Tag Archives: Beijing

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.

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China to bail out Spain. Good or bad?

I previously wrote that “China has surpassed the United States as the lender of last resort.” Now, there is more evidence for this:

China is confident Spain will recover from its economic crisis and Beijing will buy Spanish public debt despite market fears of an Irish-style bailout, a top Chinese official said Monday.

The comments by Vice Premier Li Keqiang were made in an op-ed piece in Spain’s leading daily El Pais one day ahead of his arrival in Madrid for a three-day official visit, the start of a European tour that will also include Britain and Germany.

“Since China is a responsible investor country in the long-term on the European financial markets, and in particular in Spain, we have confidence in the Spanish financial market, which has been translated into the acquisition of its public debt, something we will continue to do in the future,” he said.

“China supports the measures adopted by Spain for its economic and financial readjustment, with the firm conviction that it will achieve a general economic recovery”, said Li, who is widely tipped to become China’s next premier.

It remains to be seen if this is good or bad. If China acts responsibly and withdraws their support if Spain fails to hold to their austerity measures, China is simply helping Spain avoid steps necessary to fix its mess and encouraging other countries to act irresponsibly too. But if China really forces Spain to cut back on its deficit spending, this could provide Spain the temporary support it needs to get its fiscal situation back on track.

My major concern is that China is still controlled by a ruling class that has its own interests in mind more than the economic well-being of the Spanish. China would hate to see the world economy decline and has every reason to prop it up. China figures that every year it can grow faster than the rest of the world, it becomes all that much more important and powerful. A collapse in the worldwide economy now would take China down with it before the country has a chance to flex its muscles. China would rather prop up the world for another ten years, by which time its power will have grown immensely.

Or I could be over-analyzing things. China could be making an investment and, if correct, a very profitable one. But with China’s secretive government, one never knows what they are really thinking.

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.

China warns QE2 could create emerging market bubble

China is giving the United States an economics lesson:

Beijing leveled new criticism at the latest round of quantitative easing unveiled by the Federal Reserve, warning the policy could swamp emerging economies with destabilizing inflows of speculative capital.

“For the U.S. to undertake a second round of quantitative easing at this time we feel is not recognizing the responsibility it should take as a reserve currency issuer, and not taking into account the effect of this excessive liquidity on emerging-market economies,” Vice Finance Minister Zhu Guangyao told reporters at a press conference in Beijing.

Zhu said the first round of quantitative easing by the Fed was justified to help stabilize markets “at the height of the financial crisis.”

However, the second round — dubbed “QE2” in financial circles — comes at a time when economic recovery is beginning to kick in, he said.

“Financial markets are not lacking capital; rather they are lacking confidence in the global economy. Financial institutions have large amounts of cash,” he said.

You know how low you’ve sunk when China, technically the People’s Republic of China ruled by the Communist Party of China, makes more economic sense than the Federal Reserve.