The End of the Communist Dynasty

[jk]

Re: The End of the Communist Dynasty

the "solution" is to turn china toward a war economy.

i suggested this in my post of 11-14-10

[cobben]

Re: The End of the Communist Dynasty

The Red Iceberg

by Craig Tindale on July 2nd, 2012


To this we add the standoff between the China and the US over accounting standards. This issue has been going on for a few years and there looks to be no resolution in sight. Chinese firms could be cut off from US capital markets by the end of the year says Patrick Chovanec a professor at Tsinghua University’s School of Economics and Management in Beijing, China. .

unless a compromise can be reached, there is a very real chance that U.S. securities regulators may end up employing the “nuclear option”: forcibly delisting every Chinese company currently listed on a U.S. stock exchange — such as Sinopec, Sina.com, China Life, and China Unicom. It’s a potential catastrophe-in-the-making that few investors or politicians have given any serious thought to.

There is a high probability that the Chinese simply cannot comply with US requirements because Chinese politicians and princelings would be implicated in these massive frauds , with over 200 companies having listed in the US this would result in a massive dislocation of capital when these companies are forced to relist in Hong Kong. If as Paul Gillis , a Professor at Peking University’s Guanghua School of Management contends the

PCAOB and the SEC make no progress. The issue becomes political and widely known. Deregistration becomes the only option and it is the PCAOB that pulls the plug. That then forces the exchanges to decide how to enforce their rules that require companies to have auditors and audited financial statements in order to be listed. I expect in this scenario that the exchanges are forced to delist the companies, and the scramble to Hong Kong begins.

On the 20^th June, the SEC served formal requests on the Chinese arms of all of the Big Four audit firms China Securities Regulatory Commission (CSRC) warned the Big Four global accounting firms not to provide audit records to overseas regulators. Currently, Mainland Chinese affiliates of the international audit firms have 130 clients listed on US stock exchanges with Deloitte (48 clients), PwC and KPMG (28 clients each) topping the list.

The reality is that Hong Kong hasn’t the capacity to re-register this amount of capital, so the issue is likely to become a powder keg in a US election run up. Will Obama or Mitt be willing to stare down China on accounting and audit standards?

[BadJuju]

Re: The End of the Communist Dynasty

the "solution" is to turn china toward a war economy.

i suggested this in my post of 11-14-10

But will the people of the US be willing to engage in another cold war? People are absolutely sick of the wars in the US.

[cobben]

Re: The End of the Communist Dynasty

China’s Concrete Bubble

by Craig Tindale on July 5th

. . .

As China slows, its construction equipment makers have been accelerating production – based on the simple idea that long-term survival can be ensured by getting big, fast. The amount of gear produced by the industry increased by almost 80 per cent between 2008 and last year, when 484,316 units were made, according to data from Bloomberg. This was 13,256 more units than the industry could sell – in spite of a near doubling in exports to more than 40,000 units.

Even worse, also according to Bloomberg: demand for such equipment in China dropped 56 per cent in the year to April.

Matthew Forney and Stella Zhou, writing in Draganomics’ China Economic Quarterly for June, look at Sany and its rivals. They note that industry executives are talking of a “collapse” and are looking to export their way out of trouble.

All of these companies are reacting to a substantial market slowdown by expanding their financing options. XCMG the 3rd largest heavy equipment maker in China sales soared by 44% in 2011 by introducing ‘no money down’ vendor finance , opening four new factories this week . All of these companies are buying overseas manufacturers . . .

[jk]

Re: The End of the Communist Dynasty

But will the people of the US be willing to engage in another cold war? People are absolutely sick of the wars in the US.

we're already in the process of repositioning naval assets in the pacific, setting up bases etc etc.

[BadJuju]

Re: The End of the Communist Dynasty

we're already in the process of repositioning naval assets in the pacific, setting up bases etc etc.

Doesn't mean the American people will go along with a war.

[thriftyandboringinohio]

Re: The End of the Communist Dynasty

Doesn't mean the American people will go along with a war.

“Naturally the common people don't want war; neither in Russia, nor in England, nor in America, nor in Germany. That is understood. But after all, it is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”

-- Hermann Goering

[BadJuju]

Re: The End of the Communist Dynasty

we're already in the process of repositioning naval assets in the pacific, setting up bases etc etc.

So you are envisioning more and more proxy wars where the US and China get bogged down into a long-term cold war scenario? The US gets to put its people's minds off of the crap back home while China gets to cull its male-heavy, huge population in the grind of endless proxy wars for resources and clout.

[BadJuju]

Re: The End of the Communist Dynasty

-- Hermann Goering

That's true. One need only look at the furor kicked up over Iraq.

[cobben]

Re: The End of the Communist Dynasty

China’s Shark Loan Ponzi Finance- Former Microsoft CEO in China is Under Investigation for Shark Loan Activities and Faking Commercial Real Estate Contracts.


This is how this Ponzi scheme works:

Local governmental officials that are demanded from the government to produce double digit GDP growth numbers give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurisdiction. Some of them are active partners in shark loan businesses. For example, a party secretary of legal affairs, that controls the public security bureau, which is a court and prosecutor division of government in Yanking city, in She Kiang province tired to run abroad using a passport in 2009 after he found out he can’t repay 60million Yuan. Every scheme has a ring leader whose job is to collect money from all the participants in the ponzi scheme. When some of these ponzi schemes blow up, the party leaders always get bailed out first, and some even ask local business owners to lend them money, and then bail out their own personal fund. After that the ring leader turns himself in and gets protection from the local government.


Most of the funds that are collected in this classic ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game.


In China’s Shark Loan Ponzi Finance- Understanding China’s Shadow Banking System we also covered the subject of fake real estate contracts:

A larger percentage of China’s real estate sales are in reality fake since they are made with the purpose of obtaining the flow of bank loans before real sales happen. Through this arrangement, the developer and the shark lender make sure that the bank will bear the ultimate risk.

Western investors doubt this criminal activity since they do not understand the true nature of China’s society, or any totalitarian regime for that matter. But China is not a democracy; it is semi communist, semi fascist regime that is running a planned economy.
The reality is that more loan growth can benefit the borrower, the banking executive, and the local government officials. The return of capital and the potential loss of the principal is always a secondary consideration, especially when the loans are issued to the state owned enterprises or well connected “too big to fail” private businesses. Who cares? The banks are state owned banks, and the capital is state capital.

[c1ue]

Re: The End of the Communist Dynasty

China’s Shark Loan Ponzi Finance- Former Microsoft CEO in China is Under Investigation for Shark Loan Activities and Faking Commercial Real Estate Contracts.

Again, there would be a lot more credibility if more could be dredged up than a 112.8 million RMB loan to the former CEO of Microsoft in China.

That's less than $20M. For a CEO of a multinational even in China, this is hardly a big stretch.

And given that the total outstanding loans held by these local governments were in the 11 trillion RMB range in 2009, there'd have to be almost 100,000 more Microsoft CEOs. (link: http://www.alsosprachanalyst.com/eco...-concerns.html)

More importantly, the 11 trillion RMB noted above is less than the US dollar reserves held by the Chinese government and banks. (source: World Bank, 2011 - China dollar reserves $2913711653593.96 in 2010)

So why again is everything going to fail?

A problem, absolutely. A Madoff-ian Ponzi scheme - evidence presented thus far is thin at best.

[cobben]

Re: The End of the Communist Dynasty

So why again is everything going to fail?

I have no idea, this was just an older article I recalled showing how Chinese society works at the grass-roots level.

Note this is also from 2010.

Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin


I sent the above link to Bill Hopen, my sculptor friend (please see Inside China: A Sculptor's View) and asked him what he knows about "loan sharking". Bill is married to a Chinese and lives in China part-time.

Bill Writes ...

Hi Mish

Yes, that sounds typical. That is how China works in Wen Zhou area also.

It's not "loan shark" as in "I will break your legs if you don't repay". However, there are circles in neighborhoods, or churches, community groups that are kind of like informal credit unions. People pool money into a large sum and then bid for its use month by month. 5% a month is the typical rate of interest.

Chinese are crazy for busting a move financially. No one saves in banks. Instead, they keep piles of cash elsewhere.

If you get sick, you must have cash or you die if you cannot pay immediately for care, for hospital, for medicine. You are literally wheeled out into the corridor to die if you don't have money for oxygen. I am not exaggerating. There are no credit cards in peasant culture, but there is credit.

Families lend, friends lend, and they all rely on each other for cash reserves. The ties of honor and reputation are all that enforce repayment. It is a great shame if you can't repay. Face is everything. Many simply repay by "rolling the debt" borrowing more to pay the vig.

I have had to bail my mother-in-law out several times. The accumulated interest was greater than the principal she originally borrowed.

Parents of lend to their children to buy their condo with the understanding it will be repaid or they will come to live in their old age under that roof. Almost no one has the 20 to 30% down to buy a place. The down payment is typically borrowed at terrible interest or comes from a "marriage gift" which had its origin in borrowed funds, not from savings.

It's like fractional reserve lending on steroids. Everyone works their ass off to pay the loan, pay the vig, and save their face so they can borrow more if needed. A collapse of the bubble could cost lots of folks their life savings. This makes the financial aspect of Chinese society much more fragile than it appears on the surface. There is a lot of interconnected personal debt below radar.

Also I don't know how one would track "the money supply" in this setup. All is not what it seems.

Hope this helps your picture of China.

Bill

[c1ue]

Re: The End of the Communist Dynasty

I have no idea, this was just an older article I recalled showing how Chinese society works at the grass-roots level.

Once again, while I'm not going to dispute that the anecdotes related above don't exist, at the same time there is a great deal of fuzziness.

On the one hand, Tindale is talking about the local governments lending money to corrupt crooks.

On the other hand, there is all this talk about a gigantic 'shadow banking' sector ranging from corporations siphoning off money to lend to property buyers, to individuals borrowing from pools, to whatever.

The former is a possible indicator of malinvestment, but the scale of said malinvestment is important to know. Clearly it isn't all...

The latter is a Roaring '20s-type black hole of capital: instead of the driver being margin loans, here the driver is apparently buying property.

However, the Roaring '20s became the Great Depression because it wasn't just all the capital in the US, it was all the capital in the entire world. And it wasn't buying condos to live in for newly married couples or even property developers seeking liquidity/financing, it was massive margin interest loans being extended towards market capitalization built on fictitious corporate earnings.

iTulip has been consistently expecting some form of property bubble bursting in China - however this is a far cry from a full scale Ponzi which is what Tindale, Mish, and israelfinancialexpert are saying, the latter two both being 'Austrians'.

[leegs]

Re: The End of the Communist Dynasty

But will the people of the US be willing to engage in another cold war? People are absolutely sick of the wars in the US.

I'm afraid not. They're sick of the old boring wars that we aren't winning, but I bet they'd get fired up for an exciting new one. I recommend the book 'Deer Hunting with Jesus'. Doesn't directly address this subject, but gives some pretty good insights into the (lack of) mentality of lots of America.

[thriftyandboringinohio]

Re: The End of the Communist Dynasty

That's true. One need only look at the furor kicked up over Iraq.

I nominate that one as most excellent iTulip bad pun for July.