Doom and Gloom of China's Economy

JayATL

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China Facing Subprime Crisis? ( has it started?)

By Mu Chunshan, The Diplomat

Most Westerners probably haven't heard of Zhejiang, much less know where to find it on a map. But it's likely that the clothes that you wear, the toys your children play with and your partner's sunglasses are all made in this province located on China's southeast coast.

But the economic success that has attracted investors here risks turning sour. Dozens of businessmen unable to pay off loans have fled the area and are now missing. The Chinese media, meanwhile, is speculating over whether a situation similar to the subprime mortgage crisis in the United States might be emerging.

The most dynamic city in this province is the city of Wenzhou. And, although it's far smaller than the capital –- and about 1,400 kilometres away (roughly 900 miles) –- property prices there are similar to Beijing. The reason is simple –- many private business owners have invested large sums of money into property here, which has pushed up real estate prices.


Soaring property prices in China have certainly upset at least one friend of mine, who sold his property in Beijing to go and study overseas about five years ago, only to watch prices in the capital soar five-fold while he was away.

Following this experience, he has been pressuring his Zhejiang-based parents to enter the real estate game. They are entrepreneurs, and owned a motorcycle accessories firm that employed dozens of workers. But they are far from alone in being tempted to enter the property market rather than investing in expanding their own businesses.


Under my friend's advice, they sold off their business and rented out their factory. According to them, rising property prices and rents in the area mean they earn more from renting the property out than they would have earned from the motorcycle business.

However, since last year, the government has started to tighten bank lending. Zhejiang's small- and medium-sized businesses are finding it difficult to obtain bank loans. And, with tighter property loan regulations, many are adopting a wait and see attitude.

All this means that many of those who hoped to earn big money from real estate are starting to get nervous as they are unable to sell their properties. This in turn has prompted the emergence of underground banks and loan sharks. Unable to borrow from official channels, private business owners have to borrow money at sometimes outrageous interest rates.

Over the past month, local media has reported on dozens of people who have fled because they couldn't meet their loan repayments, while two more committed suicide by jumping to their deaths. A list of those who have disappeared has been posted at Wenzhou airport and other public places.

My friend's parents are lucky –- they didn't get involved with loan sharks. But they have also seen the rent from their factory space tumble. And they aren't the only ones -– Wenzhou and Zhejiang are far from the only places outside Shanghai and Beijing to be seeing this phenomenon.

Chinese officials are warning that this country could be facing its own version of the US subprime crisis. It's easy to see why.

China Facing Subprime Crisis?
 

cir

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Most Westerners probably haven't heard of Zhejiang。。。bla bla...

Yet Zhejiang's 2010 GDP was $430 billion and grew a healthy (real) 9.9% y-o-y in the 1st half of 2011.

Its GDP is predicted to reach $520 billion in 2011 and be as large as Spain's in the not-too-distant future.

China's base rate is over 7%. The lending rates are far higher, all in the name of fighting "high" inflation which is running at annualized rates of some 5%. The imaginary subprime problem, even if it does exists, can be fixed by lowering the interests rate. The same was not possible for the US, for its interest rates were already at rock bottom, and can't be lowered any further unless the banks and the bond markets start to CHARGE deposits and investors.

There lies the difference. China has the fire power to move the economy ahead, while the US does not. The latter's economy is at a dead end till the whole country is substansially deleverage in the coming years. It might take a decade or even longer to achieve it.
 
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badguy2000

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Most Westerners probably haven't heard of Zhejiang。。。bla bla...

Yet Zhejiang's 2010 GDP was $430 billion and grew a healthy (real) 9.9% y-o-y in the 1st half of 2011.

Its GDP is predicted to reach $520 billion in 2011 and be as large as Spain's in the not-too-distant future.

China's base rate is over 7%. The lending rates are far higher, all in the name of fighting "high" inflation which is running at annualized rates of some 5%. The imaginary subprime problem, even if it does exists, can be fixed by lowering the interests rate. The same was not possible for the US, for its interest rates were already at rock bottom, and can't be lowered any further unless the banks and the bond markets start to CHARGE deposits and investors.

There lies the difference. China has the fire power to move the economy ahead, while the US does not. The latter's economy is at a dead end till the whole country is substansially deleverage in the coming years. It might take a decade or even longer to achieve it.
Zhejiang's per nominal GDP is about 9K USD, about 40% of S.Korea's or Taiwan's .....but the real life quality of Zhejiang people is equal to S.Korea's or Taiwan's at least ,if not higher .
 

Armand2REP

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You flaunt an economy based on a Ponzi Scheme... nice.
 

no smoking

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You flaunt an economy based on a Ponzi Scheme... nice.
Maybe you should tell us something you learned from <Echo>, just like your previous one: Chinese gov bought the new cars for its citizens so that they can jam the traffic.
 

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'BMW town' crashes in pyramid fraud

For a short while, life in Shiji, a small crab–farming village in eastern China, seemed too good to be true.



For as long as anyone can remember, Shiji has been poor. The village is little more than a dusty grid of brick shacks and its residents live on an average of just 10,000 yuan (£1,000) a year.

But this spring, a miraculous transformation occurred. The locals suddenly noticed that they were rich.

"We have become a BMW town!" wrote one shocked villager on a local internet forum. "In our county, there are now 800 BMWs and 600 Mercedes, 500 Audis, 50 Porsches, 30 Jaguars, one Ferrari, one Lamborghini and one Maserati," he added.

A forest of cranes had also sprung up around the village, constructing large apartment blocks which advertised themselves with pictures of English butlers and sumptuous, chandelier–lit dining rooms.

Miracles abound in modern China, where countless families have become fabulously wealthy in a single generation. But the dramatic change in Shiji's fortunes raised eyebrows.

Chinese journalists soon arrived to count the number of BMWs on the roads (10 in 13 minutes, according to CCTV, the state broadcaster).

Then they started asking questions about where the money had come from.
Earlier this month, Shiji's boom ended as abruptly as it began.

The local Dragon Court BMW dealership has been shuttered; its owner is under house arrest. And as The Daily Telegraph arrived to investigate, jittery local officials were quick to detain us.

"It is not worth looking into too deeply," cautioned one of them, loading us into the back of a black sedan.

What happened in Shiji is a fraud that plays out every day in some corner of China's murky economy, as local Communist Party officials and greedy entrepreneurs collude in vast pyramid schemes.

"It all began when a man named Shi Guobao returned to Shiji after working in Beijing," said Zhu Yi, the head official in the village.
"He became a property developer, but he wanted to make a bigger fortune so he decided to also become a loan shark." Together with 17 of his friends, Shi began tapping the villagers for their savings, promising to pay them 10 per cent interest each month.

The gang quickly raised 350million yuan, (£35.5million) which they then lent out at rates of 30 per cent or more each month to borrowers including local property developers. Shi became known as "King Claw", the man at the head of the pyramid.

For a while, the scheme worked well. Other property developers borrowed from Shi in order to begin construction and the local government, which earned income from every acre sold to the developers, also prospered.

During the boom, the villagers reported fireworks being lit in celebration almost every night.

The owner of the BMW dealership, Zhang Shanyuan, flooded the streets of Shiji with cars when his friends came to celebrate the birth of his son.

But there was little demand in the end for the huge apartment blocks, which today stand empty and half–finished. And when the borrowers started defaulting on King Claw's loans, the pyramid collapsed. Around 1,700 villagers have complained to the police, some having lost their entire life savings. Two villagers were killed in a mysterious car crash after trying to reclaim their money from one of the loan sharks.

Today, the only luxurious cars left are parked outside the local county government offices and Shi and his 17 friends are either in prison or under house arrest.

"I am not sure if any government offi–cials were involved. As far as I know, no local government officials have any luxury cars. The cars outside the government offices must belong to other people. And there were only 152 BMWs registered in the county," said Mr Zhu, who escorted us 200 miles away to Nanjing before releasing us so that we could not pry any further.

'BMW town' crashes in pyramid fraud - Telegraph

BMW - tai gui le
 

Daredevil

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This article shows the very sad state of economic affairs in China. Some people asked why doom and gloom in the title, well please read the article why so.

China's debt spree returns to haunt

Bail-outs are coming thick and fast in China. In less than a week the authorities have had to step in to prop up the banks, rescue the insolvent railway system and save the near bankrupt city of Wenzhou from a spectacular debt crash.

It is proving harder than expected for the central bank to manage a calibrated "soft-landing" after letting rip with credit to counter the Great Recession. The loan spree raised credit from 100pc to almost 200pc of GDP (on IMF estimates), including off-books trusts, letters of credit and sub-radar loans from Hong Kong.

The 30pc annual pace of loan growth is unprecedented in any major country in modern history. It is double the pace of America's housing boom and Japan's Nikkei bubble in the late 1980s. It may match US loan growth in the late 1920s.

The Communist Party is now struggling to cope with the fall-out. On Monday, the state investment fund Central Huijin began buying stakes in China's four top banks to restore confidence and halt the slide in share prices.


The relief rally ignited bank shares on Tuesday. Agricultural Bank of China surged 13pc in Hong Kong. Shanghai's bourse jumped 4pc but is still down 60pc from its peak in late 2008.

China's finance ministry is quietly intervening to underwrite China's railway system. This behemoth is drowning with $300bn of debts after breakneck expansion, is in arrears on $25bn of debts to its two largest suppliers and has run out of money to pay workers on the Lanzhou-Chonqing rail project.

The ministry has offered a 50pc tax break on railway debt to be auctioned on Wednesday. This is a signal that Beijing will stand behind the system. It is intended to lure back investors following the high-speed rail crash in July.

Meanwhile, Bejing is negotiating a $15bn bail-out for the enterprise hub of Wenzhou south of Shanghai, where panic has set off a credit crunch for small business and builders. China's press has been riveted by tales of debtors hiding in the hills to evade creditors.

Roughly 60pc of the region's loans come from non-bank lending beyond control, some of it Ponzi finance. "It's a tight financial network that interweaves lenders and borrowers collectively, often to their mutual benefit and sometimes to their terrible loss," said Caixin Magazine.

"If only a few debt-ridden companies collapse, the financial trouble can ripple through the entire credit-connected community. The domino-effect started to endanger the entire system in July."

While Wenzhou is small enough to contain, it may be an early warning of toxic debts in countless other cities. Jim Chanos, a vocal China bear at Kynikos Associates, said the country is in the early stage of a "very serious pullback" driven by an incipient property bust.

"The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating," he told Bloomberg.

In fairness, China's central bank has deliberately sought to prick the bubble with a variety of loans curbs. It is cracking down on the "shadow banking system", aiming to choke off $150bn in credit by March. Some slowdown is welcome.

What is not yet clear is whether credit excess has reached a point where even a light tap on the brakes is enough to set off uncontrollable events, and do so just as the global economy goes into a double-dip downturn.

Bin Gao from Bank of America said the central bank's "misguided" policies are draining liquidity too fast and causing funding stress. The "TED spread" used to gauge strains is higher than in 2008.

House prices began to fall across the country in September, according to China Index Academy. The drops have been steepest in cities such as Chongqing and Chengdu deep in the interior, belying claims that froth is confined to pockets of the eastern seaboard. Sales of flats in Shanghai slumped by three quarters during "Golden Week", the Autumn holiday watched as a market barometer.

IMF data show that the price to income ratio for housing is 20 in Beijing, and 14 in Shanghai and Huangzhou, triple the levels in US cities during the subprime bubble.

The comparison may be misleading. China's middle class invest in bricks and mortar because it has few other places to store savings. Deposit rates in banks are -3pc in real terms. Foreign assets are off limits. Home purchases are often paid in cash. Even so, such extremes inevitably create a macro-policy nightmare.

Cheng Siwei, head of China's International Finance Forum, said loan curbs are causing "a lot of difficulties" for local authorities with $1.7 trillion in debts built up through finance vehicles. "The tightening policy is causing defaults. This is our version of subprime."


China faces "very tough period" as the credit overhang and 6pc inflation limit the government's ability to offset slumping demand in the West, he said.
The country's reflex at such times is to weaken the yuan, relying on exports to come to the rescue. That may not be possible this time. The US Senate was poised on Tuesday night to vote for a "currency manipulation" bill that opens the way for retaliatory tariffs against China.

The law is unlikely to pass the House, but the political message is clear. China will no longer be allowed to get away with "economic murder", in the words of Senator Charles Schumer.

This may be a caricature description of Sino-US trade. And as China retorted, such a law would set off a "trade war" that hurts everybody. Yet the reality is that China's options are painfully limited.
 

Daredevil

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China's local debt pileup threatens to constrict growth

Reuters Oct 10, 2011, 05.05pm IST
Tags:
financial crisis|Debt crisis

CHENGDU/WUHAN (China): When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need.

Chengdu, the capital of southwestern Sichuan province, answered the call for stimulus action with a bold plan for a railway hub modeled after Waterloo railway station in London.

Except London's Waterloo was not ambitious enough. "I was shocked when I finally got to visit Waterloo. It was so small," said Chen Jun, a director at Chengdu Communications Investment Group, which built the new Chinese terminal. "I realised we would probably need a station a few times bigger to meet the demands of our city."

In a manner typical of many infrastructure projects in China, Chengdu more than doubled the size of its planned transport hub, borrowed 3 billion yuan ($473 million) from a state bank to finance it, then set out on a blistering construction timeline that saw the finishing touches put on the project two years later.

But instead of getting the accolades they expected for helping to stimulate the economy, Chengdu Communications and many of China's 10,000 local government financing vehicles (LGFV) have now come under a harsh spotlight for the grim side-effects of the construction binge.

China's local governments have piled up a mountain of bad debt, some of it to finance bridges to nowhere and other white elephant projects, which now threatens to constrict growth at a time when the global economy is sputtering. It is adding to other systemic risks in China, including a sharp downturn in the property market and a rapid rise in problematic loans.

Local governments had amassed 10.7 trillion yuan in debt at the end of 2010. The government expects 2.5 to 3 trillion yuan of that will turn sour, while Standard and Chartered reckons as much as 8 to 9 trillion yuan will not be repaid -- or about $1.2 trillion to $1.4 trillion.

In other words, the potential debt defaults could be even larger than the $700 billion U.S. bail-out programme during the 2008 crisis.


Reuters reported in mid-year the government was working on a relief plan for local governments, including allowing them to tap the municipal bond market for the first time as an alternative to bank loans, which are becoming harder to get.
 

Daredevil

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I think China has built too many white-elephant projects when there was no demand for them only to show double digit growth rates. But now all of that is coming back to bite the ass.
 

SHASH2K2

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China trade surplus shrinks as global woes deepen
China's trade surplus narrowed for a second straight month in September to $14.5 billion, with both imports and exports lower than expected, reflecting global economic weakness and domestic cooling that will deepen policy quandaries facing Beijing.

The trade data issued on Thursday laid bare trends at the heart of Beijing's debate about how to handle U.S. pressure for a higher yuan while seeking to protect both export-driven jobs and tame inflationary pressures.

Moments after the data was released, a deputy chief of China's customs agency staked out one position in that debate, saying a higher yuan is already hurting exports.

"The rise in the renminbi exchange rate may limit the room for export growth," Lu Peijun, the deputy head of the Chinese customs administration, said at a news conference about the data. The renminbi is another name for the yuan.

"China is still facing relatively big imported inflationary pressure and trade conditions are also deteriorating," said Lu.

Many traders are already wagering Beijing will tighten its leash on the yuan, which fell against the dollar on Thursday after the central bank set a sharply weaker mid-point for daily trading. Forwards markets are pricing in depreciation of the currency in the year ahead.

http://www.reuters.com/article/2011/10/13/us-china-economy-trade-idUSTRE79C0K620111013
 

SADAKHUSH

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These articles point towards the reality on the ground, which will be denied by them. Now we have to see how soon this situation turns in to full blown crisis and its after effects on the rest of the world. I personally have never had faith in their financial institution and will never have one because of
opaque nature of their operation. I will be posting on this topic once I study all the relevant articles.
 

no smoking

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I think China has built too many white-elephant projects when there was no demand for them only to show double digit growth rates. But now all of that is coming back to bite the ass.
Well, you should have a look at situation after these projects completed. There is not a single road or bridge is not groaning under the fast developing chinese motor vehicle fleets.
 

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Very unbiased, neutral thread Daredevil. I mean China is gong to implode and millions of people will be destitute. Babies will go hungry, the world economy will be hurt and you will finally be happy. Stop. You have been foretelling the demise of the Chinese economy since 2009 or earlier. It wont happen. Even the IMF recently released their prediction that China will surpass us in 2016. You should be happy for your fellow Asians and stop with all this bitterness, instead of looking for any mistakes or problems. China is a developing country, there are bound to be issues and problems. Is India perfect? I don't see you highlighting your own countries problems and trying to ridicule it. China has lifted millions out of poverty and has just become the most powerful economy in Asia. The truth is There is no DOOM and GLOOM in the Chinese economy. Problems, yes, there are probems in every economy. Is China the worst? No, its one of if not the strongest economy right now, with even the Europeans looking to China to help them out of their situation. Stop hating pointlessly, Anyone who is truly neutral can see straight through your hate for China, even if you remove or block my post, its still true. I've been on the Chinese economy thread and it was evident people, almost all Indian, were highlighting anything bad they could find on the Chinese economy, there was barely any good news until you started this uplifting thread. This isn't a personal attack or whatever, its advise... Be graceful, all this envy and hatred wont make India better than China anytime soon, hard work will. Take a page outta the Chinese book and work hard silently.
 

SPIEZ

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Very unbiased, neutral thread Daredevil. I mean China is gong to implode and millions of people will be destitute. Babies will go hungry, the world economy will be hurt and you will finally be happy. .
Why is it that i feel you have the wrong flag in your avatar ?
 

Kingsley

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Why is it that i feel you have the wrong flag in your avatar ?
What? Is my nationality supposed to influence my opinion? I am very American and very unbiased. What the Chinese have done with their economy is very impressive, and I respect that.. Is that wrong?
 

SPIEZ

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What? Is my nationality supposed to influence my opinion? I am very American and very unbiased. What the Chinese have done with their economy is very impressive, and I respect that.. Is that wrong?
No everything is absolutely right. Being an American you can fully support China.

OH! BTW I think the nuke's(of chinese) are also meant for you.
 

Kingsley

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No everything is absolutely right. Being an American you can fully support China.

OH! BTW I think the nuke's(of chinese) are also meant for you.
I thought this was about their economy, not their nukes. So because the Chinese have nuclear missiles I should hate everything they do? And since the Chinese have renounced first use of nuclear weapons (which I also respect them for by the way, since it shows respect for human life) the only reason I would have to fear their nuclear weapons is if WE attacked them with our minuteman and tridents (which is highly improbable without them attacking us with nukes first). I may not support everything they do, like I don't every other nation in the world (even my own), but in terms of economy, utter respect, not envy or prejudice, ie you.
 
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LurkerBaba

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Very unbiased, neutral thread Daredevil. I mean China is gong to implode and millions of people will be destitute. Babies will go hungry, the world economy will be hurt and you will finally be happy. Stop. You have been foretelling the demise of the Chinese economy since 2009 or earlier. It wont happen. Even the IMF recently released their prediction that China will surpass us in 2016. You should be happy for your fellow Asians and stop with all this bitterness, instead of looking for any mistakes or problems. China is a developing country, there are bound to be issues and problems. Is India perfect? I don't see you highlighting your own countries problems and trying to ridicule it. China has lifted millions out of poverty and has just become the most powerful economy in Asia. The truth is There is no DOOM and GLOOM in the Chinese economy. Problems, yes, there are probems in every economy. Is China the worst? No, its one of if not the strongest economy right now, with even the Europeans looking to China to help them out of their situation. Stop hating pointlessly, Anyone who is truly neutral can see straight through your hate for China, even if you remove or block my post, its still true. I've been on the Chinese economy thread and it was evident people, almost all Indian, were highlighting anything bad they could find on the Chinese economy, there was barely any good news until you started this uplifting thread. This isn't a personal attack or whatever, its advise... Be graceful, all this envy and hatred wont make India better than China anytime soon, hard work will. Take a page outta the Chinese book and work hard silently.

Please change your flag according to your location.
 

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