Thread: Is China really what it seems?

I found this video I think its from Australian TV. It amazes me and I haven't ever seen mention of this before.

YouTube - China's Ghost Cities

Reports more or less like this have been coming out of china for some time.

There are other observers who frequently find signs of various kinds of fraud in the economy. (That's not a comment on the culture or the people, it's an observation on the state of their economy.)

One expects that it will "blow up" at some point. And very likely the chinese communist party with it.

It's interesting that this huge bubble is arising in an openly communist command economy.....

edit: More thoughts...

It's worth thinking about "inequality" and "polarization" and "unfairness". These things are problems in the US. But they are of a fundamentally different nature than problems with the same name in other places. The important numbers are not actually how many people are making huge sums (hedge fund managers in the UK or US), but how many people are stuck in some miserable place. The US actually does better at this than many places. (The EU would like to but doesn't have the flexibility of a single language across the continent.)

The point? China sometimes seems like a first world power. But at other times, seems almost middle ages in its state of development. It's really not like the US or UK or the current era - it's more like the UK of 1820 or the US of 1850 or so.

And has been proven a number of times, command economies always end up with a lot of problems....

I hadn't heard of this, quite interesting and thanks for sharing it.

It sure looks like the chinese government is trying anything to try to find a way to keep going, or to match the rest of the world and "show off" ?
Seems it should be obvious that with so many condos and apartments asking for that much $, when the majority of their population makes very little is really ridiculous.

I think all countries have a few ghost cities, but usually they were built for a need, mining or whatever.

Maybe they took the " build it and they'll come " a little too seriously? or someone messed up the translation

I wonder how long the Chinese government can keep this up before it all implodes? I wonder if the lonely toy shop owner gets free rent? How else could he stay in business with next to no customers?

There's probably a few people put there to make it look like something is happening, or "coming soon" . Sure would be boring.

Originally Posted by Dualkit

I wonder how long the Chinese government can keep this up before it all implodes? I wonder if the lonely toy shop owner gets free rent? How else could he stay in business with next to no customers?

What makes you think he's the owner? He's just a clerk; the communist gov't is the owner, as they essentially are of everything else.

Dennis

They want 50% up front for a 300k condo. Wow, what a great deal. Here let me just whip out a 150k check for you, from my 2 dollar an hour dish washing job. lol

I don't know if I'd laugh too hard at a country that's investing 40- 50% of GDP on infrastructure. In 2005, the US spent about 2% of GDP on infrastructure. Remember, the size of our economies are about on par.
Anyway, here's a link to an article by a high profile economist named Nouriel Roubini discussing what's going on in China right now and where they could/should be heading in the future....and yes they have massively overbuilt.

China

Right, but 2% GDP in the US an absolute value of about 10% of the entire Chinese economy. And they have almost 4 times the people. And they don't have any type of social security system at all. As with a lot of Asia, a lot of public works projects are 'show pieces' that add little to the quality of life. I won't go into detail.

Having to give a 50% down payment seems pretty rough except very few people come up with that as 'cash' from hard work and savings. With comodity prices going up there has been a lot of speculation. To come up with the 150K for example you could can have 2k (and less) worth of copper stored somewhere. A bank/broker will lend you 100-200 times the amount of your 'hoard'. You use this money for your down payment. This system works as long as commosity prices keep going up.

Eventually the rents/income from 'buiness' will not be enough to cover the cost of loan and the system will implode. 1year? 5years? Who knows, but this story sounds pretty familiar.....

Even though mortgages have recently become available in China, they still represent a very small portion of real estate sales there. The Chinese are inherently conservative, in the real, dictionary sense of the word, and most prefer to pay cash.
The same thing with cars. Car loans are a very new thing in China, and an astonishing 90% of buyers PREFER to pay cash.
Ford, GM Promote Car Loans in China as 90% of Drivers Prefer to Pay Cash

What this means is their exposure to a lending based bubble collapse is tiny, compared to ours in the USA.

Basically, whatever idea you have about China is probably true, somewhere in China, and completely false, elsewhere. The country is so big, so diverse, and changing so fast, that its all but impossible to make either generalizations, or predictions.

The Chinese middle class is tiny, compared to the population as a whole. But its also about as big as the entire population of the United States- which is why the chinese can afford to buy, for cash, as many cars every year as we do (only we buy on credit).
The chinese are very good at hedging their bets on an individual level- they have had a couple of millenium of time to practice burying a bit of cash in the backyard.

Certainly there is a lot of corruption there, and overbuilding in many sectors- there are entire idle STEEL MILLS, for chrissakes, not just piddly little condo developments like in that Ghost Cities link.
But overall, a command economy like China, for all its human rights problems, lack of democracy and transparency, and corruption, is still the least susceptible system to bubbles and collapses- they can, from the top down, reallocate capital, real estate, and people tommorrow. And historically, have done just that, with no messy votes by shareholders, political elections, or laws getting in the way.

China will change a lot in the future, and I have no real idea where they will end up, but the idea of overextending by borrowing too much and the economy collapsing seems to me to be a very low probability.

Individual Chinese, for example, are buying houses like crazy in Canada, for CASH, and I hear from friends in Vancouver that they frequently remark about how amazingly cheap it is compared to Shanghai or Bejing, as they plunk down $1.2 million for a house in Kerrisdale.

Remember also, that most of what the Chinese government is spending money on, far from "showing off", is real, tangible stuff like bridges, roads, airports, tunnels, and rail networks.
Not sure if its still true, but a few years ago, the Chinese had every single major locomotive manufacturer, worldwide, back ordered for five years for new locos. They are currently building an additional 30,000 kilometers of railroad. They spend an amazing amount, billions every year, on R&D for energy and power production. A lot of the money they spend is for very real stuff that will help them make money and raise living standards in the future.

As the old dude in the video said, changing things so quickly and so radically, is very dangerous. It will depend greatly on how they move forward, and the biggest danger is a very few getting a lot, and the many getting nothing. It's one thing when everybody has nothing... It's another thing when most people have nothing, but they can see the few that have everything. That's when things can get nutty, and that's where they're heading now.

Originally Posted by dave66

As the old dude in the video said, changing things so quickly and so radically, is very dangerous. It will depend greatly on how they move forward, and the biggest danger is a very few getting a lot, and the many getting nothing. It's one thing when everybody has nothing... It's another thing when most people have nothing, but they can see the few that have everything. That's when things can get nutty, and that's where they're heading now.

To a large extent, the real battle might not be ecconomic but cultural. The US and Britian went through this in the late 1800 to the 1930's, possibly into WW2. A shift from agrarian to industrial. The rules or norms shifted, and the population had to adjust. You see this in other countires, too. India also faces this, along with South East Asia, Indonesia etc.
China faces this, and some norms are changing. Also the one child policy has produced a severe inbalance of the genders in China and India. Its hard to predict what social inbalances this will produce. Most predictions are not good.
Other problems are the predicted food shortages and their rising cost. To some extent this lead to the "Arab Spring" in the ME. China might fair better as they have more cash on hand, and a firmer control. At least from the perspective we are aloowed to see.
Tom

Originally Posted by rkucbel1

Right, but 2% GDP in the US an absolute value of about 10% of the entire Chinese economy. And they have almost 4 times the people.

I was curious about your estimate of 10% so I checked. First thing I found out was my "on par" guess was way off. China GDP is about $6 trillion and looks to be growing at the rate of almost $1 trillion a year, '09-'10, so it in fact may be exponential. United states GDP ('09) was about $14 trillion. This puts China's infrastructure spending at $2.4-3 trillion dollars a year versus the US at $2.8 billion. Massive difference- trillions vs billions. Kinda proves infrastructure spending pays for itself in spades- high growth. I look at all the extra people as "labor reserves".

As to the leveraging $2K or less, try 600,000 tonnes:

Mish's Global Economic Trend Analysis: Ponzi Financing Involving Copper Trade Gone Wild In China

That's Mish, here's the Financial Times take:

FT Alphaville » More proof the Chinese have been using copper as collateral

They're not using copper to finance real estate. They're using it to finance businesses.

Bubble, bubble toil and trouble- hoarding.

I'm really looking forward to the "correction" in commodities.

Ha, ha.

Maybe the empty towns were built expecting skilled
immigrant workers who cannot find work in their home
country due to outsourcing, downsizing, or simply no
offers at all for college grads here. Give the world
economy a chance to improve and china will jump right
back in with expanded activity.

Not kidding about people going to jobs in china. I know
a woman who has been teaching in china for several years
at higher pay & steady work. Her husband runs a B&B
& takes care of their daughter here. On-line news today
relates an architect finding work in china, none here.

A Helicopter guy I know "in de bid-ness" just returned from China and told me, that there are "less then 300 civilian Helicopters, of all types in China.

"Bullshit", says I:

so I googled it:

Scarcity of private helicopters in China and India | TopNews China

This is a huge country, and supposedly with a growing nouveau riche population! First thing we rich guys do is buy helicopters, right?

Your link isnt real clear about it, but it seems to infer that the Chinese government doesnt want private helicopters, and so makes regulations that make it very difficult to have one.
This is an example of the communists still running things, and making the rules they want.

I am sure plenty of billionaires in China would love to have their own helicopter, just as billions of ordinary chinese would like to have internet freedom to look at any site they wanted.

I am also pretty sure you could find similar laws in the USA that prohibit citizens from having things they wanted.
Fer instance, there would undoubtedly be a whole lot more privately owned full auto machine guns in the USA if the laws were different.
And a whole lot more pot growing in people's gardens- but in both cases, the government, in their infinite wisdom, has decided what we can and cant own, just like the Chinese government and their helicopters.

Theoretically we, unlike the chinese, could elect a different set of representatives, and change these, and other laws.

Originally Posted by thruthefence

A Helicopter guy I know "in de bid-ness" just returned from China and told me, that there are "less then 300 civilian Helicopters, of all types in China.

"Bullshit", says I:

so I googled it:

Scarcity of private helicopters in China and India | TopNews China

This is a huge country, and supposedly with a growing nouveau riche population! First thing we rich guys do is buy helicopters, right?

http://www.nytimes.com/2011/05/19/wo...9china.html?hp

Here's an idea... They base their whole economy on cheap labor, and they have tons of empty housing. What say we collect all the illegals here, send them there... They get a nice place to live... They can work for $2 an hour to their heart's content. Then we get back to work making our own stuff for decent wages.

"What say we collect all the illegals here, send them there"

We could load them all into helicopters & FLY them there! Subverting the will of the comintern twice over!

Originally Posted by thruthefence

[B] Subverting the will of the comintern twice over!

You're going to send them via Russia?