China shows WHO is boss?

[touchring]

Re: China shows WHO is boss?

There was an interesting article by Charles Hugh Smith -Will China's Real Estate Bubble Pop the Global "Recovery"?

China real estate is a bubble, but do the Chinese leaders care? Anyone who can afford to buy a $400 a sq ft flat isn't under the radar of the old men. There are plenty of Chinese struggling on two to three bucks a day.

Bubble blow, bubble burst, life goes on the same for hundreds of millions of Chinese farmers and laborers.

[Rajiv]

Re: China shows WHO is boss?

Bubble blow, bubble burst, life goes on the same for hundreds of millions of Chinese farmers and laborers.

Yes that is quite true! However, when bubbles burst, and economic collapses happen, nobody remains isolated from the effects -- the poor (and particularly the urban poor) are the most at risk.

[touchring]

Re: China shows WHO is boss?

Yes that is quite true! However, when bubbles burst, and economic collapses happen, nobody remains isolated from the effects -- the poor (and particularly the urban poor) are the most at risk.

In the medium to long term, a bubble burst in China will benefit the urban poor, by raising the income of blue collar service workers working in the cities.

The bubble has diverted much of disposable income into real estate, leaving little for the service industry.

The real estate bubble in China artificially suppresses the Yuan and wages, making Chinese exports more competitive vis-a-vis the West.

The West loses both ways -

1. A bubble won't benefit the West since disposable income goes into real estate rather than merchandise imports (notice how a little effect the Great Chinese bubble has on American and European jobs).

2. The money printing that caused the bubble depresses the Yuan, so no help to the balance of payment.

3. A bubble burst, however, will affect the West by having a contagion effect.

[GRG55]

Re: China shows WHO is boss?

China real estate is a bubble, but do the Chinese leaders care? Anyone who can afford to buy a $400 a sq ft flat isn't under the radar of the old men. There are plenty of Chinese struggling on two to three bucks a day.

Bubble blow, bubble burst, life goes on the same for hundreds of millions of Chinese farmers and laborers.

This is exactly one of my points that China has in common with the GCC...very few people actually participated in the real estate bubble in the GCC, so when it burst it didn't have any immediate effect on the throngs at the shopping malls and other indicators of daily life. The GCC has the additional advantage that huge numbers of nationals are employed by the state owned enterprises since the government [e.g. the Ruling Family] owns practically all the means of economic output from the oil production to refining, petrochemicals, aluminum smelting...the whole spectrum of industries.

However the bursting of the bubble has had a corrosive influence on the underpinnings of the economies there and many months after the bust the effects of this are now becoming plainly visible. I simply do not subscribe to your conclusion that a bursting of the China property bubble will have no material effect on the rest of the economy. It most definitely will, because so far that's exactly what has happened everywhere else in the world with a bursting property bubble, and I don't see a believable case that somehow "China is different". It's not.

[GRG55]

Re: China shows WHO is boss?

3. A bubble burst, however, will affect the West by having a contagion effect.

Exactly!

[touchring]

Re: China shows WHO is boss?

Exactly!

I reckon that the AUD will plummet as steel prices collapse. USD may rise and China will be forced to cut back on its money printing, otherwise the weird situation in which the RMB falls against the dollar may occur.

[touchring]

Re: China shows WHO is boss?

I simply do not subscribe to your conclusion that a bursting of the China property bubble will have no material effect on the rest of the economy. It most definitely will, because so far that's exactly what has happened everywhere else in the world with a bursting property bubble, and I don't see a believable case that somehow "China is different". It's not.

You're right, it will happen, although the impact on the poor in China won't be that significant, unless banks go bust, as it has happened in Thailand and Indonesia. I am assuming that this won't happen in China as banks are owned by the government.

[c1ue]

Re: China shows WHO is boss?

Although we may not be anywhere near the end of this trend, the salad days of continuous declining traded goods prices are behind us...[even after adjusting for quality differentials, next years car is going to cost you more than this years]...

Absolutely true, but nonetheless there are still potentially ugly ramifications from going 'cold turkey' off cheap imported Chinese goods.

The price increases would go from steadily and stealthily upward such that only the most rabid observers see (like myself) to a plateau jump.

This would get the public's attention.

[Down Under]

Re: China shows WHO is boss?

I reckon that the AUD will plummet as steel prices collapse.

I think AUD will fall off a cliff again if the China bubble bursts. Only question is, when?

[touchring]

Re: China shows WHO is boss?

I think AUD will fall off a cliff again if the China bubble bursts. Only question is, when?

Prices in some cities have started to double, Beijing will have to deploy a sledgehammer to smack down prices, worst come to worst, suspend housing loans for one or two months. So probably before the middle of 2010. Earlier if the US raises interest rates (if it happens).

The irony is that while the US does not benefit from China's bubble, it will be adversely affected if the bubble bursts.

[Down Under]

Re: China shows WHO is boss?

Prices in some cities have started to double, Beijing will have to deploy a sledgehammer to smack down prices, worst come to worst, suspend housing loans for one or two months. So probably before the middle of 2010. Earlier if the US raises interest rates (if it happens).

What makes you so confident that Bejing will deploy a sledgehammer, and, before mid 2010?

And, are you actually placing any trades based upon this confidence?

[touchring]

Re: China shows WHO is boss?

What makes you so confident that Bejing will deploy a sledgehammer, and, before mid 2010?

And, are you actually placing any trades based upon this confidence?

Only a thought speculation. probably not definitely.

1. Mid 2010 will be more than half a year after iTulip and EWI call for a double dip.

2. If the current trend continues unabated, new apartment prices in hot cities will triple or quadruple from 2009 lows by the middle of 2010.

http://english.cctv.com/program/bizc...5/101405.shtml (VIDEO)

Shanghai sets new record for land prices

Another record has been broken in real estate with a residential site in Shanghai going under the hammer for 32,500 yuan for every square meter. Prices continue to shoot up, despite concerted measures from authorities to put a damper on a red-hot market.
The Shanghai New Jiangwan City C6 site is located in Yangpu district, close to a subway line. According to the new rules, the winning developer will have to pay the full price within 30 days and will have to start selling homes that meet the requirements for pre-sales, within a year of signing the deal. But, the 32,500 yuan per square meter price is far higher than property prices in the area.
Fu Qi, Analyst of E-House China said "The price of the properties built on the site will be no less than 45,000 yuan per square meter."
Data shows the land price in the New Jiangwan City area has risen six-fold from 5,600 yuan psm in 2005 to 32,000 yuan. The average property price in the area is now 30,000 psm, a figure most local citizens say is unbearable.
One local citizen said "The price is far too high. I can't afford it."
Data shows the total transaction volume of properties in Shanghai for the year will be 8 million square meters, three times the number in 2008.

Why not definitely?

China is more concerned about jobs than property prices. The top most goal is to retain as many export jobs as possible by pegging the yuan to the dollar (China believes that it is their sovereign right to determine the exchange rate). A peg will be inflationary because China has to print as much money as the US prints. But China has shown that they are willing to trade hyperinflation for jobs.

Obama looks too weak and cannot do much about the yuan peg. Talk alone is useless. Imposing some tariffs here and there is also useless. China will not remove the Yuan peg unless the US does something drastic unilaterally, such as imposing a 20% across the board duty on China imports.

[Milton Kuo]

Re: China shows WHO is boss?

What makes you so confident that Bejing will deploy a sledgehammer, and, before mid 2010?

And, are you actually placing any trades based upon this confidence?

Someone I know who lives in Shanghai tells me that China is changing how it taxes real estate to tamp-down speculation. Whereas the state used to tax the profit on a real estate sale, it is now taxing the sale price on a real estate sale.

I'm not sure if this qualifies as deploying a sledgehammer (maybe not since the above taxation change probably won't shatter the real estate bubble ) but I suspect the state will enact stronger and stronger measures if real estate gets bubblier.

Per a Bloomberg report, the cost of a typical apartment is running approximately 80 times annual income. Ouch. I suspect the actual multiple is lower than 80 but still runs in the double digits.

[touchring]

Re: China shows WHO is boss?

Someone I know who lives in Shanghai tells me that China is changing how it taxes real estate to tamp-down speculation. Whereas the state used to tax the profit on a real estate sale, it is now taxing the sale price on a real estate sale.

I'm not sure if this qualifies as deploying a sledgehammer (maybe not since the above taxation change probably won't shatter the real estate bubble ) but I suspect the state will enact stronger and stronger measures if real estate gets bubblier.

A 5.5% flat tax on real estate transactions will qualify as a sledgehammer in the US, UK or Australia, but will be useless in Chinese cities where prices are rising 10% a month! You'll cover that 5.5% tax in the matter of weeks.

A tiered system will work better, e.g. 30% tax if sold within 1 year, 15% tax if sold within 2 years, 10% if sold within 3 years. This will freeze the market immediately.

[GRG55]

Re: China shows WHO is boss?

What makes you so confident that Bejing will deploy a sledgehammer, and, before mid 2010?...

A 5.5% flat tax on real estate transactions will qualify as a sledgehammer in the US, UK or Australia, but will be useless in Chinese cities where prices are rising 10% a month! You'll cover that 5.5% tax in the matter of weeks.

A tiered system will work better, e.g. 30% tax if sold within 1 year, 15% tax if sold within 2 years, 10% if sold within 3 years. This will freeze the market immediately.

China has a recent memory of what happened the last time they tried to cool down their economy, and ended up tanking their stock and property markets...temporarily as it turned out.

I doubt they want a repeat, so they are most likely trying to avoid any "sledgehammers" that would freeze the market, and instead will chase the impossible dream of controlling the bubble without actually bursting it. Is there an example of anyone else, anywhere else actually accomplishing that successfully? :rolleyes:

Now that the idea of becoming gloriously rich through real estate "investment" has been ingrained in the national psychology, it'll be near impossible to control the bubble. Even the fear of losses is probably gone because everyone there can see how the authorities reacted, and how fast they were able to restart property market inflation after the last price decline. I'll bet there are lots of punters in that market that are certain the government "won't let property prices go down". The Chinese are human, and humans have an amazing ability to find creative methods around new rules that stand in the way of the "instant wealth" they are certain they deserve.