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...After so many years of fast growth the bubbles are not only busting on the economic level but also on the Chinese mindset up from the corporation leaders to the average citizens. Recently Liu Chuanzhi, the Chairman of Lenovo and the iconic figure of Chinese manufacturing, faced a serious dilemma while asked why of Lenovo Group’s profit in 2009 60% came from asset investment and only 40% came from manufacturing. He said “when the typhoons come, even a pig can fly in the sky. Everybody is profiteering from this. Why can’t we?” The typhoons refers to the property frenzy and the easy ways to make money. The strategic marriage between Lenovo and China Oceanwide Holdings Group, a private investment firm heavily involved in the property market, can attest to that sentiment. That sentiment manifested in ordinary people’s logic is a common saying by many: “ buying house rather than saving; buying house rather than stock trading.” That sentiment is also manifested on many other levels: from inflated municipal officials' performance to the fate of a young Chinese man’s marriage...
By some accounts, Chongqing is the largest metro area in the world with a population of some 32 million. They ought to call it the largest construction site in the world.
This is a place that, if you believe the official numbers, posted 17% GDP growth in 2010. It doesn’t take too long to figure out how that happened. Driving around town, I found that Chongqing is in such a building frenzy, they’re actually tearing down perfectly good (and reasonably new) buildings and infrastructure, and rebuilding them.
To give you an example, next to my 45-story downtown hotel was a building site where the constant drone of jackhammers signaled to me that there was some breaking of concrete going on. The new tower under construction had reached the 11th floor, but then they decided to tear it down and start all over again with something even bigger (102-stories).
[There are a half-dozen other such towers in Chongqing. Most of them are officially "on hold," signaling to me that China is getting ever closer to facing its bubble reality-- that demand simply cannot support such investment.]
Then there are the pavement workers… half of them digging up the road, half of them putting it back together...
The Ontario Securities Commission has ordered senior officers and directors of Sino-Forest Corp to resign and has cease-traded the company’s shares.
The commission said in a release Friday that it has reason to believe the company and certain of its officers and directors have “misrepresented some of its revenue and/or exaggerated some of its timber holdings” and that some of the officers and directors – including chief executive officer Allen Chan – appear to be engaging in acts “they know or reasonably ought to know perpetuate a fraud.”...
If the name of this company sounds familiar, it may be because at least one rather high profile fund manager got taken in by the fraud:
John Paulson lost 11 percent in his biggest fund in June, according to an investor, as the firm sold off Sino-Forest Corp. (TRE) after a short-seller’s allegations.
The drop left Paulson’s Advantage Plus Fund, which uses strategies designed to profit from corporate events such as takeovers and bankruptcies, down 18 percent this year...
...Paulson & Co., which manages $37 billion overall, posted declines across all of its strategies in June, as the firm sold its shares of Sino-Forest, the Chinese forestry company accused of overstating timberland holdings and production in the Yunnan province, at a C$462 million ($482 million) loss since May 31...
The Ontario Securities Commission has ordered senior officers and directors of Sino-Forest Corp to resign and has cease-traded the company’s shares.
The commission said in a release Friday that it has reason to believe the company and certain of its officers and directors have “misrepresented some of its revenue and/or exaggerated some of its timber holdings” and that some of the officers and directors – including chief executive officer Allen Chan – appear to be engaging in acts “they know or reasonably ought to know perpetuate a fraud.”...
If the name of this company sounds familiar, it may be because at least one rather high profile fund manager got taken in by the fraud:
John Paulson lost 11 percent in his biggest fund in June, according to an investor, as the firm sold off Sino-Forest Corp. (TRE) after a short-seller’s allegations.
The drop left Paulson’s Advantage Plus Fund, which uses strategies designed to profit from corporate events such as takeovers and bankruptcies, down 18 percent this year...
...Paulson & Co., which manages $37 billion overall, posted declines across all of its strategies in June, as the firm sold its shares of Sino-Forest, the Chinese forestry company accused of overstating timberland holdings and production in the Yunnan province, at a C$462 million ($482 million) loss since May 31...
BEIJING/SHANGHAI, Oct 10 (Reuters) - A unit of China's sovereign wealth fund started to buy more shares in the country's big banks on Monday, in the clearest sign yet that Beijing is looking to support the country's struggling stock markets.
China's benchmark Shanghai Composite Index has shed nearly 17 percent so far this year, dogged by persistent worries over monetary tightening and concern about momentum in the world's second-biggest economy.
The additional share purchases are the first by Central Huijin Investment Co since the 2008-2009 financial crisis, and the first officially acknowledged step by Beijing to prop up share prices since the financial crisis.
Huijin, a unit of the $400 billion sovereign wealth fund China Investment Corp and already the biggest shareholder of the country's "Big Four" lenders, began buying more shares in them on Monday...
...The government also has other means at its disposal for supporting the market...
In September, local media reported that China's national pension fund had received approval to buy around 10 billion yuan ($1.6 billion) in the local stock market.
State media also reported in August that Chinese insurers, largely owned and controlled by the government to varying degrees, had ploughed billions into the local stock market...
WENZHOU, China – Wenzhou's private entrepreneurs, scrappy survivors in an economy ruled by state industries, once thrived on a formula of cheap backstreet loans and low-cost manufacturing.
Now, they're at the center of what some have dubbed China's own subprime debt crisis, a festering mess of borrowings gone sour that has become one of the weakest links in the economy — at a time when strength here is most needed to offset weakness in the U.S. and Europe.
"Do anything, but not manufacturing in China!" exclaimed Yang Guanghua, boss of a Wenzhou electroplating factory. Unable to collect from customers who themselves have no money, Yang said he stopped paying salaries two months ago.
"I can't get raw materials because suppliers are afraid I will run away," Yang said. "It's just impossible to get loans from the bank unless you have connections," he said.
Wenzhou's factory bosses are caught in a dire credit crunch. Pyramids of high-interest private lending are collapsing as companies whose profits are dwindling due to rising costs and weakening demand default on their debts. Dozens of tycoons have skipped town. The government has intervened, but many worry the stopgap measures will not prevent the problems from getting worse...
..."I have to conclude that this business is now a Ponzi game, relying on new money to pay off the old money," said Andy Xie, a Shanghai-based economist who traveled the Wenzhou region over the past two months researching the situation. "If not checked, this could lead to a national calamity."
UBS economist Tao Wang puts informal lending at between 2 trillion yuan to 4 trillion yuan ($314 billion-$628 billion), or up to 10% of China's GDP. There is little immediate impact on China's massive state-run banks from some of these loans turning bad. A bigger risk is Wenzhou's credit squeeze spreading to other parts of the world's No. 2 economy...
...Almost all Wenzhou's business is privately owned, much of it by the city's more than 400,000 small and medium-size enterprises. The city's tycoons hold an estimated 800 billion yuan ($126 billion) in private capital and are renowned for driving speculation in property, coal mining and other commodities...
...Vast chunks of the city are walled off for construction of luxury apartment complexes such as Noble Peninsula and Platinum Garden, while modern amenities such as a subway line are lacking.
Much of the estimated 500 billion yuan ($79 billion) in private borrowing in Wenzhou went not to manufacturing, but instead to potentially higher return investments in property or commodities — or to still more lending by the borrowers themselves...
...With the problems spreading to other regions, including the Gobi desert boomtown of Ordos, China's leaders stepped in, ordering banks to lend more and to relax repayment terms for small and medium-sized enterprises. Loan sharks and other informal lenders were reminded not to use violence or other drastic measures to collect debts.
Meanwhile, the government is slashing taxes and promising faster processing for export tax rebates...
...Zhou Dewen, head of Wenzhou's association for small businesses, estimates up to 40% of the country's small and medium-sized manufacturers may have to close or at least cut back production in coming months due to a lack of working capital.
Yang, the electroplating factory owner, said he is holding back on some orders for customers who are three months in arrears. He paid his workers a 200 yuan ($30) bonus for a recent national holiday, but is letting those who want to leave go.
"The workers know it's not a problem with our factory itself, it's just hard to get our money back," he said.
Lighter factory owner He Zhanjun, who said he is paying 70% more this year for plastic than last year, is persevering. But he expects about a third of the city's lighter manufacturers to fold.
"Manufacturing is just getting harder and harder," he said.
Though Wenzhou's streets rumble round-the-clock with heavy truck traffic and its skyline is studded with cranes, many workshops and smaller factories stand idle and padlocked. Big office buildings and apartment complexes sit half-finished...
...China's ascent up the value chain to more sophisticated, costlier products also will require automation.
Facing wage increases of 25% this year, Qiu Jinguo, 45-year-old owner of Ruian Yutong Vehicle Fittings Co., an auto accessories factory, said he is replacing some of his 70-plus employees with machines.
"The cost is the same, while management is much easier," said Qiu, who reckons his profit will still fall by a third this year from last year due to soaring costs.
But behind Wenzhou's woes lie a wider problem in China: many with capital to invest are no longer looking to manufacturing, when real estate, speculating in commodities such as Pu Er tea and high interest lending can offer much better returns...
Thanks GRG55, for this information! It does seem that China is considerably further along in the collapse process than I would have thought had you not posted this series of articles.
China is on “a bigger and faster treadmill” than ever as property sales slow, said Jim Chanos, the hedge-fund manager who’s shorting banking stocks on a bet the market will crash.
“The Chinese are beginning to realize that property prices can go down as well as up and this is going to be a very, very troubling development for the Chinese property market,” Chanos, president and founder of $6 billion hedge fund Kynikos Associates Ltd., said in a Bloomberg Television interview from Singapore with Susan Li today.
Chanos has forecast since at least February 2010 that the property market will slump, saying that China is Dubai times a thousand and on a “treadmill to hell” because of its reliance on real estate for growth. Home prices rose in fewer than half of 70 Chinese cities in a nationwide survey in September as sales eased after the government restricted home sales and imposed curbs on some mortgages in an attempt to cool prices...
...China’s “hard landing” has begun, said Chanos, adding that consumption as a percentage of gross domestic product is dropping and that fixed-asset investment is the driver of the Chinese economy. “Most China observers were not talking about any landing three months ago and now they are confidently talking about a soft landing.”...
The rising number of Hong Kong homeowners with apartments worth less than their mortgages may further hurt sentiment already damped by the global equity rout and government curbs, according to Barclays Capital Research...
...The number “provides the first clear evidence of the on- going decline in Hong Kong property prices,” Barclays’ Hong Kong-based analysts Andrew Lawrence and Vivien Chan wrote in a report today. “Further price falls are expected to follow.”...
...Home transactions fell for a ninth straight month in September, while prices declined 3 percent from June to August, government statistics show...
...Rising negative equity “suggests that bank valuations for mortgages are falling quickly,” wrote Lawrence, who forecast home prices may drop as much as 30 percent by 2013 in an earlier report. “Homebuyers will either need to use more equity to fund their home purchases or negotiate lower prices.”
The number of negative equity loans last quarter is at the highest since the second quarter of 2009. The figure reached a peak of 106,000 at the end of June 2003, when Hong Kong’s home prices ended a six-year slump that wiped about two-thirds off values on average...
Given your news postings about Europe and China, I would suggest the costume below for any Halloween parties you might be attending this evening.
And since iTulip has a global readership, you might not want to visit China or Europe for awhile.
For a moment there I thought you'd posted a picture of Wolfgang Schäuble...but then I realized it's actually Wen Jiabao, getting ready to slice up the Chinese property market [and the economy too?] :-)
SHANGHAI'S key stock index fell for the first time in five days on worries that home prices will decrease further under the government's tightening measures...
...Property developers led the decliners after Premier Wen Jiabao said during a visit to Russia that China would insist on its policies to reduce home prices.
"The adjusted price will be acceptable for the public, and will help the property industry to develop healthily and orderly," Wen said...
WENZHOU, China – Wenzhou's private entrepreneurs, scrappy survivors in an economy ruled by state industries, once thrived on a formula of cheap backstreet loans and low-cost manufacturing.
Now, they're at the center of what some have dubbed China's own subprime debt crisis, a festering mess of borrowings gone sour that has become one of the weakest links in the economy — at a time when strength here is most needed to offset weakness in the U.S. and Europe.
...
And heeeere it comes.
QE with Chinese characteristics.
True to form, at the first sign of trouble [annual growth slowed to a horrifyingly low 9.1% ] the Chinese authorities blinked. Again.
BEIJING, Nov 30 (Reuters) - China's central bank cut the reserve requirement ratio for its commercial lenders on Wednesday for the first time in nearly three years to ease credit strains and shore up an economy running at its weakest pace since 2009.
The move comes amid increasing concern among policymakers worldwide that the global economy is on a slippery slope as the euro zone struggles to decisively tackle its two year debt crisis. Global markets recovered early losses on the news.
China's central bank said it lowered the reserve ratio by 50 basis points. That reduces the ratio for the biggest banks to 21 percent from a record high 21.5 percent, freeing up funds that could be used for lending to cash-strapped small firms.
"It's a surprising move -- the market was not expecting the central bank to (cut RRR) so fast," said Shi Chenyu, an economist with the investment banking unit of Industrial and Commercial Bank of China.
"The move sends a clear message that the central bank is ready to relax its policy stance."
The central bank, which has already loosened credit curbs to help cash-starved small firms, has pledged to "fine-tune" policy if needed...
...The 50-basis-point cut in the reserve ratio was the first since December 2008, marking a policy shift after a spate of tightening measures since last year aimed at fighting inflation, which hit a three-year peak in July of 6.5 percent.
However, inflation has since eased to 5.5 percent in October while economic growth has eased for three straight quarters due to tight credit at home and flagging demand overseas.
The economy grew 9.1 percent in the third quarter from a year earlier, its weakest pace since the second quarter of 2009.
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] the Chinese authorities blinked. Again.
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