Janet Yellen on China

[touchring]

Re: Janet Yellen on China

GRG,

As you well know, it is very difficult for people unfamiliar to India and China to understand the vast problems that having a total of half the world's population brings to the table.

The store of FOREX may yet be insufficient to prevent the almost intractable problems that these countries face as "Peak Everything" emerges from the shadows!

Many of the statistics that China has published over the last 1 year do not reconcile with what is happening on the ground.

I believe that there are 2 segments of the Chinese economy, the private sector, which is doing badly, and SOEs, which are being prime pumped by government bank loans as large the China economy GDP itself. Most of the bank money goes into production and export subsidies, with the bulk into real estate and stocks (that's what is most profitable), and some finding their ways into the pockets of corrupted managers, award projects to your own contractors and get millions in kickback, so you see more people buying cars and luxury condos.

Anyone with basic knowledge in economics will know that this is unsustainable. You can pump up the property and stock market, you can subsidize export production by 50% with huge amount of bank loans but this is a one time thing, so what's next?


DEVELOPMENT: China’s ‘Ant Tribe’: Between Dreams and Reality and Reality
http://ipsnews.net/news.asp?idnews=49960

Six Singapore-Listed China Firms Can’t Repay Debt, SCMP Says
http://www.businessweek.com/news/201...scmp-says.html

[Rajiv]

Re: Janet Yellen on China

There is also this from Victor Shih - Looming Problem of Local Debt in China-- 1.6 Trillion Dollar and Rising

Did China accomplish the impossible? Did it generate almost 9% growth and maintain low debt to GDP ratio even as its export plummeted by 20%? What about claims that the torrent of investment in China has come without too much leveraging? After spending half a year looking into the debt level of local government investment entities-- some 8000 of them-- my conclusion is no. As in the past, the Chinese government just ordered banks to lend to investment companies set up by both central and local governments. Local governments have fully taken advantage of the green light in late 2008 and borrowed an enormous sums from banks and bond investors starting in late 2008 (well, a large amount even before that). In an editorial in the Asian Wall Street Journal yesterday, I outline some problems with this massive amount of borrowing:

Beijing is no longer sure how much money local investment entities have borrowed from banks and raised from bond and equity investors. The amount, however, must be large. In September, the Chinese press, citing government sources, suggested that these entities have borrowed $880 billion (6 trillion yuan). In a January interview with the Twentieth Century Business Herald, a Chinese newspaper, the vice chairman of the Finance and Economic Committee of the National People's Congress, Yi Zhongliu, revealed that local investment entities borrowed some $735 billion in 2009 alone.

These are mere guesses, however. A National Audit Agency audit conducted late last year uncovered so many problems with the data that Premier Wen Jiabao ordered another large-scale audit of local investment entities. Until a thorough audit is completed and the results announced to the public, no one really knows the total scale of local borrowing.

Given the information vacuum surrounding this issue, I spent half a year collecting data that would allow me to provide an estimate of total local debt (and also for each of China's provinces). Again, in the WSJ piece, I briefly outline my methodology and the results in the piece.

To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities' borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China's 2009 GDP and 70% of its foreign-exchange reserves.

So basically, in addition to the 20% of official debt-to-GDP ratio, one has to add an additional 30%. We also have to add other debt that the central government guarantees, such as the nearly 1 trillion RMB in Ministry of Railway bonds and bonds issued by the asset management companies. All of this gives China a high debt to GDP ratio. Also, there are some disturbing implications of this high debt. For one, local governments would have to sell lots and lots of land every year for many years to come to pay interest payment on this debt. Thus, to the extent that there is a real estate bubble today, it must continue for local governments to remain solvent. Regardless of what you believe about Chinese real estate, you have to think that this growth in real estate and land prices must slow or reverse at some point.
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[Rajiv]

Re: Janet Yellen on China

Matthias Chang had an interesting take

This will be one of my shortest articles as it is written as a RED ALERT.

When I send out Red Alerts, it is a dire warning and a call for immediate action to protect your wealth (if there is any remaining).

Of late, I have been reading articles (some of which I have posted to the website) suggesting that Greece would be the trigger for the 2nd wave of the Global Tsunami. Obviously, if Greece defaults and goes belly up, it will have a disastrous effect, but not in the way that I see it.

There may be some manipulated “flight to safety to US dollars” (which itself is a dumb thing to do) in the short run. How can dollar be a currency haven when its value is total junk – toilet paper!

Such so-called “flight to safety” is a reflection of the intensity of the on-going currency warfare, principally between the Dollar and the Euro and skirmishes between the Dollar and the Yuan. But, this manipulation by the US global banks would not last and will be exposed for what it is – a global scam.

Since July last year, policy makers and so-called experts have relied on economic recovery in Asia to spur global growth and the resumption of the good times. Such thinking reflects a muddle mind.

Every economy in Asia is export-orientated and the domestic economies are just too small to take up the drastic fall in exports. Following Bernanke’s reckless lead, they have all jumped on the band wagon of quantitative easing – the printing of massive fiat monies (electronically or otherwise). Inflation has soared!

In an earlier posting to my website, I have indicated that there is a weak link holding up the Asian economies, and it is not China.


It is Singapore - touted by her US financial masters as an island of prosperity and financial stability. This is one of the biggest hoax since the collapse of Lehman Bros.

Singapore’s ratio of debt to GDP is a whopping 99.2 percent. (113% according to CIA figures - Rajiv)

But no one seems to be taking any notice. Why are they making so much fuss over Greece, when Singapore is worse off?

If Singapore goes belly up, forget about any substantial growth in Asia to spur global recovery. Anyone who knows about the way business is done in the ASEAN region knows too well that if Singapore defaults, Indonesia will be the first to sink, followed rapidly by Thailand and Malaysia. The contagion will then spread to the rest of Asia. China will not be able to put out the fire.

China will survive the turmoil, but barely.

This is my nightmare scenario. And the second Tsunami is coming.

[touchring]

Re: Janet Yellen on China

Singapore’s ratio of debt to GDP is a whopping 99.2 percent. (113% according to CIA figures - Rajiv)

This should be government borrowing from the compulsory fund that every working resident in Singapore must pledge about 30% of his gross wage and which cannot be withdrawn but can be used to purchase local real estate.

[skyson]

Re: Janet Yellen on China

Many of the statistics that China has published over the last 1 year do not reconcile with what is happening on the ground.

I believe that there are 2 segments of the Chinese economy, the private sector, which is doing badly, and SOEs, which are being prime pumped by government bank loans as large the China economy GDP itself. Most of the bank money goes into production and export subsidies, with the bulk into real estate and stocks (that's what is most profitable), and some finding their ways into the pockets of corrupted managers, award projects to your own contractors and get millions in kickback, so you see more people buying cars and luxury condos.

Anyone with basic knowledge in economics will know that this is unsustainable. You can pump up the property and stock market, you can subsidize export production by 50% with huge amount of bank loans but this is a one time thing, so what's next?


DEVELOPMENT: China’s ‘Ant Tribe’: Between Dreams and Reality and Reality
http://ipsnews.net/news.asp?idnews=49960

Six Singapore-Listed China Firms Can’t Repay Debt, SCMP Says
http://www.businessweek.com/news/201...scmp-says.html

Thanks for posting. I was going to write the same thing before I saw your post.

Yes, there are two sectments of the China economy. The private sector is starving of loans and cash. In contrast, the public sector has all the money that want. Before the crisis, the manufacturers were already struggling, because of the low profits. While the western consumer getting ever cheaper products from China, the Chinese producers bottom line is being eroded in a ever greater scale. What is the solution? Well, shut down the factories, and put money into stock and real estate speculation. That is why when majority of younger generations(older generation already own when they privatize public housing years ago) not able to afford a condo in the cities, the real estate price keeps going up. The stock market and real estate price are simply not accurate indicators of the real economy. This eventually will be corrected. How and when, I don't know.

Regarding the statistics, I also agree that they are not reliable. When the central government set a growth rate of 8%, the local government officials will meet it no matter what. Being beaurocrats, their livehood and future promotions are at stake. Who in their right mind would produce a lower growth rate? I personally have friends/relatives in local governments who confirm to me that there are many creative ways to "produce" a better than real growth rate.

While I also am bullish on China's long term prospect, the short/medium term I am not quite sure how it would play out. The best I can do is to watch and prepare.

[touchring]

Re: Janet Yellen on China

While I also am bullish on China's long term prospect, the short/medium term I am not quite sure how it would play out. The best I can do is to watch and prepare.

Well, I think it's simple, if the bubble bursts big time and young people rebel, China can adopt the same drastic measures as they had in Xinjiang.

Shutdown the Internet, cellular networks, and long distance calls.
http://news.bbc.co.uk/2/hi/asia-pacific/8506601.stm

The party survives, but people holding onto Chinese stocks, especially the Internet stocks will be crying when prices are 10 cents to a dollar after the rout.

[Rajiv]

Re: Janet Yellen on China

It is worthwhile watching Jeff Rubin's talk to understand the impact of peak oil on China and India