an not enough people making money to buy anything.
    I been there an its crazy
  • Jabu_Rule
    Jabu_Rule Members Posts: 5,993 ✭✭✭✭✭
    edited March 2014
    Nothing good can come form a people that has no problem making sewage oil and garbage dump soil..

    258020-digou-oil-being-cooked-in-vats.jpg
  • MzKB
    MzKB Members Posts: 3,366 ✭✭✭✭✭
    zombie wrote: »
    NOW this ? is a problem

    Agree
  • spiritgod87
    spiritgod87 Members Posts: 409 ✭✭✭✭
    China is a producer, look in your house and see all the ? made in china, they can't go broke long as we keep buyin
  • janklow
    janklow Members, Moderators Posts: 8,613 Regulator
    edited March 2014
    twatgetta wrote: »
    They OWN America literally, WE are the ? in bankrupt status.
    "literally" is not the correct word to use here for two reasons:
    01. they don't LITERALLY own America;
    02. China owns like 8-10% of US public debt
    Unless China has some clever tricks up its sleave, America is gonna have the world's reserve currency for a long time.
    there's really nothing wrong with this

  • Melqart
    Melqart Guests, Members Posts: 3,679 ✭✭✭✭✭
    Honestly, I've really contemplated the whole issue of reserve currency, western ? etc... as much as the west has faults, as much as they have racist foreign policies, the opposition and competition is waaayyy worse. atleast the US pretends to give a ? about their people... honestly it's a lesser of the evils kind of situation.
  • Jabu_Rule
    Jabu_Rule Members Posts: 5,993 ✭✭✭✭✭
    Sion wrote: »
    China isn't in as grave danger as yall think. I called this ? like 4 years ago. There economy will slow down but it's not the end for them. Their real estate market is in a bubble tho. That will crash. Some of the properties out in China are "ghost towns" you'd have to see it to believe it :( . The argument with their real estate market tho is that China overtime has the population to transition into those empty units but that takes a very long time to implement and use as a form of recovery should that be seen as a solution to a downturn.

    China is going to be putting up 7% GDP growth for a long time, that number will shrink once it gets to a certain size but the U.S. will continue to reign supreme. It's actually good news if China does get to America's size.

    The issue has never been that people don't want to move into those ghost town, it's that it is artificially expensive to prop up their real estate market. If everything falls apart, then it will still be expensive to maintain those cities not to mention that they are probably badly built "luxury" apartments.
  • 2stepz_ahead
    2stepz_ahead Guests, Members, Writer, Content Producer Posts: 32,324 ✭✭✭✭✭
    when i was in in xi'an, it was buildings going up as far as your eye could see....i posted a pic of it about two three years ago.

    also alof of chinas poor lives behind walls...yes literally walls. on one side you see all the things that impress people. on the other side it looks like the poorest parts of haiti. this is right across the street from each other.

    lastly, china is a producer but they can be replaced. it is alot of cheap countries with cheap labor to replace them. and half the time the ? they produce is cheap an break fast as hell
  • kingblaze84
    kingblaze84 Members Posts: 14,288 ✭✭✭✭✭
    edited March 2014
    pralims wrote: »
    when i was in in xi'an, it was buildings going up as far as your eye could see....i posted a pic of it about two three years ago.

    also alof of chinas poor lives behind walls...yes literally walls. on one side you see all the things that impress people. on the other side it looks like the poorest parts of haiti. this is right across the street from each other.

    lastly, china is a producer but they can be replaced. it is alot of cheap countries with cheap labor to replace them. and half the time the ? they produce is cheap an break fast as hell

    I know several people who have been to China and I've heard the exact same thing. China is still a mostly poor nation, just like Russia. Both nations have a saving grace in that their militaries are no joke and the ultra rich there have money that can match or go toe to toe with any rich American.
  • whar
    whar Members Posts: 347 ✭✭✭
    China holds 1.2 Trillion in US debt. Japan holds about the same.

    The US holds 12.6 Trillion of its own debt. The vast majority of this has borrowed from the Social Security fund.

    How does China own the US? Remember would you rather be the guy holding 1.2 Trillion in cash or the guy holding the IOU?