The Real Recovery | March 17, 2010 | 18 comments

China: Huge Economic Bubble

source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNZe4JWeV1aw

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diode
as always, china following usa only 10 years behind, our bubble burst in 2000, will theirs in 2010? if their depression cherry popped, would those outsourced jobs come back to the US (i hope)?

March 17 (Bloomberg) -- China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”
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18 comments // China: Huge Economic Bubble

  • peterzylstramoore
    • 0
      peterzylstramoore  

    • I think there is a decent possibility that China's property values are somewhat inflated. The housing bubble replaced Clinton's stockmarket bubble and that money needs somewhere to go.

      However, China's debt to GDP ratio (http://devdata.worldbank.org/AAG/chn_aag.pdf) is at something like 20% and so there is no reason to think it can't weather a pretty significant shock. It grew through the Asian financial crisis, which devastated almost all the other Asian countries (the affect was similar to the great Depression). It grew through the recent stock market bubble. Their is growing of demand for its industrial goods as economies begin growing again, and even if that demand shrinks because of high levels of consumer debtedness, they could easily raise wages and spending in their own country to facilitate the lost demand. I am not aware of the numbers on raises is real-estate prices but I also have my doubts that a government as interventionist as China, would allow a real estate bubble there so shortly after the one in the US.

      Don't get me wrong. I'm sure there is plenty of speculators pouring in from the US, but China has plenty of capacity to grow (it's still about 50% rural) and it will manage most of this investment productively.

    • 1 year ago
  • peterzylstramoore
    • 0
      peterzylstramoore  
    • peterzylstramoore:

      http://www.businessspectator.com.au/bs.nsf/Article/China-economy-ANZ-economst-Li...
      IO: There is still quite a lot of fear about bursting bubbles – especially in property, the stock market and banks. When and how do you think this could happen if it happens? Can you paint a picture for me of what you think it’s going to look like if things go wrong?

      LL: If you look at the stock market, I don’t want to label this as a bubble, especially if you look at the P/E ratios, which seem reasonable. And the property market – I would say that at this moment there’s no bubble yet and I would label China’s property market as a ‘boom’. And the reason that is because going forward China’s urbanisation process will create a lot of demand for urban housing.

      The other thing is that if you look over a 10 to 15-year time period, China’s urbanisation is going to be a driver for further domestic growth. There are some estimates showing that over the next 15 years over 350 million people will be moving from the rural sector to the urban sector.

      At this moment in China’s urbanisation ratio is about 45 per cent. If you look at any typical OECD country, I think they’re over 80 or 90 per cent and by 2025 China’s urbanisation ratio is going to reach around 60 per cent.

      http://finance.yahoo.com/news/China-Real-Estate-Bubble-a-tsmf-3005546357.html?x=...
      The price of real estate in Beijing has been strong, with an average hovering around 18,000 yuan per meter squared, or approximately $240 per square foot. Quite to the contrary, the price of Manhattan real estate is still in the doldrums. Manhattan has lost more than 25,000 financial jobs during the financial crisis and has been without the support of Wall Street bonuses in 2008-9. As any Manhattan real estate agent will tell you, Wall Street bonuses are the lifeblood of Manhattan real estate.

      Until recently, Manhattan real estate has lacked its bonus lifeblood to support itself and has fallen 10%-15%. Nonetheless, good old Manhattan real estate averages $1,320 per square foot (according to the New York real estate industry) or 5.5 times that of Beijing real estate, and yet the Manhattan couple earns 6.3 times that of the Beijing couple after tax. (Note here we're using an artificially high Manhattan income number but a depressed real estate number, making the example all the more conservative.) On a nominal basis and relative to incomes, the relative price of Manhattan and Beijing real estate seems to be fairly close, even giving the Manhattan couple the income boost of a Wall Street bonus but depressed real estate prices.

    • 1 year ago
  • tommic
    • 0
      tommic  

    • them who got the gold make the rules
      do you really want the Chinese to be the financial giants of the world?
      They'd be makin the rules

    • 1 year ago
  • blkblk13
    • 0
      blkblk13  

    • Would this be a good thing? Why would a economic crisis over there cause jobs to come back tot he U.S.? Wouldn't a crisis weaken theIr currency, thus, making it even cheaper for U.S. companies to employ Chineses workers. Wouldn't this also exacerbate the trade deficit? China is on it's way to becoming the largest consumer poplution in the world, which, is good news for Western companies. For exampe GM sells more Buicks in China then they do in America. Emerging markets are important for business growth.

      I'm not an advocate of job-loss to China but news like this kind of seems more scary than comforting. America is struggling to get back on it's feet, as it is. Can we really handle another huge shock to the system? Maybe I'm looking at this wrong but I don't like this at all.

    • 1 year ago
  • satan_lucifer
    • 0
      satan_lucifer  
    • blkblk13:

      The problem of the financial instruments being ridiculously inflated creates the instability. Don't pay a ridiculous price for something just because you can't buy it outright. It is this"usery' or high cost of credit that causes the instability. If the costs weren't so high, people could hang in the game longer through slow times and create stability but the way it is, it teeters on the volume of transactions at any given time. I'd happily give 40 thousand to borrow 200 thousand. I can't make it worthwhile if I have to pay 450 thousand back on the same loan? I'm just paying a very high cost just to have whatever it is. See what I mean.......

      S.

    • 1 year ago
  • WrittenWithWit
  • tommic
    • 0
      tommic  

    • China's day of financial collapse is inevitable. Although it will be far different, don't think for a minute that the Chinese leadership doesn't remember how the Soviet Union disintigrated in a matter of months. When the collapse comes information will stop coming in and out of China Visas will be curtailed both leaving and coming. They will hunker down and use force against their own people to maintain power. The leadership is not giving up anything. The introduction of limited capitalism was allowed to appease the masses and to attract foriegn investment with cheap labor. It would not be surprising at all if many manufacturing jobs come back over the Pacific but I think they'll end up in South America with its cheap labor, closer to the markets in the U.S. We still have more to offer than the Chinese when it comes to making allies.

    • 1 year ago
  • peterzylstramoore
    • 0
      peterzylstramoore  
    • tommic:

      You should read Joe Stiglitz take on the collapse in Russia (in Globalization and it's Discontents). I don't believe that China is heading towards any such collapse, and if it were the reasons would be very different. Russia collapsed because it immediately privatized, while being forced by the IMF to maintain an overvalued currency. The speed of privatization meant that the government got little back for it's industries (if their is lot's of supply, then price falls). Their was a huge amount of corruption involved. It also collapsed b/c it opened up to free trade quickly. Many of it's industries were adept in technology but had not evolved through market competition to be efficient. The combination of lack of competitiveness and an overvalued exchange rate meant that everything was bound to fail and so it did.

      China has privatized more experimentally and slowly. It has also managed it's trade only removing barriers that are necessary as inputs for industrialization or for manufacturing production, while leaving barriers to protect industries that are uncompetitive. By slowly forcing down tarriffs rather than immediately removing them (as the US through the IMF and WB have done everywhere) it gives industry a period of time to compete. The government has also acted to stabilize the economy (expanding expenditure drastically during the Asian Financial Crisis, and during the recent World Recession). Because it has a fairly interventionist role in the banking system it can also ensure during downturns that banks are actually lending to businesses rather than speculating or sitting on their money (which less managed banks tend to do during downturns).

      Their may be a moderate bubble in China, but I don't believe their government can't afford to spend it's way out of it. Finally their political system despite it's real problems has shown itself far more capable of responding to crisis. It is not another Russia, nor another US for that matter.

    • 1 year ago
  • 02
  • satan_lucifer
    • 0
      satan_lucifer  

    • WELCOME TO THE CLUB YOU STUPID BASTARDS!!!!!!!!! OUR GOVERNMENT SCREWED YOU GUYS TOO!!!!!!!!! THE HOUSE OF CARDS ECONOMY IS GOING TO GO DOWN IN FLAMES SHORTLY.......DOES CHINA HAVE UN EMPLOYMENT INSURANCE OR DO THEY JUST RUN OVER THEM WITH TANKS THERE?????

      S.

    • 1 year ago
  • 02
  • Introspective
    • +1
      Introspective  

    • hmmmm kinna ties in neatly wiv google's sudden moral indignation...u mean to tell us that after 4 yrs of obsequious subservience to their chinese masters they actually caut a wif of how repugnant their actions have been...fo a few extra $ they were willing to censor 25% of the worlds population...or did they consult their magic crystal ball & c the writing on the wall with regards to the shifting economic sands between now & 2012...waheva the case may b, the fomer lendz itself to a perceived graceful exit :(

    • 1 year ago
  • UrbanGypsy
    • +1
      UrbanGypsy  

    • The single party system in China hinges and survives on its ability to provide millions of jobs and avoid massive unemployment. It is the whole reason the government undertook so many reforms after Tiananmen in 1989.

      If the Chinese economy were to experience a crisis, the government's power may be severely threatened. The people are reluctant to oppose a government that has embraced economic capitalism and allowed many Chinese to rise out of poverty. But if this government were unable to provide this, we can have a repeat of Tiananmen.

    • 1 year ago
  • DRudeBoy
  • Satoshi
  • UrbanGypsy
    • 0
      UrbanGypsy  
    • Satoshi:

      If the regime wants to hold on to power it will, even if it has to spill the blood of thousands. But all it takes is for a few military men to not obey orders for things to get out of control and for the party's worst nightmare to become reality.

      Alas, there are too many people in the government and the armed forces who have nothing to gain by changing the system.

      Chinese de facto federalism is the other challenge to the party's absolute control. Cities like Shanghai, Hong Kong and other municipalities will sometimes bump heads with the government in Beijing. But so far, Beijing has done everything it can to prevent them from attaining too much power.

      But things can change very quickly. I don't think anyone 20 years ago could have predicted that China would be the way it is today.

    • 1 year ago
  • Mark701
    • 0
      Mark701  
    • UrbanGypsy:

      I was thinking the same thing. However, I think what happened would be tied to how the Chinese government responded. If they provided unemployment benefits to those who were laid off then there probably wouldn't be much, or any, unrest. If they don't,or don't provide enough then things would get very ugly, very fast.

    • 1 year ago
  • UrbanGypsy
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