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The Great China Hype Thread
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Ya-ta Boy



Joined: 16 Jan 2003
Location: Established in 1994

PostPosted: Sun Feb 14, 2010 1:48 pm    Post subject: Reply with quote

The article, by focusing on the top school, gave an idealized view, but what I got out of it was that a culture that values education produces social attitudes, structures and behaviors that maximize potential. Had the writer gone to school #1 where the less talented go, the story would have been somewhat less rosy.

Speaking as an old fogey, cultural values do matter.
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Mr. Pink



Joined: 21 Oct 2003
Location: China

PostPosted: Mon Feb 15, 2010 12:23 am    Post subject: Reply with quote

bacasper wrote:
The Happy Warrior wrote:
bacasper wrote:

It is impossible for China's economy to be a bubble when the Chinese stock market is still about 50% lower than its all time high. There are many Chinese stocks that have 20%+ revenue growth and trade with price/earnings ratios below 10, with comparable companies in the U.S. that have zero or negative revenue growth yet trade with price/earnings ratios of 20. These valuations should be the other way around, but the perception today is that China is still a "risky" emerging market.[/b]


Who cares what the stock market is at? We've literally got prices here in urban China equal to U.S. real estate, but the urban per capita income is just 1/7th of the U.S. national average.

Anyone who has personal experience with China here has concurred that there's a massive real estate bubble.

If you read the full article, you'll see it mentions real estate mini-bubbles in urban areas. They just do not constitute a full economy big bubble.


What do you think happens when the housing bubble bursts in China? Remember when it burst in the US? The whole damn world shook because of that.

The Chinese government has a lot more cash reserves than the US; however, I really wonder just how much they have. China is all about propaganda. No one really knows what the real truth is.

I live here and I have to pay rent. As such I know the reality of the housing bubble. Rents are getting higher. Apartments are sitting empty as rich owners don't want to rent them out below a certain price. They would rather have apartments just sit empty. You think about that for a minute.

I pay a little less for rent in my small Chinese town than I did in my small Canadian town. Is that reasonable for the typical Chinese who makes less than $500 a month with their full time job?

The price to buy the apartment I live in now is about $300,000 US. Yes, that is pretty steep considering I live in a pretty crappy apartment. Across the street from me are apartments and villas that go for $500,000 to over $1mil US. In bigger cities like Beijing and Shanghai that is par for the course for new development areas.

So economics 101: what happens when people are borrowing on this "bubble" value of their property and the bubble crashes? Are you really trying to tell me it won't have ripple effects?

I can say the Chinese government will put tons of money into trying to soften the damage, even going into debt to do so. Why? They need to stay in control. Things like economic collapse tend to not go down so well in China. They have a history of revolutions.

Five years ago in my town property was 2000 RMB a square meter. Now it is between 10,000 and 15,000 depending on the property. The lowest I've heard is 8,000 on the outskirts of the town.

Most apartments are a minimum of 120 square meters. Mine is 160 square meters and in an apartment complex that is on the high end of the pricing scheme.

Tell me, how the hell can the typical Chinese citizen afford these places? Some who lose their land to developers might get enough for an apartment, but it tends to be the rich getting richer and the poor staying the same.
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bacasper



Joined: 26 Mar 2007

PostPosted: Mon Feb 15, 2010 5:02 am    Post subject: Reply with quote

Mr. Pink wrote:
bacasper wrote:
The Happy Warrior wrote:
bacasper wrote:

It is impossible for China's economy to be a bubble when the Chinese stock market is still about 50% lower than its all time high. There are many Chinese stocks that have 20%+ revenue growth and trade with price/earnings ratios below 10, with comparable companies in the U.S. that have zero or negative revenue growth yet trade with price/earnings ratios of 20. These valuations should be the other way around, but the perception today is that China is still a "risky" emerging market.[/b]


Who cares what the stock market is at? We've literally got prices here in urban China equal to U.S. real estate, but the urban per capita income is just 1/7th of the U.S. national average.

Anyone who has personal experience with China here has concurred that there's a massive real estate bubble.

If you read the full article, you'll see it mentions real estate mini-bubbles in urban areas. They just do not constitute a full economy big bubble.


What do you think happens when the housing bubble bursts in China? Remember when it burst in the US? The whole damn world shook because of that.

I hope you are not asking me. I am just paraphrasing the article.
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On the other hand



Joined: 19 Apr 2003
Location: I walk along the avenue

PostPosted: Mon Feb 15, 2010 7:55 am    Post subject: Reply with quote

Ya-ta Boy wrote:
The article, by focusing on the top school, gave an idealized view, but what I got out of it was that a culture that values education produces social attitudes, structures and behaviors that maximize potential. Had the writer gone to school #1 where the less talented go, the story would have been somewhat less rosy.

Speaking as an old fogey, cultural values do matter.


Of sure. And just for the record, Ya-ta, when I used the phrase "old fogey", it was meant more as an attitudinal construct that a chronological one. I remember my parents expressing "old fogey" attitudes when they weren't much older than I am now.
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sun Feb 28, 2010 7:56 am    Post subject: Reply with quote

Quote:
What is known is that dozens of skyscrapers sit completely empty: By at least one count, well over 60 such towers dot Beijing alone, while some 13 million more square feet of commercial space will enter the Beijing market this year.

http://www.dailyfinance.com/story/real-estate/why-china-cant-cool-its-overheated-real-estate-boom/19371786/

http://www.bloomberg.com/apps/news?pid=20601089&sid=aDZjmVQaQ.Ms

Quote:
China Property Market �Bubble� Set to Burst, Xie Says

Feb. 2 (Bloomberg) -- China�s property market �bubble� is set to burst as the government curbs credit growth and clamps down on speculation, according to independent economist Andy Xie.

As bank lending slows, �it�s very difficult to see this demand continuing,� Xie, formerly Morgan Stanley�s chief Asian economist, told Bloomberg Television in Hong Kong today.

Tougher property policies may lower 2010 sales volumes 10 percent, compared with an earlier forecast for growth of as much as 5 percent, BNP Paribas said in a report today. The Shanghai Composite Index has slid 10 percent this year, the worst performer among the 94 global gauges tracked by Bloomberg, on concern that China will add further lending curbs. The index dropped 0.2 percent to 2,934.71 today.
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Nowhere Man



Joined: 08 Feb 2004

PostPosted: Mon Mar 01, 2010 7:23 am    Post subject: ... Reply with quote

Well,let's see...

The DOW 36k article comes from a time when the US was already developed and had found a new avenue of expansion.

This stands in stark contrast to the backwaters of China where people are ready to give up farming in favor of more lucrative positions in industry.

Developing countries essentially need expansion to continue the status quo. China is developing, not developed. That's a HUGE factor.

It does look like you're right about a housing bubble, but the effect of that bubble is not going to be the same as a similar one in the US. It could, very well, send shivers abroad (given foreign investment in the high end), but it's a minor adjustment that won't affect most of the PRC populace, which remains to achieve its full potential.

Don't get me wrong. I'm not a fan of Chinese society as it is compared to the West, but I wholly disagree with snickering at it. They're coming, and they're coming hard.

They have Russia to reflect upon and, to put things in proper perspective, we've pretty much bought China out of communism. Not brought, bought. In this sense, it's great that we had a way to triumph over communism without a war, but what remains is a leaner, meaner economic power than exists in the west.

Simply put, the rich do not have comparable power in government, and China maintains an iron fist on the poor that will likely not be broken, leaving people to follow the system in order to pursue further gain. And the room for them to pursue further gain is wide open absent of a major economic collapse. The housing bubble isn't it, and even the Depression of the 30s didn't stop the US. Half their populace already lives in conditions similar to that of the Great Depression. If you're working on a communal farm, what ill aside from famine is going to make your situation worse?

A devaluation of their currency will fire exports at the same time it hits its wee middle class.

Finally, we get to the matter of "success". We have our eslcafe depression thread. Is the whole world doomed to the same gloom? Or, is it an opportunity for some? Who, if not China, is benefitting from this depression? What success do you speak of, Kuros? What standards are you setting for it?

I'll go out on a limb and say the FP article is spot on and you have yet to show anything that contradicts it aside from a very porr comparison to the DOW 36k article.
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bucheon bum



Joined: 16 Jan 2003

PostPosted: Mon Mar 01, 2010 8:20 am    Post subject: Reply with quote

Nowhere Man, your posting was like that FP article: pure speculation with few facts to back it up.

That FP article was rather weak, and spent as much time describing the EU's slow decline as it did talking about China's future growth.
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Mon Mar 01, 2010 9:20 am    Post subject: Reply with quote

How's this for Hype:

http://www.reuters.com/article/idUSTRE6200P620100301

Quote:
BEIJING (Reuters) - China should build the world's strongest military and move swiftly to topple the United States as the global "champion," a senior Chinese PLA officer says in a new book reflecting swelling nationalist ambitions.

The call for China to abandon modesty about its global goals and "sprint to become world number one" comes from a People's Liberation Army (PLA) Senior Colonel, Liu Mingfu, who warns that his nation's ascent will alarm Washington, risking war despite Beijing's hopes for a "peaceful rise."

"China's big goal in the 21st century is to become world number one, the top power," Liu writes in his newly published Chinese-language book, "The China Dream."

"If China in the 21st century cannot become world number one, cannot become the top power, then inevitably it will become a straggler that is cast aside," writes Liu, a professor at the elite National Defense University, which trains rising officers.

His 303-page book stands out for its boldness even in a recent chorus of strident Chinese voices demanding a hard shove back against Washington over trade, Tibet, human rights, and arms sales to Taiwan, the self-ruled island Beijing claims as its own.

"As long as China seeks to rise to become world number one ... then even if China is even more capitalist than the U.S., the U.S. will still be determined to contain it," writes Liu.

Rivalry between the two powers is a "competition to be the leading country, a conflict over who rises and falls to dominate the world," says Liu. "To save itself, to save the world, China must prepare to become the (world's) helmsman."
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bucheon bum



Joined: 16 Jan 2003

PostPosted: Mon Mar 01, 2010 9:24 am    Post subject: Reply with quote

Fine, let China take our place as the #1 country in pissing money away on counterproductive military expenditures.

China becoming the "world's helmsman"? A (relatively) homogenous country with an authoritarian government steering the world? I'm sure the rest of the world won't mind that at all. Yeah, someone is delusional.
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Nowhere Man



Joined: 08 Feb 2004

PostPosted: Mon Mar 01, 2010 11:47 am    Post subject: ... Reply with quote

Quote:
Nowhere Man, your posting was like that FP article: pure speculation with few facts to back it up.

That FP article was rather weak, and spent as much time describing the EU's slow decline as it did talking about China's future growth.


Well, I thought I reasoned it well. China has so much room to internally expand that it can afford a housing bubble pop. Not to mention it is quite strategically going after Africa.

As for facts, I think the article and my interpretation are based upon the existing circumstances.

Contrast that with an OP comparing some obscure 1999 prediction about the Dow Jones with an article in Foreign Policy. Why am I being called out?

China affords its military without debt. It doesn't "project influence" around the world, and that saves a lot. One superpower was toppled by an arms race. Who is in danger of that? Not China.

I've spent significant time in China, and I've lived in Taiwan. The impetus to leave farming behind for factory work is alive and well on the Mainland. People are happy to have a job that's going somewhere. People don't generally give a rip about religion, and people already believe they're being given a fair shake in terms of healthcare.

How many cities over 10 million exist in China? Seattle would be a town if it were in China. How far does this housing bubble reach? How could a normal Chinese afford these prices? How could a "normal thai" afford my accommodation The answer is that all of these questions are being posed from an American viewpoint. The answer is that normal people can't afford such things, and to presume you live in some semblance of the status quo is wholly, in every way, wrong.

Lastly, I've said nothing of hegemony. That's a strawman. Rather, we're back at a balance of power. Not one that we expected, but what control do we have over China?

Please answer that.
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The Happy Warrior



Joined: 10 Feb 2010

PostPosted: Wed Mar 03, 2010 2:16 am    Post subject: Reply with quote

bucheon bum wrote:

China becoming the "world's helmsman"? A (relatively) homogenous country with an authoritarian government steering the world? I'm sure the rest of the world won't mind that at all. Yeah, someone is delusional.


This is what's delusional: many Chinese are buying the Communist shtick that they are preserved from economic up-turns and down-turns b/c they are not capitalist. But I'm less focused on Chinese delusions for the purposes of this thread than Western delusions about China.

Nowhere Man wrote:

Contrast that with an OP comparing some obscure 1999 prediction about the Dow Jones with an article in Foreign Policy. Why am I being called out?


The DOW 36,000 book was not that obscure a prediction, so much as it is a symbol of modern hyper-optimism.

Nowhere Man wrote:

They have Russia to reflect upon and, to put things in proper perspective, we've pretty much bought China out of communism. Not brought, bought.


But China is still somewhat Communist, although certainly Gaigekaifang has transformed China into a more hybrid socialist-market economy. Many of the State-Owned Enterprises (SOEs) have entered into joint ventures with private companies, especially foreign firms. But the SOEs retain much of their old structure, and in many cases party heads are depositing their children into top positions in those hybrid companies. It is true that in most cases it was Foreign Direct Investment and Capital that bought foreign concerns a seat a piece of the SOE.

Nowhere Man wrote:

Don't get me wrong. I'm not a fan of Chinese society as it is compared to the West, but I wholly disagree with snickering at it. They're coming, and they're coming hard.


Who in this thread is snickering at China? Talk about a strawman. I'm only snickering at Westerners who think China is 'coming, and coming hard.' Laughing
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Wed Mar 03, 2010 7:01 am    Post subject: Reply with quote

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aN94MF7BDx_A
Quote:
March 3 (Bloomberg) -- China�s hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world�s third-biggest economy, Professor Victor Shih said.

�The worst case is a pretty large-scale financial crisis around 2012,� said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. �The slowdown would last at least two years and maybe longer,� the author of the book �Factions and Finance in China� said in a phone interview March 1.

Surging borrowing by local-government entities, uncounted in official estimates of China�s debt-to-GDP ratio, is the key reason for Shih�s concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment.

By Shih�s count, China�s debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent.

Chinese officials allowed lending to explode from late 2008 to fight off the effects of the global financial crisis. In 2009, new loans rose to a record 9.59 trillion yuan ($1.4 trillion).

...

Local-government entities may have had a total of 11.429 trillion yuan in outstanding debt by the end of last year, according to Shih. They have agreed credit lines with banks for an additional 12.767 trillion yuan, said Shih.

A crackdown on local-government borrowing could trigger a �gigantic wave� of bad loans as projects are left without funding, while a failure to rein in lending could lead to inflation of over 15 percent by 2012, Shih said. Either situation could trigger bank runs and a crisis as people lose confidence in the financial system, he said.


2012. Seems far away. It's also around the time when we there can be a reasonable expectation of a meaningful recovery in the US. Maybe not.
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The Happy Warrior



Joined: 10 Feb 2010

PostPosted: Fri Mar 05, 2010 10:28 am    Post subject: Emerging Superpowers don't suffer from Brain Drain Reply with quote

Solid link, mises.

The more educated Chinese are, the more they realize they are under-appreciated. One in Five College-Educated Chinese Wants to Emigrate.

China has no cultural pull. Less than zero: negative.
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mises



Joined: 05 Nov 2007
Location: retired

PostPosted: Sun Mar 14, 2010 10:59 am    Post subject: Reply with quote

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html
Quote:

Is China's Politburo spoiling for a showdown with America?

The long-simmering clash between the world's two great powers is coming to a head, with dangerous implications for the international system.

China has succumbed to hubris. It has mistaken the soft diplomacy of Barack Obama for weakness, mistaken the US credit crisis for decline, and mistaken its own mercantilist bubble for ascendancy.


...

Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc.

"It's going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we're not going to get anywhere," said Paul Krugman, this year's Nobel economist.

China's premier Wen Jiabao is defiant.

"I don�t think the yuan is undervalued.We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency," he said yesterday. Once again he demanded that the US takes "concrete steps to reassure investors" over the safety of US assets.

"Some say China has got more arrogant and tough. Some put forward the theory of China's so-called triumphalism'. My conscience is untainted despite slanders from outside," he said

...

I let others discuss the rights and wrongs of this, itself a response to the US report card on China. Clearly, Beijing is in denial about is own part in the global imbalances behind the credit crisis, specifically by running structural trade surpluses, and driving down long rates through dollar and euro bond purchases. No doubt the West has made a hash of things, but the Chinese view of events is twisted to the point of delusional.

What interests me is Beijing's willingness to up the ante. It has vowed sanctions against any US firm that takes part in a $6.4bn weapons contract for Taiwan, a threat to ban Boeing from China and a new level of escalation in the Taiwan dispute.

...

We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove.


...

Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country has amassed such a stash equal 5pc to 6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.

The reserves cannot be used internally to support China's economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China's dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China's over-capacity in steel is now greater than Europe's output.

This is catching up with China in any case. Professor Victor Shuh from Northerwestern University warns that the 8,000 financing vehicles used by China's local governments to stretch credit limits have built up debts and commitments of $3.5 trillion, mostly linked to infrastructure. He says the banks may require a bail-out nearing half a trillion dollars.

As America's creditor - owner of some $1.4bn of US Treasuries, agency bonds, and US instruments - China can exert leverage. But this is not what it seems. If the Politburo deploys its illusiory power, Washington can pull the plug on China's export economy instantly by shutting markets. Who holds whom to ransom?

Any attempt to retaliate by triggering a US bond crisis would rebound against China, and could be stopped - in extremis - by capital controls. Roosevelt changed the rules in 1933. Such things happen. The China-US relationship is no doubt symbiotic, but a clash would not be `mutual assured destruction' as often claimed. Washington would win.

Contrary to myth, the slide to protectionism after the 1930 Smoot-Hawley Tariff Act did not cause the Depression. Trade contracted more slowly in the 1930s than this time. The Smoot-Hawley lesson is that tariffs have asymmetrical effects. They devastate surplus countries: then America. Deficit Britain did well by retreating into Imperial Preference.

Barack Obama has never exalted free trade. This orthodoxy is in any case under threat in the West. His top economic adviser Larry Summers let drop in Davos that free trade arguments no longer holds when dealing with "mercantilist" powers. Adam Smith recognized this too, despite efforts by free trade ultras to appropriate him for their cause.

China's trasformation has been remarkable since Deng Xiaoping unleashed capitalism, but as ex-diplomat George Walden writes in China: a Wolf in the World? you cannot feel at ease with a regime that still covers up Mao's murderous nihilism. He reminds us too that China has never forgiven the humilations inflicted by the West when the two civilizations collided in the 19th Century, and intends to exact revenge. Handle with care.


China is a currency manipulator. So is America. Oh well. The US has a responsiblity not to the "Global System" but to Americans. The US must (and eventually will) slap import costs on Chinese goods that even out the imbalances. It is sensible. Ricardo's theory does not work in our present situation.
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The Happy Warrior



Joined: 10 Feb 2010

PostPosted: Sun Mar 14, 2010 7:09 pm    Post subject: Reply with quote

The US Congress is coming to the conclusion that economic engagement will not lead to democracy.

Quote:
In hindsight, Wednesday's United States House of Representatives Committee on Foreign Affairs hearing over "The Google Predicament" may well prove to be one of the many grains of sand which are slowly eroding the conventional logic that has kept America and China engaged for most of the past several decades.

On the whole, the testimony and congressional statements appear to suggest we are fast approaching a rebalancing act between the two countries. Such a moment might change little in the way of formal policies and promulgated laws, but it will have significant impact on the politics and philosophies of engagement between Beijing and Washington.

If one had to choose a single idea held consistently across most of the congressional statements and expert witnesses today, it would be that the grand idea of China democratizing as it opened to trade with the West may no longer be a valid framework by which to understand our situation. Around Washington, this is becoming an increasingly common question, made more heatedly and pointedly in the midst of America's perceived economic decline.

What comes through clearly after the hearing is that what America hoped the China model would come to represent - trade empowering liberalization and freedom - may never happen. Instead, the China model may come to be known the world over as using trade to gather together the pieces of technology and industry you need for your own purposes, always dangling out in front the possibility of meaningful reform, but when ultimately pushed to make these changes, stopping short.

The US-China relationship is stuck between these two models.


The US still holds most of the power in this relationship. If it wishes to use it, China's espionage advantage will not be enough to save it.
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