Tag Archives: Asia

Another sign of the Chinese bubble bursting

Marketwatch reports:

Falling land prices may prompt Chinese property developers to write down the value of their assets, forcing a sober reassessment for those with vast land holdings, according to a survey released Monday by Credit Suisse.

Most at risk are those mainland Chinese and Hong Kong developers who added aggressively to their land banks in 2009 and 2010, the prices of which could come under pressure amid Beijing’s ongoing credit tightening, the investment bank said.

The findings were part of a poll of both listed and unlisted companies conducted by an independent research company and commissioned by Credit Suisse.

[…]

Prices for land sold at auction were down 20% so far this year, the report cited one industry expert as saying. Other data indicated price declines of up to 50% for the year to date, although the figures were affected by slumping transaction volumes in cities such as Beijing, possibly overstating the true rate of declines, the report said.

Story continues here…

I’ve written before about the Chinese bubble. Nobody knows when this bubble will burst or deflate, but it will. And now that China is such a major player, it will drag down economies around the world.

Government obsession with trains doesn’t work in China or the United States

Previously, I wrote about Chinese bubble about to burst? in which I focus on the over-building of housing to the tune of 64 million empty apartments.

I suggest you check out Megan McArdle’s post on Should China Rethink High Speed Rail? Similar to the housing situation, China is building trains that few Chinese can afford and will be under-utilized. In other words, while these high-speed trains will be the marvel of the world by traveling up to 300 miles per hour, most Chinese will decide to ride the slower trains at a lower cost. These trains will only be “successful” if China lowers the cost of ridership, but that will only make the unprofitable train even more unprofitable.

Unfortunately, this economic non-sense infects the United States as well. Countless cities in this country have built or are building fixed mass transportation systems. For example, Phoenix has built the first stage of its light rail system and is expanding it further. Phoenix will lose money on the train project because it cannot charge a rate high enough to cover the costs of operation and amortization of the construction expense. Adding to the silliness, this train runs at street level, competing with traffic. How exactly is this light rail better than running buses. Buses have the advantage of being movable. If one line needs more buses and another fewer, buses can be moved from one to the other. However, once a train is built at a huge expense, it cannot be moved and you are stuck with it.

Phoenix also has the disadvantage of having a very low population density. But even a city like New York with an extremely high population density and millions of tourists riding its public transportation system still loses money on its mass transit. How a relatively poor country like China or a city with a low population density like Phoenix can expect to break even on a train system is beyond me. In reality, neither expect to break even: China’s centralized control of the economy and the United States’ new obsession with social engineering and stealing from the rich to give to the poor makes profitability irrelevant.

When it comes to mass transit, it appears that the United States government is just as dictatorial and wasteful as the Chinese.

Chinese bubble about to burst?

The Chinese market fell sharply today, the second time in three sessions, as China tries to slow down its economy:

Chinese stocks suffered sharp declines Tuesday, with property developers tumbling on further tightening measures that target the sector, while coal and metal shares fell on concerns about price curbs.

Chinese property stocks fell sharply after Beijing on Monday announced new limits on the ability of foreigners to buy residential or commercial property.

Chinese refining, coal and metal stocks stumbled after the China Securities Journal, citing unnamed sources, reported that the country might unveil a set of measures in the near term to control rising prices.

China is in the midst of a huge bubble, quite possibly the largest bubble ever anywhere. There have been numerous reports of entire cities built in China that now sit empty. See here, here, and here for example. There are reportedly 64 million empty apartments in China.

China is now in the process of deflating its bubble. It hopes to prick the bubble without suffering an economic collapse. But this is unlikely to occur. Despite all the building and growth, China is still a poor country. The vast majority live in poverty and the middle class is much poorer than the American middle class. Despite its relatively lack of wealth and, correspondingly, capital, China has spent hundreds of billions on wasteful projects that now sit idle. [How much money was spent building 64 million apartments that now sit idle?] The US housing bubble pales in comparison, yet the US economy is three times the size and is better able to survive such waste.

When the Chinese bubble bursts, it will take down much of the world with it. With Ireland, Greece, Portugal, and Spain already on edge and the US suffering from a weak economy, huge deficits, and growing debt, the world economy can hardly afford another burst bubble at this point. But what are the options? Prolonging the bubble only makes the pain worse when it does burst. Better to take our medicine now and return to reality as soon as possible.