China May ‘Crash’ in Next 9 to 12 Months, Faber Says

Discussion in 'China' started by AkhandBharat, May 5, 2010.

  1. AkhandBharat

    AkhandBharat Regular Member

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    May 3 (Bloomberg) -- Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

    The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

    “The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

    An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today.

    Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.

    Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

    China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

    The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.

    The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.

    The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent.

    The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.

    BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.

    Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.

    Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.

    Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.

    Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.


    Bloomberg News
     
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  3. sob

    sob Moderator Moderator

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    One more conspiracy theory doing the rounds. Does this gentleman really think that China will be allowed to crash. The result would be very severe, with commodity prices crashing, demand drying up Billions of Dollars from their SWF being pulled out of Stock Markets around the world. It is in the interest of everybody that China does not crash.
     
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  4. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    It doesn't really matter what is in everybodies interest. No one can afford to bailout China except by China placing their trillions of NPLs on the books. GDP to debt ratio will be around 96%. The LGIVs and the middle class will be forced into bankruptcy and the government will foot the bill. The result of this is a wiped out middle class and the collapse of Chinese banques. Construction will come to a standstill and commodity prices will implode. China's FOREX can't be touched since it secures the RMB. If they did draw from that their exports would collapse. The only countries this really effects are the countries supplying China's construction, ie Brasil, Australia, Russia and the like. It will wipe out investors in Chinese banques but that gets foreigners to foot some of the bill. The people who will suffer are those who bet on China and didn't pull out in time.
     
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  5. badguy2000

    badguy2000 Respected Member Senior Member

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    Another Gordon.Chang.. however, obvioulsy the guy is a newbie of ones bearish agains CHina.

    As we know, senior bearishs masters against CHina like Gordon Chang now has learnt not to r point a paticular accurate date of " China to collapse" any more.
     
  6. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    What an exaggeration...........
     
  7. duhastmish

    duhastmish Regular Member

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    THIS THREAD SOUND LIKE USELESS TO ME. Chinese economy is still having one of the highest growth rate.
     
  8. Singh

    Singh Phat Cat Administrator

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    Undoubtedly China is facing severe problems but it is also a fact that no one knows this better than the CPC itself.
    CPC is not an organziation in denial. It has anticipated such and other problems, it has braced itself and is working towards correcting its weaknesses.

    In this regard it is very flexible and fluid. The resonance breaks rigid structures, not flexible structures. CPC understands this.
     
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  9. Daredevil

    Daredevil On Vacation! Administrator

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    What he meant was Chinese economy crash not China's crash per se. But it is to be seen how China will handle if there is a collapse in the economy due to burst in stock and property bubbles. Don't strike off anything just for the sake of it without giving reasons that it may not happen.

    Please refrain from using one-liners.
     
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  10. badguy2000

    badguy2000 Respected Member Senior Member

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    one CHinese collects the articles about " China to collapse", which were all published by main west medias in 1994 . Here is the list.
    In fact, Gordon Changs never dissappeared yesterday, and never dissappears today. They will never dissappear tomorrow too.

     
  11. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    CCP understands it but they aren't doing anything to prevent it. Without raising interest rates there is no place for Chinese to put their money to make money except property. Depositing in the banque just loses it with zero rates that goes negative with inflation. The stock market is on a bear run. The banques are increasing the reserve ratios which doesn't stop lending, it signals it is covering more of it. Putting caps on how many homes you can buy will just lead to more divorce. It won't stop many from buying. Increasing down payments will just lead to fewer mortgages and more personal or business loans going to make the payment. 9 guys in a room aren't smarter than all the worlds economists... they can't control it and the property prices prove it.
     
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  12. badguy2000

    badguy2000 Respected Member Senior Member

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    here is armand's odd logic:


    If Chinese banks keeps on lending loans,China is to collapse soon,due to Reasons A ,B and C,such as NPLs.

    If Chinese stops lending loans, China is to collapse too, due to Reasons D,E and F,such as the above quoted.

    So, whatever Chinese banks do, China is doomed to collaspe...
     
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Let us watch Chanos put China worshipper Steve Roach in check

     
    Last edited by a moderator: May 10, 2015
  14. Daredevil

    Daredevil On Vacation! Administrator

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    In fact it is true, Chinese banks are now stuck between a rock and hard place. If Chinese banks don't increase the interest rates and cut down on the lending, the property and stock markets will inflate even more than it already is leading to more disastrous consequences a la American sub-prime mortgage fiasco. On the other hand, if Chinese banks stop lending at the present rates, the growth will slow down as a large chunk of Chinese GDP growth is dependent upon property & infrastructure construction. Slow growth of economy (below 10%) due to this and in addition to decline in exports and potential appreciation of RMB in future might lead to social disturbances and so on. So, CCP has to choose which one of the bitter pills to swallow.
     
  15. badguy2000

    badguy2000 Respected Member Senior Member

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    1.have you heard of a word " balance"?

    CCP threw a stimulus package of 4 trillion RMB and encouraged Chinese banks to lend loans last year, just in order to "balance" the demand reduction due to shrinked export at that time,because CCP just wanted a growth of 8-10%

    CCP now raises the DRR(Deposit reserve rate) and stops Chinese bank to lend loan, still in order to "balance" the rapidly rising demand due to rapid recovery,because what CCP wants is still a growth of 8-10%.

    Everybody in China now are wary of the overheat of economy,so it is obvious that it is high time to cut demand.


    2. CHina's stock market is never "normal". When Chinese economy is persperous, CHina's stock is always bearish. when CHinese economy is in depression, Chinese stock market is bullish ,instead.


    3. I don't think it is bitter to thrust the bubbles in persperty market. somebody would lost their last underwear and get naked were the bubbles to be thrusted. but the naked guy would not be CCP or Chinese economy.
     
    Last edited: May 5, 2010
  16. Daredevil

    Daredevil On Vacation! Administrator

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    You are just rehashing exactly what I said above. If Chinese banks increase interest rates, growth rate will come down, simple. Question is, can China afford slow growth rate in GDP??.
     
  17. badguy2000

    badguy2000 Respected Member Senior Member

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    the key is how many growth rates would be lost?

    if Chinese economy is just slowed 2%-3%,then that is exactly what CCP wants---a yearly growth of 8-10%.
    If CCP now does nothing, CHina's growth this year will easily suprass 10%.

    I am a bank creditrisk superivor,as I know, CCP now is doing a lot to clear potential reef that may get in the way.

    1. clear local government financing vehicles. CCP has declared that all county-level and prefecture-level governmental financial vehicles would be abolished , in order to prevent local government's financial risk.

    2. do stress test among CHinese banks ,to measue potential credit risk caused by potianl dive of house price.
    I think that CHinese bank can stand a 30-40% fall of house price, because the mortgage rate of house usually is 60%. the down payment is usullay 20%-30%.
    So, the sub-prime crisis hardly happen in China.
     
    Last edited: May 5, 2010
  18. Daredevil

    Daredevil On Vacation! Administrator

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    And so will your property and stock market bubbles. This in turn might lead to deflationary effects due to chain reaction triggered by collapse of stock and real-estate market.
     
  19. badguy2000

    badguy2000 Respected Member Senior Member

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    guy,

    frankly speaking, I can't see that CCP and CHinese bank " are now stuck between a rock and hard place. ".

    1. CCP doesn't want a growth of 10%+. what CCP wants is just a growth of 8-10%.

    So, if CCP stops more bank loans, it can cool overheating economy and get a grow of 8-10%

    2. CCP doesn't want bubble. If CCP cools economy, the bubble will be thrusted.


    So, for CCP now, to stop more bank loans is "one stone ,two birds" now. it can give what CCP wants exactly ---a growth of 8-10% and the thrust of bubbles at the same time.

    you seem to believe firmly that after bubbls are thrusted, China's economy will go down ,down and down,don't you ?
    you are completely wrong here. Chinese prosperity is not based on "bubbles",but on its huge material-wealth creating activity. After the bubbles are thursted, Chinese economy would be more healthy and its growth would be more sustained.
     
    Last edited: May 5, 2010
  20. Daredevil

    Daredevil On Vacation! Administrator

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    Didn't Wen Jiabao declared that China cannot afford anything less than 10% growth rate of GDP for a stable China. We need to see how it will pan out if indeed China cannot manage 10% growth rate.
     
  21. badguy2000

    badguy2000 Respected Member Senior Member

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    well . CHina's official tougue is that " 8% is ok" and "8%-10% is the best".
    CCP never officially says that "China cannot afford anything less than 8% growth rate of GDP for a stable China".

    the so called "necessity of 8%" is simplely the stock of speculation and imagination fished out by west medias and some chinese "experts". such a "necessity of 8%" has never been proven or verified until now .

    guy,do you see any economy collapsed because its economy grew 7%?
     
    Last edited: May 5, 2010

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