Yes Virginia...It's a Bubble...

[Milton Kuo]

Re: Yes Virginia...It's a Bubble...

80 in 40000...hmmm. not so bad, not so bad...
That's why I very rarely visit museums...

I'm surprised that there's anything at all really worth looking at in China's museums. When Chiang Kai-shek had to bail for Taiwan, trunk after trunk after trunk of the very best, priceless artifacts were shipped to Taiwan (Chiang had his priorities straight. ) I think it's still true today but when I visited it, the Taiwan national museum had so much cool stuff that the museum wasn't large enough to show everything at once: they had to rotate the goods from a storage area to the display areas periodically.

The quality of the artifacts I saw in a few museums in Beijing absolutely paled in comparison to the stuff I saw in Taiwan.

[Southernguy]

Re: Yes Virginia...It's a Bubble...

Op-Ed Columnist

Hitting China’s Wall

By PAUL KRUGMAN

Published: July 18, 2013 142 Comments

All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.

Enlarge This Image


Fred R. Conrad/The New York Times

Paul Krugman




Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be. Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested.
How is that even possible? What keeps consumption so low, and how have the Chinese been able to invest so much without (until now) running into sharply diminishing returns? The answers are the subject of intense controversy. The story that makes the most sense to me, however, rests on an old insight by the economist W. Arthur Lewis, who argued that countries in the early stages of economic development typically have a small modern sector alongside a large traditional sector containing huge amounts of “surplus labor” — underemployed peasants making at best a marginal contribution to overall economic output.
The existence of this surplus labor, in turn, has two effects. First, for a while such countries can invest heavily in new factories, construction, and so on without running into diminishing returns, because they can keep drawing in new labor from the countryside. Second, competition from this reserve army of surplus labor keeps wages low even as the economy grows richer. Indeed, the main thing holding down Chinese consumption seems to be that Chinese families never see much of the income being generated by the country’s economic growth. Some of that income flows to a politically connected elite; but much of it simply stays bottled up in businesses, many of them state-owned enterprises.
It’s all very peculiar by our standards, but it worked for several decades. Now, however, China has hit the “Lewis point” — to put it crudely, it’s running out of surplus peasants.
That should be a good thing. Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.
And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit. (Since someone is going to raise this issue: no, this bears very little resemblance to the Federal Reserve’s policies here.) These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.
How big a deal is this for the rest of us? At market values — which is what matters for the global outlook — China’s economy is still only modestly bigger than Japan’s; it’s around half the size of either the U.S. or the European Union. So it’s big but not huge, and, in ordinary times, the world could probably take China’s troubles in stride.
Unfortunately, these aren’t ordinary times: China is hitting its Lewis point at the same time that Western economies are going through their “Minsky moment,” the point when overextended private borrowers all try to pull back at the same time, and in so doing provoke a general slump. China’s new woes are the last thing the rest of us needed.
No doubt many readers are feeling some intellectual whiplash. Just the other day we were afraid of the Chinese. Now we’re afraid for them. But our situation has not improved.

[GRG55]

Re: Capital MisAllocation...

Where to put all that surplus steel and cement? Why bury some of it underwater of course...now why didn't we think of that...

China rail, material stocks soar on investment optimism

Tue Jul 23, 2013 8:20am IST

(Reuters) - Shares in Chinese rail and building material companies bounced higher on Tuesday morning fuelled by optimism that plans to boost railway expansion would ease a glut in sectors such as steel and cement.

The Chinese government planned to use investments in high-speed railways to help reduce overcapacity in those and other construction material sectors, the official Shanghai Securities News reported on Tuesday.

By 0220 GMT, shares of China Railway Construction jumped 5 percent in Hong Kong and 6.1 percent in Shanghai.Anhui Conch Cement rose 1.1 percent in Hong Kong and 1.4 percent in Shanghai. The Shanghai materials sub-index was a standout outperformer among sectors, rising 3.2 percent.

The report, along with reported comments from the country's Premier Li Keqiang and Vice Premier Zhang Gaoli, helped lift stock markets in Hong Kong and China in rising volumes. The China Enterprises Index of the top Chinese listings in Hong Kong jumped more than 3 percent.

The newspaper said, citing unnamed sources close to the government, that the railway department had completed only one third of its planned investment in the first half of this year, so there would be room for a quicker pace of investment in the second half of this year.

The investment could include the world's longest undersea tunnel across the Bohai Strait, linking China's eastern and northeastern regions, worth 260 billion yuan ($42 billion) as previously reported, the newspaper said...

[GRG55]

Re: Yes Virginia...It's a Bubble...

From the South China Morning Post:

Debt risk looms large in Jiangsu

Mainland leadership's push to reduce reliance on massive investment to drive growth leaves the troubled province in a vulnerable position

Friday, 26 July, 2013, 5:24am

The nightmare scenario for China’s leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China’s most indebted local government.

Hefty borrowings through banks, investment trusts and the bond market by Jiangsu’s provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show.

Many of the province’s mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government’s tax growth is braking hard...

...As part of that, Beijing has ordered a clamp down on provincial government borrowing and land sales, the mainstay income for many local administrations. But equally, Beijing expects local governments to absorb much of the cost of downsizing many industries, leaving provinces like Jiangsu caught between a rock and a hard place.

Standard Chartered, Fitch and Credit Suisse have estimated local government debt in China at the equivalent of anywhere between 15 per cent and 36 per cent of the country’s output, or as much as US$3 trillion based on World Bank GDP figures for last year.

“China’s local government debt, if not better managed, can potentially pose a systemic and macro economic risk to the country,” said Jun Ma, Deutsche Bank’s greater China chief economist...

[GRG55]

Re: Capital MisAllocation...

China HSBC PMI shrinks to 11-month low in July

BEIJING | Thu Aug 1, 2013 4:03am BST

(Reuters) - China's factory activity shrank for a third straight month in July to its lowest level in nearly a year as new orders fell, a private survey showed on Thursday, signalling the persistent pressure on the economy has extended into the third quarter.

The HSBC Purchasing Managers' Index (PMI), compiled by Markit Economics Research, fell to 47.7 in July from June's 48.2. It was the weakest reading since August 2012, and matched a preliminary figure published last week.

A reading below 50 indicates a contraction of activity while one above shows expansion.

[GRG55]

Re: Capital MisAllocation...

China Stocks World’s Worst Losing $748 Billion on Slump

By Richard Frost & Weiyi Lim - Jul 31, 2013 1:56 AM MT

Four years after China’s growth helped lead the global economy out of a recession and won the admiration of luminaries from billionaire George Soros to Nobel laureate Joseph Stiglitz, the nation’s stock market has lost more money for investors than any other in the world.

The Shanghai Composite Index (SHCOMP), which doubled in 10 months through August 2009 as the government poured $652 billion of stimulus into building roads, railways and housing, has tumbled 43 percent from its high, destroying $748 billion in market value. Only Greece’s ASE Index (ASE) has fallen more in percentage terms. The Standard & Poor’s 500 Index, the benchmark gauge of American equity, erased all of the losses from the worst recession since the Great Depression and has gained 68 percent since the China peak, reaching a record this month.

China looked unbeatable in 2009, surpassing Germany as the world’s third-largest economy and growing 6 percent in the first quarter while the U.S. shrank 4 percent. Templeton Emerging Markets Group Executive Chairman Mark Mobius, who oversees about $53 billion, said in July 2009 that China’s stock market could be larger than America’s in three years. Now, China is poised for the weakest expansion since 1990 as the government orders more than 1,400 companies to close factories.

“The Beijing consensus as endorsed by some western observers as an alternative to the market economy is indeed a sham,” said Hao Hong, the Hong Kong-based head of China research at Bank of Communications Ltd., whose forecasts for stock losses have proved prescient. “Now we are all paying for it.”...

...The country’s stock market is like a “dead animal,” Carter Worth, the New York-based chief market technician at Oppenheimer & Co. who predicted the end of the Shanghai Composite’s rally as it peaked on Aug. 4, 2009, said by phone on July 23. While the index doesn’t have the same downside as four years ago, the likelihood of gains is low, Worth said.

For all of its destruction of wealth, the China bear market is dwarfed by the Great Crash when the Dow Jones Industrial Average declined 89 percent from a peak in 1929 to a low point in 1932, according to data compiled by Bloomberg. More recently, Japan’s equity market as reflected in the Nikkei 225 Stock Average, lost 63 percent of its value between 2000 and 2003.

The Shanghai Composite, comprised of mainland-listed shares restricted to local investors and qualified foreign institutions, rose 0.2 percent to 1,993.80 today, paring its 2013 drop to 12 percent, after the ruling Politburo pledged to stabilize growth while pressing on with economic reforms...

...China’s growth slowed for a second straight quarter to 7.5 percent in the three months ended June, extending the longest streak of expansion below 8 percent in at least two decades.

Exports fell 3.1 percent in June from a year earlier, the most since the financial crisis, while industrial profit growth slowed to 6.3 percent from 15.5 percent in May. Manufacturing contracted in July, according to a preliminary survey of purchasing managers compiled by HSBC Holdings Plc.

“The economy isn’t in great shape,” Wang Sheng, the chief strategist at Shanghai-based Shenyin & Wanguo Securities Co., the firm that warned clients of a “bubble” in Chinese stocks in August 2009, said by phone on July 26. “The transformation faces lots of uncertainty and investors have yet to fully realize its pain.”

[GRG55]

Re: Yes Virginia...It's a Bubble...

Let's take a little trip back in time...to the days of Alan Greenspan before the "Sir" was added. To the bucolic days of the spring of 2005:

Greenspan Is Concerned About 'Froth' in Housing

Published: May 21, 2005

WASHINGTON, May 20 - Alan Greenspan, chairman of the Federal Reserve, suggested on Friday that the red-hot housing market is becoming a little too exuberant for its own good...

...Mr. Greenspan emphasized that he sees no sign of a nationwide housing bubble, but he acknowledged concerns over "froth" in the market and pointed to a big increase in speculation in homes - particularly in second homes. As a result, he said, there are "a lot of local bubbles" around the country...

Just imagine the feeling of "déjà vu all over again" when I read this...

What bubble?

January 19, 2010

Residents of big Chinese cities are worried about bubbles. It's easy to see why: Shanghai mortgages rose 1,600% in 2009 from 2008 to US$15.58 billion, while residential property prices in the city shot up 68% from 2008 to US$4,571 per square meter. The rapid growth has prompted moves to curb speculation, including – in Shanghai at least – tightening of tax and financing policies on second-home purchases.

Such high rates of growth are of course unsustainable, but it remains too early to talk of bubbles nationwide. Yes, Wang Shi, chairman of developer Vanke, warned that property markets in Beijing, Shanghai and Guangzhou were frothy, but there is more to China than first-tier cities...

Still crazy after all these years...

Reforming the Chinese economy may prove just a wee bit more difficult than China bulls might prefer to acknowledge.
Too many vested interests, too much corruption, too much money being made too quickly...all the ingredients to keep the bubble inflating as long as possible, no matter what the wise men in Beijing may command.

Questions as Developers Spend Big on Land Deals

Property firms have been aggressively pursuing new plots, but a slowdown in home sales has raised concerns about their prospects

Caixin
07.23.2013 12:03

(Beijing) – Official statistics show that total land transactions for commercial development in Beijing, Shanghai and Guangzhou in the first half of the year reached 167.5 billion yuan, close to the total for all of 2012.

Since the beginning of the year, land transactions have rapidly revived in larger cities, and auction records have been broken in various cities since the beginning of May...

...Representatives from about 70 developers participated in a recent land auction in the capital,

an auction that offered a highly sought-after plot in Xiajia Hutong in downtown Beijing.

Fourteen property firms participated in the auction of the Xiajia plot. Within five minutes, the

price reached the 1.77 billion yuan cap set by the municipal land bureau. Buyers then started

to compete over proposals for the required building of subsidized housing on the land.

Beijing Maoyuan Real Estate Co. won the bidding by promising to build another 28,000 square

meters of subsidized housing in addition to the required 10,000 square meters. The total area

for subsidized houses promised by Maoyuan accounted for 49.6 percent of the plot.

Excluding the subsidized housing, the price for commercial housing at the plot was 41,000 yuan

per square meter, much higher than the average in the surrounding area.

"I don't know how they calculated the deal," said an employee of a large property firm. "The

sales price will have to be higher than 70,000 yuan per square meter."

With such a target, the Xiajia Hutong project has to be labeled luxury, the source said, but

with such a large area of subsidized housing, it will be quite challenging for the developer to

operate...

...Research by property agent Homelink Real Estate Co. found that during the first half of the year

Beijing reported 100 land deals with a total transaction value of 66.4 billion yuan, 4.5 times

more than for the same period last year. In the first week of July, another six plots were sold in

the city, pushing the total to 74.6 billion yuan, exceeding the figure for 2012.

Beyond the capital, land markets in large cities like Shanghai and Guangzhou have also boomed.
An estimate by Caixin based on public information found that Shanghai has registered more
than 70 billion yuan in land transactions in the first half. In 2012, the figure was 87.6 billion
yuan...

...A survey by Shanghai Yiju found that total land sales revenue in the country's ten largest cities
reached 314 billion yuan in the first half, growth of 160 percent from the same period last year...

[shiny!]

Re: Yes Virginia...It's a Bubble...

As bubbles go, how long can this go on?

[GRG55]

Re: Yes Virginia...It's a Bubble...

Copper Falls as Chinese Service Stagnation Fuels Demand Concern

Aug 5, 2013 5:59 AM MT

Copper fell in New York after three sessions of gains as a stagnant index of service industries in China stoked concern about the outlook for demand in the world’s largest consumer of the metal.

A measure of Chinese service industries released today by HSBC Holdings Plc and Markit Economics was unchanged in July. A manufacturing index for the nation published Aug. 1 by HSBC and Markit fell from June. Factory shutdowns for summer holidays curbed demand, according to RBC Capital Markets Ltd.

“Base metals are mixed and directionless as the painful reality of the August slowdown is upon us,” RBC said.

Copper for delivery in September slid 0.6 percent to $3.153 a pound by 7:51 a.m. on the Comex in New York. Copper for delivery in three months fell 0.6 percent to $6,962 a metric ton on the London Metal Exchange.

The government in China pledged last week to prevent growth from slipping below a “reasonable” level. The nation’s economy slowed for nine of the last 10 quarters. China’s central bank will fine-tune policies and strike a balance between stable growth, structural adjustment, reform and risk prevention, according to a statement posted on its website Aug. 4...

[jk]

Re: Yes Virginia...It's a Bubble...

China’s central bank will fine-tune policies and strike a balance between stable growth, structural adjustment, reform and risk prevention, according to a statement posted on its website Aug. 4...

sounds like a job for the flying wallendas.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Dr Michael Pettis is back on line. First blog from his new site is worth a read.

Excerpt:

Anyone who understands the fundamental problem with the growth model that China has pursued, which has many historical precedents, and why its great success in the 1980s and 1990s could not be sustained once certain parameters were breached, as they inevitably must be, also knows that until those parameters were breached, the interests of the elite and of overall growth for the economy were more or less aligned. Since then, they are in opposite directions. This is why the period of adjustment after rapid growth has always been the most difficult stage for a developing country, and one that very, very few countries have successfully managed, and why it will be particularly difficult for China, and this is why corruption – although perhaps of enormous social and political consequence – is not the fundamental problem.

The debate about China continues to rage, although it has taken a strange twist. No one doubts anymore that China’s imbalances threaten the success of the growth model and some are even insisting – very prematurely, in my opinion – that China has clearly failed and will face a collapse (whatever that means). I think the key division now, however, is over debt and over the recognition of previous losses. The bulls have retreated from many of their more fantastic predictions but they mistakenly think that the problem of debt is localized, and not systemic, and can be administratively resolved by the regulators. They also seem to ignore the possibility that there is an enormous amount of mispriced assets on the balance sheets of the banks and that these losses have to be assigned to some sector of the economy or the other, and that this assignation is at heart a political process.

The skeptics believe that an unsustainable rise in debt is key to continued growth in the economy and do not believe that it can be resolved administratively. High growth means, by definition, that debt is rising unsustainably. The bulls say that growth has bottomed out at 7% or 7.5% and that China can restructure the economy, rebalance towards consumption, and arrest the credit expansion while keeping growth rates above 7% or close to 7%. The skeptics argue that this is impossible, and to the extent that Beijing takes steps to keep growth rates high, it simply increases the risk of a debt crisis and economic collapse.

Last year in one of my blog posts I argued that although I remained very skeptical about the sustainability of the China growth model I nonetheless believed that China bulls could make a plausible argument but were failing to do so largely because they did not address the three questions that were fundamental to the debate on the sustainability of the Chinese growth model.

These questions are:

• How much debt is there whose real cost exceeds the economic value created by the debt, which sector of the economy will pay for the excess, and what is the mechanism that will ensure the necessary wealth transfer?
• What projects can we identify that will allow hundreds of billions of dollars, or even trillions of dollars, of investment whose wealth creation in the short and medium term will exceed the real cost of the debt, and what is the mechanism for ensuring that these investments will get made?
• What mechanism can be implemented to increase the growth rate of household consumption?

...

http://blog.mpettis.com/2013/08/the-...hinas-economy/

[GRG55]

Re: Yes Virginia...It's a Bubble...

And a couple of articles from this morning expressing some optimism on the restructuring:

From Bloomberg:

China’s Credit Expansion Slows as Li Curbs Shadow Banking

By Bloomberg News - Aug 9, 2013 3:41 AM MT

China’s broadest measure of new credit fell to a 21-month low as Premier Li Keqiang extended a campaign to curb a record expansion of lending that’s added risks to the nation’s financial system.

Aggregate financing was 808.8 billion yuan ($132 billion), the People’s Bank of China said in Beijing today, compared with the 925 billion yuan median estimate of analysts surveyed by Bloomberg News. New yuan loans exceeded forecasts and accounted for about 87 percent of the total, the most since September 2011. M2 money supply growth unexpectedly accelerated to 14.5 percent.

Policy makers are persisting with a crackdown on shadow banking following a government-engineered cash crunch in June even after a two-quarter economic slowdown. A report today showing faster gains in industrial output adds to evidence that growth is stabilizing after data yesterday showed exports rebounded more than estimated.

“Today’s overall outcome is a good one: Credit growth is slowing but real activity, including domestic demand and exports, are picking up,” said Wang Tao, chief China economist at UBS AG in Hong Kong.

While reduced credit may make it tougher for Li to achieve this year’s 7.5 percent growth target, it would ease dangers of a financial crisis. China’s lending surge in the past five years is of a magnitude that tipped Asian nations into crisis in the late 1990s, according to Goldman Sachs Group Inc., and the State Council last month ordered the first nationwide audit of government debt in two years.

Today’s data showed net corporate bond issuance last month was 46.1 billion yuan, down from 248.6 billion yuan in July 2012.

China’s industrial output rose more than estimated in July, adding to signs the economy is stabilizing after unexpectedly strong trade figures yesterday.

Factory production increased 9.7 percent from a year earlier, the National Bureau of Statistics said today. Retail sales advanced 13.2 percent while fixed-asset investment excluding rural households grew 20.1 percent in the first seven months of the year...

And from the FT:

Last updated: August 9, 2013 11:29 am

China slowdown shows signs of abating

China's economy appears to have stabilised amid fears that one of the world’s most important growth engines is close to stalling.

A series of small targeted measures from Chinese policy makers in recent months seems to have at least temporarily reversed a growth slowdown with factory production, investment and real estate construction all picking up in July, according to official data released on Friday

Most economists had expected the July figures to show stabilisation in the world’s second-largest economy, which has decelerated in nine of the past 10 quarters, but some numbers were surprisingly more favourable, suggesting fears of an imminent collapse are unfounded.

However, the composition of the mild rebound appears to rely heavily on construction and investment and undermines Beijing’s stated goal of rebalancing the economy more towards consumption and services.

Industrial production at large enterprises, a closely watched measure that usually tracks China’s gross domestic product, increased 9.7 per cent from a year earlier in July, sharply up from 8.9 per cent growth in June and the fastest pace since February.

The unexpectedly strong performance was driven mostly by rebounding production of steel, cement, power and non-ferrous metals, underscoring the fact that China’s growth remains disproportionately reliant on credit-fuelled infrastructure and property construction.

In contrast, growth in retail sales slipped slightly in July, increasing 13.2 per cent from a year earlier compared with 13.3 per cent growth in June.

Fixed asset investment, a key driver of China’s investment-led economy, stabilised in July with a 20.1 per cent rise in the first seven months from a year earlier, the same pace as in the six months to the end of June, following four consecutive months of deceleration.

Real estate investment increased in July, growing 20.5 per cent in the first seven months, compared with 20.3 per cent growth in the first six months.

Power production, another closely watched indicator, increased 8.1 per cent in July from a year earlier, up from 6 per cent growth in June and the fastest increase since December 2011.

“The July data are moderately positive; they show the economy is stabilising and that downward pressure has eased,” said Hu Yanni, an economist at China Securities. “We expect stable growth in the third quarter with a possible acceleration in the fourth quarter.”

Signs of stabilisation in July come after trade figures released on Thursday showed a rebound last month in Chinese exports and particularly imports, which many economists took as evidence domestic demand has picked up in the country.
Many analysts forecast China will grow by about 7.5 per cent for the whole year, which would be the slowest pace of expansion in the country since 1990.

In July, Li Keqiang, premier, pledged to maintain the country’s year-on-year economic growth rate above an unspecified lower limit, which most analysts believe is around 7 per cent, while keeping consumer inflation below the government’s 3.5 per cent annual target.

On Friday, official figures showed consumer prices in China rose 2.7 per cent in July from a year earlier, the same pace as in June and well below Beijing’s 3.5 per cent upper limit. Meanwhile, producer prices stayed in deflationary territory for the 17th consecutive month, falling 2.3 per cent in July from a year earlier, compared with a 2.7 per cent drop in June.

Taken altogether, July’s numbers suggest a mild, investment and construction-led growth rebound is under way in China and that will boost sentiment in China-dependent markets ranging from the Australian dollar to copper prices.

“By considering the rebounding official PMI and trade data as well as the subdued inflation readings in July, we expect today’s data will have quite positive impact on commodities, commodity-related currencies and some Chinese stocks,” said Lu Ting, an economist at Bank of America Merrill Lynch.

Lower inflationary pressure could provide space for the government to loosen monetary policy and provide more support for the economy but so far Beijing has shown little interest in any major stimulus.

In recent weeks, the government has introduced a series of small targeted measures to arrest the continuing growth slowdown, including temporary tax cuts for small businesses, investment in railways and low-income housing and streamlined customs procedures.

“[Friday’s] data confirmed that the ‘mini-stimulus’ in the past month, including railway and information industry investment, has gradually taken effect,” said Liu Ligang, an economist at ANZ Bank. “We believe the Chinese authorities are unlikely to launch large-scale stimulus.”

[GRG55]

Re: Yes Virginia...It's a Bubble...

As bubbles go, how long can this go on?

Who can possibly know?

ASIA NEWS
August 8, 2013, 11:02 p.m. ET

China's Gleaming Ghost Cities Draw Neither Jobs Nor People

TIELING, China—When this small city in northeastern China launched a plan to build a satellite city six miles down the road, it got off to a promising start.

Urban planners spent millions of yuan to clean up surrounding marshland that had become a dumping ground for the city's untreated sewage. A pristine environment, they hoped, would help attract the businesses that would raise incomes and swell the population.

Four years later, Tieling New City is virtually a ghost town.

Clean waterways weave among deserted residential and government buildings. Housing blocks that won recognition from the United Nations for providing good affordable homes are almost empty. The businesses that were supposed to create local employment haven't materialized. Without jobs, there is little incentive for anybody to move here.

Tieling symbolizes the enormous challenges Chinese Premier Li Keqiang faces as he touts urbanization—a process analysts expect will see 250 million people move from rural areas to cities over 20 years—as the force that will ensure his country's economy keeps growing well into the future...

...In theory, urbanization stimulates growth because city dwellers typically earn more than their rural counterparts, allowing them to spend more on consumer goods and services.

For the government to realize that payoff, though, it must create jobs that will draw people into the cities. Tieling underscores the difficulty.

Among the few business owners lured to a development park in Tieling New City is Bo Yuquan, the middle-aged owner of a flooring store.

"Where are the people? There's no one here," said Mr. Bo. "I'll be out of business soon. My staff and I are discussing moving to Beijing to find work."

Said Hu Jie, the designer of the new city's landscape: "In 10 to 20 years, Tieling could be a good development, but only if you can manage to bring businesses in."...

...China has a record of building first and creating demand later, notably in Shanghai, where a decade ago the towering new Pudong business district initially failed to attract tenants but later became a symbol of China's success.

Many smaller cities lack the pulling power of Shanghai.

"With more and better job opportunities in higher-tier cities, many lower-tier cities have actually been experiencing a net outflow of population, while land sales [to home builders] there increased rapidly, exacerbating the housing oversupply," wrote Credit Suisse property analyst Du Jinsong in a recent note.

According to population data collected by Mr. Du on 287 Chinese cities, about two-thirds, mostly smaller urban centers, had fewer residents than people who were registered to live there, suggesting people have been leaving their home cities...

...A development park set up to attract providers of back-office services to financial firms, such as data storage, was supposed to employ 15,000 to 20,000 people by the end of the this year, according to the park's website.

Situated on the outskirts of the new city, the park is easy to miss. It is home to only two companies, one of which, a bank office, employs fewer than 20, said its security guard...

...Against all this, Tieling is choosing to keep building. The municipal government has rolled out plans to spend a further $1.3 billion on projects in the new city this year, including an art gallery, gymnasium and indoor swimming pool.

That is despite municipal finances coming under increasing stress.

"Financing costs are rising all the time, and raising capital has become even more difficult," the Tieling city government said in its budget forecast for 2013. "Some long-term problems and imbalances have accumulated in the management of the city's finances."...

...Ms. Cui likes the idea of retiring to the new city but isn't optimistic its population will increase. "It still needs more time, but it's really hard to say," she said with a sigh. "They're building a new shopping center, so I hope so."

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

Who can possibly know?

ASIA NEWS
August 8, 2013, 11:02 p.m. ET

China's Gleaming Ghost Cities Draw Neither Jobs Nor People

TIELING, China—When this small city in northeastern China launched a plan to build a satellite city six miles down the road, it got off to a promising start.

Urban planners spent millions of yuan to clean up surrounding marshland that had become a dumping ground for the city's untreated sewage. A pristine environment, they hoped, would help attract the businesses that would raise incomes and swell the population.

Four years later, Tieling New City is virtually a ghost town.

Clean waterways weave among deserted residential and government buildings. Housing blocks that won recognition from the United Nations for providing good affordable homes are almost empty. The businesses that were supposed to create local employment haven't materialized. Without jobs, there is little incentive for anybody to move here.

Tieling symbolizes the enormous challenges Chinese Premier Li Keqiang faces as he touts urbanization—a process analysts expect will see 250 million people move from rural areas to cities over 20 years—as the force that will ensure his country's economy keeps growing well into the future...

...In theory, urbanization stimulates growth because city dwellers typically earn more than their rural counterparts, allowing them to spend more on consumer goods and services.

For the government to realize that payoff, though, it must create jobs that will draw people into the cities. Tieling underscores the difficulty.

Among the few business owners lured to a development park in Tieling New City is Bo Yuquan, the middle-aged owner of a flooring store.

"Where are the people? There's no one here," said Mr. Bo. "I'll be out of business soon. My staff and I are discussing moving to Beijing to find work."

Said Hu Jie, the designer of the new city's landscape: "In 10 to 20 years, Tieling could be a good development, but only if you can manage to bring businesses in."...

...China has a record of building first and creating demand later, notably in Shanghai, where a decade ago the towering new Pudong business district initially failed to attract tenants but later became a symbol of China's success.

Many smaller cities lack the pulling power of Shanghai.

"With more and better job opportunities in higher-tier cities, many lower-tier cities have actually been experiencing a net outflow of population, while land sales [to home builders] there increased rapidly, exacerbating the housing oversupply," wrote Credit Suisse property analyst Du Jinsong in a recent note.

According to population data collected by Mr. Du on 287 Chinese cities, about two-thirds, mostly smaller urban centers, had fewer residents than people who were registered to live there, suggesting people have been leaving their home cities...

...A development park set up to attract providers of back-office services to financial firms, such as data storage, was supposed to employ 15,000 to 20,000 people by the end of the this year, according to the park's website.

Situated on the outskirts of the new city, the park is easy to miss. It is home to only two companies, one of which, a bank office, employs fewer than 20, said its security guard...

...Against all this, Tieling is choosing to keep building. The municipal government has rolled out plans to spend a further $1.3 billion on projects in the new city this year, including an art gallery, gymnasium and indoor swimming pool.

That is despite municipal finances coming under increasing stress.

"Financing costs are rising all the time, and raising capital has become even more difficult," the Tieling city government said in its budget forecast for 2013. "Some long-term problems and imbalances have accumulated in the management of the city's finances."...

...Ms. Cui likes the idea of retiring to the new city but isn't optimistic its population will increase. "It still needs more time, but it's really hard to say," she said with a sigh. "They're building a new shopping center, so I hope so."

Apparently they also pass Tibetan Mastiffs off as African Lions, oh those gullible Chinese!

http://www.timeslive.co.za/world/201...ry-dog-as-lion

This made me laugh out loud at my desk.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Remember all the chatter that Beijing was going to wave its magical central planning wand and with a sprinkling of pixie dust instantly transform the mercantile, high savings rate, overdependent-on-capital-investment Chinese economy into a virtuous internal consumer driven paradise?

WSJ ASIA BUSINESS
Updated September 4, 2013, 2:12 a.m. ET

In China, Veil Begins to Lift on High Consumer Prices

Resistance to Prices Grows Amid New Ways to Comparison Shop

BEIJING—In China, consumers pay nearly $1 more for a latte at StarbucksSBUX -0.54% than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.

Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.
"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

With increased travel and e-commerce, consumers are comparing overseas prices with what they see in China-based stores and are waiting to buy goods when abroad, said James Button, a senior manager at Shanghai-based consultancy SmithStreet. This year Chinese shoppers made global headlines by clearing out U.K. and Hong Kong grocery shelves of baby formula, which wasn't only less-expensive than formula found inside China, but was also widely perceived by Chinese consumers as safer.

As China aims to build a more balanced economy that is consumption-driven, regulators have begun cracking down on companies they believe have unfairly swayed pricing in the market.

Authorities recently fined five local jewelry retailers a combined 10.6 million yuan for price manipulation. And in August economic planners launched pricing investigations of the auto, pharmaceutical and baby-formula sectors, looking for prices that were higher in China compared to other locations.

They fined foreign infant-formula makers such as Danone SA and Mead Johnson Nutrition Co., claiming they violated competition laws.

The baby-formula companies responded to scrutiny by slashing prices of products sold in China.
The auto and pharmaceutical investigations are continuing.

Beijing is attempting to ensure that profit margins don't come at the expense of the people, said Rocky Lee, head of the Asia corporate practice at law firm Cadwalader Wickersham & Taft in Beijing.

On luxury goods, authorities have had few qualms about causing sticker shock, boosting prices of import and luxury products like the Escalade, which is slapped with a consumption tax totaling around 386,000 yuan ($63,000).

General Motors Co. GM +0.57% said imported cars make up a small segment of their business in China. A China-built Buick Encore costs Chinese consumers $24,477, while it costs U.S. counterparts $24,160, according to a spokeswoman.
Many companies that have for years earned higher profits in China by selling to consumers who wanted premium products and status symbols, said Yuval Atsmon, a principal at consultancy McKinsey & Co.

Apple Inc. AAPL +2.12% declined to comment on iPad pricing disparities.

Experts say that price tags often also reflect the inefficiencies companies face in the Chinese market. "It can take months upon months—passing tests and getting licenses—to open a retail store in China. Permits and bureaucracy cost; all of that is passed on to the consumer," Mr. Lee said.

Brands such as Starbucks and Häagen-Dazs have set higher prices for Chinese consumers to cast an image of higher quality and create "snob appeal," Mr. Atsmon said.

A scoop of rum raisin ice cream costs $5.40 at a Haagen-Dazs shop in Beijing. In a Chinatown Häagen-Dazs location in Washington, D.C., it goes for $4.68, including tax.

A spokeswoman for Starbucks Corp. said that prices vary by market and in China, customers like larger stores with more seats, which accounts for higher real estate costs built into the price.

A General Mills Inc. GIS -0.20% spokeswoman said the company can't comment on the comparison of the Häagen-Dazs strategy in China versus the U.S. because the ice cream brand is marketed by General Mills in China, while in the U.S. it is run byNestlé NESN.VX -0.49% SA.

Not all goods in China are more expensive than elsewhere in the world. In the keenly competitive beverage market, where volume sales and market share are a top priority, a can of Coca-Cola in a Chinese convenience store is about 2.8 yuan, or $0.46, while in the U.S. it costs more than $1.