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Folks are invited to discuss about Chinese economy, currency and their relationship with us. If china is a bubble, will it impact us or not ?

 

I recently came to know that China is back in the news. A new video from CBS 60 min shows ghost towns in China... Analysts are talking about the biggest bubble in history!

 

Is China a bubble? We don't know.

 

Does it matter? Well...yes...maybe. If China melts down or blows up the demand for oil and other resources goes down. The Chinese have pumped billions into development projects. That money helped to keep people on the job...and also kept the ships full of stuff, going back and forth across the worlds' oceans.

 

Trouble in China is trouble everywhere - particularly in Australia (which has been selling itself by the ton to the Chinese) and in Europe (which sells its precious, high-touch products by the boatload). Drive around Beijing and you see German autos, Italian shoes, Swiss watches and French perfumes.

 

But hey...why worry? The Chinese can print money too! When China does something, it tends to do it to excess. That's why there are so many empty buildings in the Middle Kingdom and why it might have created the biggest bubble in history.

 

China overdoes it when it comes to central bank stimulus measures too. In fact, no central bank has done more than the Bank of China when it comes to pumping up the economy. And investors know it.

 

That's why bad news for China...like bad news for the US economy...could be good news for the stocks. The feds will pump more money; stocks will go up!

 

Isn't it so easy ?

 

China is a bubble but the one that may not burst sooner or even may not burst at all. Chinese economy has much more room to expand and much more to offer.

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:doh: All bubbles burst otherwise they wouldn't be considered a bubble to begin with.

 

And when China's bubble burst, like every other one before - here in the U S and elsewhere, it will take the masses by surprise.

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A real estate bubble, probably.Does a real estate bubble popping impact the US much? Maybe some, but not nearly as much as most think it would. China's built a new middle class through exporting goods to much of the rest of the world. Personally I don't think a real estate bubble is going to cut off demand for China's exports, but the news headlines when it does happen will scare the crap out of ill informed market players (retail types). Japan did this back in the 90's, but through much of the last 20 years Japan has been in a deflationary state despite their hay day of exporting and QE. QE has done little to help Japan inflate and it's also done little to help the US inflate. Reason being is that QE isn't easy money, it's actually an extraction of money from the private sector (deflationary). If you take a USD chart and plot out QE you'll see dollar values have risen each time. Supply and demand, QE is removing supply as demand increases and continues to increase. The up's and downs are other central banks adjusting in an attempt to make their exports cheaper/more attractive. Right now China is providing the least expensive exports, hence the outside demand for their goods, boosting employment and the middle class there. If and when it gets to the point that China wants to consume it's goods locally rather than export them, someone else will take their spot, just like they took Japans spot in global trade.

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The growth in the average price of housing in 100 major Chinese cities accelerated in March, underscoring the challenge that policymakers face amid recent pledges by local governments to reinforce the central government's measures to rein in the market announced a month ago.

 

A survey of property developers and real-estate firms showed the average price of housing rose 3.90% in March from a year earlier, the fourth straight month of annual gains after eight months of declines, data provider China Real Estate Index System said Monday. The rise is faster than the increases of 2.48% in February and 1.2% in January.

 

The average housing price in March rose 1.03% from February to 9,998 yuan($1,607) a square meter, marking the 10th consecutive monthly gain. In February, prices rose 0.83% from the month before.

 

Compared with the preceding month, housing prices in March rose in 84 cities and fell in 16 cities, the survey showed. In February, housing prices rose in 74 cities.

 

In the second-hand home market in 10 major Chinese cities, average prices in March rose 2.81% to CNY23,689 a square meter from February, picking up from the 1.56% increase recorded in February. On a year-on-year basis, second-hand home prices rose 18.06% in March, accelerating from the 15.81% gain a month earlier. The jump was due to an increase in transactions as homeowners rushed to close sales in anticipation of a heftier tax bill.

 

Beijing, Shanghai and Guangdong province said in recent days that they would enforce a 20% tax on profits from home resales, after the State Council, or China's cabinet, said earlier in March that cities will have to do so. Previously, buyers were taxed at only 1% to 3% of the gross transaction value on most occasions.

 

Beijing added that it would limit single people registered to live locally to one home purchase if they don't now have a home and increase the minimum down payment for all buyers of second homes. Other cities such as Nanjing, Xiamen and Chongqing said they would maintain existing policies by tethering the pace of housing price increases to the pace of local household income growth.

 

The local government measures were seen as less stringent than earlier anticipated, with property stocks rallying Monday after earlier concerns that the impact of the property curbs could be harsher were assuaged.

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Fitch Downgrades China: Miracle or Mirage?

 

China’s sovereign credit rating was cut by Fitch Ratings. The reason is China’s growing debt burden on local governments and the total credit in China’s economy now exceeds 198% of GDP, much of this is carried by government-sponsored entities and local governments.

 

In my opinion there was a gross mis allocation of capital across china. We all know that “Early in the life cycle of a government it is relatively easy to identify worthwhile and valuable investment projects. However, those needs are met relatively quickly. Then it become very difficult to determine which projects are worthwhile.”

 

While many contend that China needs to move from an investment-driven economy (with high savings rates) to a consumption-driven economy (with low savings rates), they falsely view this phenomenon as the result of cultural choices or habits. In reality, high rates of investment are created by government policy geared toward investment, employment, below-market interest rates, loose monetary policy, increasing debt, and often currency market intervention. China did not grow quickly despite low consumption, but because of it. China has been systematically transferring income from households to investment via

 

(a) an undervalued currency, equivalent to a consumption tax on imports;

(b) low-wage growth versus productivity, a gap that has widened greatly in the last decade © financial repression (i.e., extremely low interest rates), which taxes savers and subsidizes borrowers.

 

One thing that remains unclear is the relationship between the trusts that are funding loans and the parent organizations (i.e., banks). It is thought that many of these trusts are created by wealth management arms of banks in China. If the underlying investors in the trusts are assuming all of the risk, then the risk of financial contagion is mitigated. If the banks stand behind these loans, however, then banks balance sheets will go haywire when loans start to sour.

 

Recently, signs of trouble have begun to emerge.

 

If it can’t go on forever, it won’t. Change is coming to China.

 

The next logical question is: Will the transition be smooth or rough?

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China is a rising economy which deserves where it is these days in terms of production,economy and development (if not in terms of the life standard which is still very low)...imo it'll reach a certain level and will stay there keeping China in the top 5 economies of the world for the large part of the future to come...

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Can you let us know how is it (the above link, posted by you) related to this thread ?

 

It is a long winded 'yes' answer to the OP question...

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North Korea's continued use of a threatening posture, if it fails to gain concessions and shows China's inability to influence its smaller neighbor, may ultimately be seen by China as detrimental to its own interests.

 

 

Now it's my turn ;)

What does that have to do with whether China is a 'bubble' or not?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

offtopic completely... :haha: are you all seeing that OANDA ad with the bluegoldgreen circlejerk threesome?... that is just wrong

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Now it's my turn ;)

What does that have to do with whether China is a 'bubble' or not?

 

offtopic completely... :haha: are you all seeing that OANDA ad with the bluegoldgreen circlejerk threesome?... that is just wrong

 

If there is a bubble in China, the immediate impact on the industries operating in china as a result, demand for commodities (used in industries) will reduce (copper, silver), which leads to a sharp correction in price.

 

I would let us other impacts in my next post. I am in a hurry now.

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Long-Term Bubble

 

China is in a bubble for the long term with expectations that China will become the largest economy on this planet within this decade. But for now, the Chinese economy has shown signs of stagnation and there is all the debt pile that has arisen worrying investors who have set their sights on the world's second largest economy.

 

China still has many significant challenges to address, but there will be considerable growth in the future and investors can capitalize on this long-term bubble.

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Growth in China’s important factory sector slowed in April, a closely watched monthly index released Tuesday showed, adding to concerns that the pace of overall economic growth in China may be faltering.

 

The release is one of the earliest measures of business activity available for April and appears to indicate that an unexpected growth slowdown in the first quarter may be continuing into the second.

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The world's second largest economy has a debt problem

 

China's credit boom has saddled unworthy businesses with large loans, fueled the country's shadow banking system and put local governments on the hook for billions.

 

According to Swiss Bank UBS, China's central government debt was equal to 15% of the economy at the end of 2012. That number spikes to 55% when debt racked up by local governments and agencies is included.

 

If corporate and household debt is also counted, China's total debt load balloons to more than 200% of gross domestic product. Compared to other developing economies, China is at the top of the range.

 

"Should we worry about China's debt problem?"

 

Analysts worry that credit is becoming inefficient, increasingly dominated by unregulated lenders, and reaching a scale where it could sap growth if central government is forced to stand behind defaulting local governments or agencies.

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China Property Prices Continue To Rise In May

 

China's policies aimed at cooling off the property market are ineffective. Prices in 100 cities rose 6.9% in May, after climbing 5.34% in April, according to property researcher SouFun Holdings. "Given rising land prices, insufficient supply in hot cities and expectation of a loosened monetary stance, expectations of further housing price rises remains strong," the company said.

 

China?s May SouFun Home Prices Jump, Defying Tightened Curbs - Bloomberg

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China a bubble?

 

Is there really a need for more evidence to come to the realization that it most definitely is. If so:

 

China Export Gains Seen Halved With Fake-Data Crackdown

 

China’s crackdown on fake export invoices used to disguise money flows is probably cutting the nation’s trade figures, revealing subdued global demand that will weigh on economic growth.

 

Outbound shipments may have grown 7.1 percent in May from a year earlier, less than half the previous month’s reported 14.7 percent, based on the median estimate of 34 economists ahead of data due June 8. Import growth probably slowed to 6.9 percent from April’s 16.8 percent, a Bloomberg News survey showed.

 

......

 

China Export Gains Seen Halved With Fake-Data Crackdown - Bloomberg

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China Vanke chairman Wang Shi said the mainland's property market faces the risk of a "bubble", reiterating concerns the developer raised three months ago.

 

The bubble is not "light", Wang said at a conference in Shanghai yesterday. "If the bubble lasts, it will be dangerous."

 

Wang said in a March CBS broadcast of the 60 Minutes news programme (earlier discussed on this thread) that the housing bubble could spell "disaster" for China's real estate market and that debt held by developers is a serious problem.

 

He referred to "ghost towns" where homes are built and left unoccupied, while as much as 60 per cent of other housing projects in other cities were snapped up the first day they were put up for sale.

 

The developer has carved out a market niche for itself by focusing on smaller homes that appeal to the mass market, helping boost its sales.

 

I also feel that if the bubbles are not controlled, the result will be catastrophic but when the bubble will burst, that is uncertain. It might be a month, 3 three or 12 months, we don't know.

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Bubbles by their very definition are not controllable.

 

True one can never precisely tell when they will pop.

 

But the Shanghai Stock Exchange Index is not liking things lately:

SSE.thumb.png.1842103e06e351684a8e4369b2cebea9.png

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One of my degrees was in international economics, and a professional graduate degree in international relations. So I do keep up with international developments as time allows. Here is an extremely important PDF to read, written by some hedge funds:

 

http://www.globalsecuritieswatch.org/Hedge_Funds_Perspectives_China.pdf

i guess not many thought it to be important???

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i guess not many thought it to be important???

 

 

May be because we want individual opinion of the TL Member about the topic to be discussed in the thread, not the reports published by Corporates which can be easily accessed on google.

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Wealth Management products in China.....definately a bubble.

 

Wealth Products Threaten China Banks on Ponzi-Scheme Risk - Bloomberg

 

it has everything,

people desperate for returns....

accounting manipulations.....

a side effect of other government policies.....

huge size and growing....

based largely on trust and reliance on the weakest link not breaking.....

inconsistencies and fierce competition.....

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Bubbles by their very definition are not controllable.

 

True one can never precisely tell when they will pop.

 

But the Shanghai Stock Exchange Index is not liking things lately:

Went down a further 250 points before bottoming. Move currently looks corrective, like a dead cat bounce and downtrend to resume probably any day now.

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