China the blowback.......

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Op maandag 7 september 2009 05:01 schreef Rbhp het volgende:

Wbt de RMB, toen ik naar China ging in 2005 stond die nog tussen de 8.nogwat:1 (RMB vs USD). Nu staat ie op 6.8:1. Ik dacht dat ie al deels was losgekoppeld, maar dat begrijp ik nog steeds niet helemaal na 4 jaar China. Het probleem is dat ze de komende 20 jaar nooit de RMB van de dollar zullen loskoppelen. Ik wil nu een lening aanvragen in USD hier in China, en maak me een beetje zorgen om die exchange rate, aangezien ik in RMB betaald krijg. Als de USD omhoog gaat, dan ben ik een klein beetje de lul...

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Op zondag 6 september 2009 21:16 schreef arjanus het volgende:

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De Chinese Rmb gaat stijgen zodra de chinese overheid de rmb loskoppelt van de dollar. De chinese balans staat vol met vorderingen, de Amerikaanse vol met schulden. Ik kan het ook niet beter uitleggen

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Op zaterdag 12 september 2009 12:12 schreef arjanus het volgende:

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Persoonlijk denk ik dat je sowieso beter van de dollar af kunt blijven, met 1 uitzondering daargelaten: neem een lening in usd, zet de rente zo laag mogelijk voor 20 jaar vast. En stop er geen eigen dollars in, dus alleen de rente aflossen. Als je bijvoorbeeld een huis in China koopt en zo goedkoper uit bent dan huren, dan doet de inflatie z'n werk en stelt die lening over 20 jaar niks meer voor.

Over de rmb vs usd ratio heb ik geen mening. Dat kan alle kanten op. De Chinezen zouden het beste af zijn als ze hun munt loskoppelen van de dollar, maar ik heb verder geen kijk op wat voor krachten er daar verder nog spelen.

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Op zaterdag 12 september 2009 13:43 schreef henkway het volgende:

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Als China de RMB loskoppelt, dan halveren de vorderingen in dollars op de balans, dat kan men niet doen

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Op zondag 13 september 2009 09:22 schreef Rbhp het volgende:

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Aha, ik snap je punt, en je hebt helemaal gelijk. Heb nu een lening in usd voor 30 jaar, rente op 2.95, maar die kan niet vastgesteld worden voor een vaste periode, is afhankelijk van de markt, met een discount van .30%. Dan nog denk ik dat het vrij interessant is om op dit moment in usd te lenen.

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Wanneer knapt de Chinese zeepbel?
Ik heb het hier al eerder geschreven: de wonderbaarlijke Chinese economische groei, zou wel eens in een een grote knal kunnen eindigen. Het land investeert in overcapaciteit, de overheid pompt honderden miljarden in de economie en het wisselkoersbeleid voert de toch al hoge geldgroei nog verder op.

Over dat laatste punt las ik dit weekend dit stuk op Seeking Alpha. Zijn de valutategoeden van de Chinese Volksbank ‘de grootste zeepbel aller tijden’? Hier een paar zorgwekende stukjes uit het artikel (maar lees het liever helemaal).

China's reserves are growing at about $400 billion per year, roughly adding Norway's economy to their reserve surplus every year.

China's huge arsenal of reserves is increasingly troublesome. William Pesek of Bloomberg has called it a "massive and growing pyramid scheme." China is essentially trapped in its current arrangement; as it buys more US Treasuries, it becomes harder to sell them without causing huge capital losses.

History has not been kind to economies that have amassed such huge foreign currency reserves. According to Professor Pettis, author of China Financial Markets, there have been two prior periods in which a country has amassed such large foreign reserves; the United States in the 1920s and Japan in the 1980s. (…) Both of those periods in time ended very badly. The United States plunged into the Great Depression and Japan has experienced nearly 2 lost decades.

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Op maandag 8 februari 2010 12:44 schreef Deprater het volgende:
china

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Op maandag 8 februari 2010 13:14 schreef flyguy het volgende:

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Dat is idd een hele beknopte samenvatting van dit topic

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China PLA officers urge economic punch against U.S.

BEIJING (Reuters) - Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.

The calls for broad retaliation over the planned U.S. weapons sales to the disputed island came from officers at China's National Defence University and Academy of Military Sciences, interviewed by Outlook Weekly, a Chinese-language magazine published by the official Xinhua news agency.

The interviews with Major Generals Zhu Chenghu and Luo Yuan and Senior Colonel Ke Chunqiao appeared in the issue published on Monday.

The People's Liberation Army (PLA) plays no role in setting policy for China's foreign exchange holdings. Officials in charge of that area have given no sign of any moves to sell U.S. Treasury bonds over the weapons sales, a move that could alarm markets and damage the value of China's own holdings.

While far from representing fixed government policy, the open demands for retaliation by the PLA officers underscored the domestic pressures on Beijing to deliver on its threats to punish the Obama administration over the arms sales.

"Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counter-punches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease," said Luo Yuan, a researcher at the Academy of Military Sciences.

"Just like two people rowing a boat, if the United States first throws the strokes into chaos, then so must we."

Luo said Beijing could "attack by oblique means and stealthy feints" to make its point in Washington.

"For example, we could sanction them using economic means, such as dumping some U.S. government bonds," Luo said.

The warnings from the PLA come after weeks of strains between Washington and Beijing, who have also been at odds over Internet controls and hacking, trade and currency quarrels, and President Barack Obama's planned meeting with the Dalai Lama, the exiled Tibetan leader reviled by China as a "separatist."

MILITARY SPENDING BOOST

Chinese has blasted the United States over the planned $6.4 billion arms package for Taiwan unveiled in late January, saying it will sanction U.S. firms that sell weapons to the self-ruled island that Beijing considers a breakaway province of China.

China is likely to unveil its official military budget for 2010 next month, when the Communist Party-controlled national parliament meets for its annual session.

The PLA officers suggested that budget should mirror China's ire toward Washington.

"Clearly propose that due to the threat in the Taiwan Sea, we are increasing military spending," said Luo.

Last year, the government set the official military budget at 480.7 billion yuan ($70.4 billion), a 14.9 percent rise on the one in 2008, continuing a nearly unbroken succession of double-digit increases over more than two decades.

The fresh U.S. arms sales threatened Chinese military installations on the mainland coast facing Taiwan, and "this gives us no choice but to increase defense spending and adjust (military) deployments," said Zhu Chenghu, a major general at China's National Defence University in Beijing.

In 2005, Zhu stirred controversy by suggesting China could use nuclear weapons if the United States intervened militarily in a conflict over Taiwan.

The United States switched official recognition from Taiwan to China in 1979. But the Taiwan Relations Act, passed the same year, guarantees Taiwan a continued supply of defensive weapons.

China has the world's biggest pile of foreign currency reserves, much of it held in U.S. treasury debt. China held $798.9 billion in U.S. Treasuries at end-October.

But any attempt to use that stake against Washington would probably maul the value of China's own dollar-denominated assets.

China has condemned previous arms sales, but has taken little action in response to them. But Luo said the country's growing strength meant that time has passed.

"China's attitude and actions over U.S. weapons sales to Taiwan will be increasingly tough," the magazine cited him as saying. "That is inevitable with rising national strength."

http://www.reuters.com/article/idUSTRE6183KG20100209

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China Dumps US Asset Backeds and Corporates

February 9th, 2010
By David Goldman
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.

It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.

http://blog.atimes.net/?p=1352

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Wednesday, February 10, 2010
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.

I think that the best course of action for the Chinese government is to credibly stop leveraging by local investment companies. Instead of the half measures in place today, a public and stern order should be given to banks to stop lending to all new projects undertaken by these local entities. Other measures should follow:


Since county governments are in the poorest fiscal shape and have the least ability to repay banks, the central government should take over the debt of almost all of the county-level investment vehicles. Although this will increase China's debt-to-GDP ratio significantly, the total would still be low by international standards.

A sudden contraction of lending to local investment vehicles will generate a wave of nonperforming loans, but a greater reliance on market mechanisms can easily solve this problem over the next few years. First, banks will fully recover the debt of the healthiest local entities, which may account for half of total local debt. For the remainder, the government needs to allow banks to directly sell subprime or distressed loans to both foreign and domestic investors . Beijing need not fear that China's listed banks will sell their nonperforming loans at below-market prices, as these banks report to shareholders. Banks, in conjunction with investment banks and distressed-asset investors, should also explore ways to securitize local debt for sale to both domestic and international investors. The latter in particular would have a healthy appetite for yuan-denominated security, anticipating a currency revaluation soon.

Basically, I think the Chinese government can turn this into a great opportunity for market reform in the financial system and the internationalization of the RMB. However, it has to act soon before local debt gets too large to handle.

http://chinesepolitics.blogspot.com/

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Op maandag 15 februari 2010 16:43 schreef SeLang het volgende:

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Geweldig! De suggestie om de Chinese schuldencrisis op te lossen door Chinese subprimeleningen aan internationale investeerders te verkopen!

Ik zie het al gebeuren, Chinezen die in de USA of in Europa gaan lopen leuren met hun eigen rommelhypotheken

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Op dinsdag 16 februari 2010 09:26 schreef Basp1 het volgende:

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Asl ze ze in mooie pakketjes verpakken waarbij de onderliggende waardes voor niemand zichtbaar zijn dan zullen er heus wel land/investeerders/banken zijn die erin trappen. De VS heeft het ook al een keer voor elkaar gekregen.

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Op dinsdag 16 februari 2010 10:20 schreef SeLang het volgende:

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Ik denk zelfs dat er best veel vraag naar zal zijn, in het licht van de aanstaande opwaardering van de Chinese munt. En dollars/euros zijn nog steeds gratis te leen, dus.... tijd voor de Chinese subprime bubble

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Op dinsdag 16 februari 2010 12:59 schreef sitting_elfling het volgende:

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We zijn al iig. hard op weg als je de groei van de huizencijfers in china bekijkt

[ afbeelding ]

Long live the bubbles

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Op dinsdag 16 februari 2010 13:24 schreef SeLang het volgende:

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Echt veelbelovend ja
Homeownership in China is al 80% (USA is 65% ofzo).
Bevolking gaat dalen vanaf 2025 ofzo (beroepsbevolking al vanaf 2015).
Veel nieuwbouw staat leeg, want puur gebouwd voor speculatie.
Huizen gaan daar slechts een paar decennia mee en de grond is pacht, dus niet van jou!

Sure thing

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Op dinsdag 16 februari 2010 13:31 schreef Basp1 het volgende:

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Die krotjes gebouwd met ossenstront op het platteland waarin nog steeds 70% van de chinezen wonen tellen ook mee in het huiseigenaarschap?

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Witte Huis sust zorg om geldschieter China
Uitgegeven: 18 februari 2010 22:12
Laatst gewijzigd: 18 februari 2010 22:12

WASHINGTON - De Amerikaanse regering heeft donderdag de zorg gerelativeerd, die ontstond toen bekend werd dat China Amerikaanse staatsleningen van de hand heeft gedaan.

© ANPChina is een belangrijke financier van Amerikaanse staatsschuld, maar Japan heeft China verdrongen als grootste bezitter van Amerikaanse staatsleningen.

Dat gebeurde nadat China in december de portefeuille van Amerikaanse staatsleningen per saldo met 34 miljard dollar had verminderd van 789 miljard naar 755 miljard dollar.


Dat werd door sommigen uitgelegd als een protest van China tegen het beleid van de Verenigde Staten, maar Lawrence Summers, een belangrijke economisch adviseur van het Witte Huis, vindt dat daaraan niet zo veel betekenis moet worden toegekend.

''Dit soort cijfers schommelt nogal en bovendien zijn de staatsleningen breed gespreid",' zei hij voor de Amerikaanse televisie.

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Op woensdag 10 februari 2010 11:47 schreef luckyb1rd het volgende:
China heeft papieren weapons of mass destruction. Zou het bluf zijn om Amerika op de knieën te dwingen vanwege Taiwan en Tibet? want ze kunnen eigenlijk ook niet zonder elkaar, als Amerika down gaat, gaat china mee..

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Op zondag 21 maart 2010 17:14 schreef arjanus het volgende:

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Helemaal niet, als china al hun dollars dumpt, dan dumpen alle andere landen met dollars hun troep ook. Als China daarnaast hun munt de vrije loop laat, worden alle Chinezen ineens rijk terwijl de Amerikanen straatarm worden (lage dollar, kunnen dus niks meer kopen op de wereldmarkt, hoge rmb en chinezen kunnen alles kopen op de wereldmarkt).

Let wel, bovenstaande is geen optie, dit moet vroeg of laat een keertje gebeuren. Cold-Turkey, hoe langer men wacht hoe erger het wordt.

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Op zondag 21 maart 2010 20:27 schreef arjanus het volgende:
China warns U.S. that 'trade war' will hurt Americans even more

The Laugh Song

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Op zondag 21 maart 2010 17:07 schreef arjanus het volgende:
Maar als punt bij paaltje komt kan china het zich veroorloven om bubbles op te blazen met al hun reserves en spaargeld. Wij niet.

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Op zondag 21 maart 2010 22:31 schreef Swetsenegger het volgende:

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Bovenop binnenlandse onrust en enorme milieuproblemen....?

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VS zetten druk op Chinese munt
Uitgegeven: 30 september 2010 08:32
Laatst gewijzigd: 30 september 2010 08:32

WASHINGTON - Het Amerikaanse Huis van Afgevaardigden heeft woensdag ingestemd met maatregelen om de Verenigde Staten te beschermen tegen de Chinese ondergewaardeerde munt, de yuan. Met 348 stemmen voor en 79 tegen werd de nieuwe wetgeving aangenomen.

Nu moet de Senaat zich er nog over buigen.

De zogeheten China Currency Bill moet leiden tot importheffingen op Chinese artikelen, zolang China de koers van de munt niet aanpast. Volgens de VS houdt China haar munt opzettelijk ondergewaardeerd, waardoor het land erg makkelijk kan exporteren.

De toevloed aan Chinese artikelen zorgt voor irritaties in de Verenigde Staten, waar de werkloosheid bijna 10 procent bedraagt.

Volgens China schenden de maatregelen de reglementen van de Wereldhandelsorganisatie. De WTO ziet toe op naleving van afspraken over de handel tussen landen.

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Op donderdag 30 september 2010 08:48 schreef Basp1 het volgende:

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Zo eens kijken hoe de chinese vrienden gaan reageren op importheffingen in de VS. En of de consumptie van goedkope zooi uit china daardoor afneemt, het lijkt me niet want in de VS heeft men toch zelf geen productiefaciliteiten meer staan om deze zooi te maken.

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Op zaterdag 2 oktober 2010 10:38 schreef Rbhp het volgende:
De US maakt zichzelf kapot, China voelt er niks van.

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ATHENE - China gaat het noodlijdende Griekenland helpen om uit de financiële problemen te komen. Het Aziatische land is onder meer van plan om Griekse staatsobligaties te kopen, zodra Griekenland terugkeert op de financiële markten.

Dat zei de Chinese premier Wen Jiabao zaterdag tijdens zijn bezoek aan Griekenland. Jiabao maakte verder bekend dat China de import van Griekse producten wil bevorderen.

''Als Griekenland in problemen verkeert, is China bereid te helpen'', zei Jibao. De Chinese premier verwacht dat de Griekse economie herstelt in lijn met het herstel van de wereldwijde economie.

Investeren

Jiabao beloofde verder dat hij Chinese bedrijven zal vragen te investeren in Griekenland. Bovendien wil China een bedrag van 5 miljard dollar investeren in een Grieks-Chinees scheepvaartfonds. Het Aziatische land gaat ook meer investeren in de haven van Piraeus.

Het bezoek van Jiabao aan Griekenland maakt deel uit van een reis naar Europa. De Chinese premier brengt ook een bezoek aan België, Italië en Turkije.

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Op zaterdag 2 oktober 2010 19:16 schreef dr_Pieters het volgende:

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Wat zou hier de motivatie van China zijn? Iemand enig verstand van macroeconomie en politiek hier?

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Op zaterdag 2 oktober 2010 19:21 schreef Blandigan het volgende:

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Chinezen doorgronden is een kunst op zich. Ik kan wel een gokje wagen.
Het doet me denken aan een verdeel en heers politiek. China krijgt op deze manier voet aan de grond in Europa (De Atheense haven is niet zo ver van het olierijke middenoosten), zet de Europese Unie met al hun voorwaarden te kakken, en trekt ook nog een kleine lange neus naar Amerika als redder van een natie uit het kamp van de US.

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Op zaterdag 2 oktober 2010 10:45 schreef Blandigan het volgende:

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Europa doet er ook vrolijk aan mee.

We produceren haast niets meer, behalve "diensten".
Onderwijs wordt uitgehold.
Ik word er toch wel somber door...

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Op zaterdag 2 oktober 2010 19:16 schreef dr_Pieters het volgende:

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Wat zou hier de motivatie van China zijn? Iemand enig verstand van macroeconomie en politiek hier?

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Chanos vs. China
Posted by Fortune
November 17, 2010 3:00 am

The influential short-seller is betting that China's economy is about to implode in a spectacular real estate bust. A lot of people are hoping that Chanos - who called Enron right - is wrong this time.

By Bill Powell, contributor

The scene is a cocktail party high above the Shanghai skyline on a summer night a few months ago. Our host is a Master of the Hedge Fund Universe, one who doesn't want to be identified in the press. We'll call him Pete. Pete comes to China at least twice a year to stay abreast of what's happening in the world's most dynamic economy. He has said, in fact, that if he didn't have kids in school in the U.S., he would consider moving here, so bright is the future. In attendance are other hedge fund investors, venture capitalists, and fund managers, China bulls all. If there is one sure-fire way to ruin the atmosphere on such a pleasant evening, it is this: Ask the crowd what they think of the legendary short-seller James Chanos, CEO of Manhattan-based Kynikos Associates.

So that's what I do.

"Hey," I say to a cluster of people surrounding Pete. "Did you guys see what Jim Chanos said about China on Charlie Rose the other night?"

"No," says an American venture capitalist working in Shanghai. "What did he say?"

"He said, 'China's on an economic treadmill to hell.' "

For over a year now Chanos -- the man who got Enron (among other things) right before anyone else -- has been on a rampage about China. The guy who became famous -- and rich -- shorting companies now says he is shorting the entire country.

When I mention the "treadmill to hell" line to the group in Shanghai, the reaction is the usual one when Chanos's name comes up here: "What does he know about China?" the American VC asks. "Has he ever lived here? Does he have staff here? Does he speak Chinese?"

The answers are no, no, and no. But our host, who counts Chanos as a friend, knows that is not the point. "He did get Enron right," Pete says. "And Tyco. And the whole mortgage bust." He concludes: "Look, he may be wrong, but you need to tell me why he's wrong, not point out that he doesn't live here."

Chanos smiles when I relate the story to him on a recent morning in New York. He knows what a lightning rod he has become. "The only time I have ever been heckled giving an investment presentation was earlier this year at Oxford," he says. "Some Chinese graduate students got so annoyed with me that they started to shout me down, saying the same sort of stuff: 'What do you know about China? How dare you say such things!' "

It's not, of course, just young Chinese people who get worked up on the subject. What Fortune Global 500 company isn't betting that China is the future? For many companies, the possibility that Jim Chanos could be right, that there could be a U.S.-or-Japanese-style bust in China, is beyond scary. It's unthinkable.

Something unprecedented

How did Chanos come to his China obsession? It started in 2009, when he and his team at Kynikos looked at commodity prices and the stocks of big mining companies. "Everything we did in our microwork [on commodities] kept leading us back to China's property market," Chanos says. China's construction boom was driving demand for nearly every basic material.

One day, at a research conference in 2009, Chanos listened to an analyst tick off numbers about the scale of China's building boom. "He said they were building 5 billion square meters of new residential and office space -- 2.6 billion square meters in new office space alone. I said to him, 'You must have the decimal point in the wrong place.' He said no, the numbers are right. So do the math: That's almost 30 billion square feet of new construction. There are 1.3 billion people in China. [In terms of new office space alone] that amounts to about a five-by-five-foot cubicle for every man, woman, and child in the country. That's when it dawned on me that China was embarking on something unprecedented.''

Kynikos didn't post anyone in China. Analysts make occasional research trips, though Chanos himself does not. Given his reputation there, he says, "it's probably best that I don't go. I can just see the New York Post headline: NEW YORK INVESTOR KILLED IN MYSTERIOUS ONE-MAN EARTHQUAKE."

Chanos says that underlying his firm's analysis are data the Chinese government itself reports publicly, such as numbers from the Bureau of Statistics and the National Development and Reform Commission, the country's most powerful economics ministry. In the past year, he says, his team has developed a "proprietary database" that tracks real estate sales in China. "We are not fudging data or just hearing or seeing what we want to hear and see," he insists. And he has a standard retort to those who say you can't know China because you don't live there: "I didn't work at Enron either."

So many empty properties

To understand Chanos's China skepticism -- he calls it "Dubai times 1,000" -- it's worth visiting the Rose and Ginko Valley housing development near Sheshan Mountain, a new suburb outside Shanghai. Block after block after block of villas have gone up. And they are empty.

In the country's largest, most affluent cities -- Beijing, Shanghai, Guangzhou, and Shenzhen, known as tier-one cities to the real estate cognoscenti -- it is not an unusual phenomenon. There is a lot of new, unoccupied housing in China. Just how much -- and just how much of a concern it should be -- is a central debate.

Fixed-asset investment accounts for more than 60% of China's overall GDP. No other major economy even comes close. And of that fixed investment, slightly less than a quarter is attributable to new real estate investment.

There are reliable data on the amount of new construction under way each year, and on how much is sold. In 2009, for instance, buyers in China purchased 44% more residential floor space than they did in 2008.


Unoccupied houses in a subdivision in the Kangbashi district outside Ordos City, Inner Mongolia

But there are no official estimates yet for the vacancy rates for private housing, for how much of that new housing bought is actually occupied. (The government, signaling that it understands how much it matters, is carrying out a census now to try to get a grip on the question.)

Consider the Sheshan project. A spokesman for the Chongqing-based development company would say only that almost all the units were sold in advance. That, in fact, has been standard-operating procedure in the market for new housing in China. Buyers plunk down money based on a plan, and the developer takes those commitments to the bank to get financing for construction. Very few projects are done on spec.

But that still leaves the question that makes a lot of people nervous -- and Chanos bearish -- about China: Why are so many flats and villas that have been bought and paid for empty? And how could that augur anything but pain for the real estate market in China? And if it means pain for the real estate market, considering that new property sales accounted for 14% of GDP in 2009, doesn't that mean trouble, sooner or later, for the broader economy?

That the real estate market in China is hugely speculative is not in dispute. An investor who lives near me in suburban Shanghai has bought -- count 'em -- 43 units over the past three years. He is still sitting on them, because, he believes, prices will continue going up.

Chanos ticks off reasons for that kind of behavior. Individual Chinese investors are limited in where they can put their renminbi. They can stash it in a standard bank account and receive a negative rate of return, given an inflation rate running at about 3%. They can put the money in the stock market, but equities in China are much more volatile than those in developed markets. Capital controls limit investment opportunities for individuals abroad. So that leaves real estate.

Chanos acknowledges that China's emerging middle class sees real estate as a store of value. To many, buying an apartment in Shanghai or Beijing is like buying a bar of gold. And many -- "too many," Chanos says -- have kept on buying as prices have gone up in the past five years.

Chanos's team, like a lot of other people, is trying to get a grip on just how many empty units there are in China. One prominent bear in China, independent economist Andy Xie, has put the amount at the equivalent of 15% of GDP. Chanos doesn't endorse that specific figure but believes "it's a big problem, and it's getting worse, not better, as more units come onstream."

Chanos: Right or wrong?

There's no question the speculative fervor in real estate has captured the Chinese government's attention. Last spring Beijing moved to stiffen financing requirements, and it is trying to limit the number of units any single investor can buy to two. For a time that did cool off the market. But Chanos points out that prices are rising again, and more than 30 million new apartments, villas, and houses are due to come onto the market next year. If the government intensifies its efforts to try to limit speculation, the market may turn down sooner than most think, Chanos believes. And if the government doesn't intensify the effort against speculators, "they'll just be climbing up a few more rungs on the diving board." Either way, he says, "they're going to end up in the same place." Consider Dubai, he says: At the peak of its building boom, there were 240 square meters of property under development for every $1 million in national GDP. In urban China today that ratio is four times as high. "We've seen this movie before," he says. Whether it was Dubai a couple of years ago, Thailand and Indonesia during the Asian crisis of the late '90s, or Tokyo circa 1989, "this always ends badly."

Chanos puts his money where his mouth is. Late last month he went before the Grant's Interest Rate Observer conference at the Plaza Hotel in Manhattan and not only made his case for being bearish on China, but ticked off individual stocks that he is shorting. Poly HK is one: a real estate developer that trades on the Hong Kong exchange (and a company that Goldman Sachs (GS) recommended as a buy as recently as last month). It's a state-owned company that started out as a defense contractor but, enticed by the real estate boom, has plunged in as a property developer. Chanos is also short the listing for the Hong Kong Stock Exchange. And he believes that China Merchants Bank, one of Beijing's largest, is deeply exposed to the financing affiliates of local governments throughout China. About 11% of its total loans outstanding, according to Chanos, are to these local financing affiliates (known as local government funding vehicles, or LGFVs).

Why does that matter? A key prop under the bullish case for China's real estate market is lack of leverage. The financial system is simply not going to be at risk, the thinking goes, even if there is a real estate bust. But Chanos believes the LGFVs are deeply exposed to property development, and that if there is a turn in the market, the pain felt by China Merchants Bank, as well as others, will be considerable. Victor Shih, a professor at Northwestern University, did a study earlier this year and concluded that these LGFVs accumulated $1.6 trillion in new debt from 2004 to 2009. As Chanos points out, China's own bank regulator has recently been moving to rein in local borrowing, after concluding that 26% of the outstanding debt is "high risk."

A downturn in China would have serious ripple effects throughout the world. Chanos believes the iron ore producers, and Brazilian giant Vale (VALE) in particular, will be victims. China's huge capital investment has required vast amounts of steel and other metals, and that in turn has made it the largest market in the world for iron ore. Vale traded in early November near a 52-week high, and its CEO, Roger Agnelli, recently boasted that he has the biggest fleet of ships in the world outside of the U.S. Navy. If you take Chanos's view of the world, that's not a good thing. As he put it, "They're going to have a lot of empty ships on their hands."

A case for the bulls

Short-sellers are generally derided until and unless they turn out to be right. So it is now. Sentiment about China is so optimistic that people think Chanos either has lost his mind or is somehow involved in a giant hip fake and can't really be serious. (For the record, he won't say how much of Kynikos's more than $1 billion under management is in play in China-related positions.) "Why do I go public with this?" he asks. "For the same reason I did with Enron. All the public ever hears is the longs. I have a case to make, and I have no hesitation making it. These are our convictions about China, and we're acting on them. So argue with me. We want to hear the counterarguments. Believe me, we do.''

Plenty of people are willing to take him up. The China bulls' case has many parts, but the most important is leverage -- or rather, the lack of it. Consider the gentleman -- his name is Cheng Yue Shi -- who told me that he owned 43 flats in and around Shanghai. He doesn't rent out any of them -- which is not uncommon in China; rents are cheap, and many owners therefore believe the time and hassle of being a landlord isn't worth it. And of the 43 units he owns, he paid for every single one of them -- not a single mortgage involved. According to a recent study by CLSA Asia Pacific Securities, the use of mortgages is increasing in China, but only 40% of all houses purchased are debt-financed. Even when they are, Chinese buyers typically have to put down 30% or more of the sales price.

No liar loans here. No securitization of mortgages. This is housing finance done the old-fashioned way: The buyers have skin in the game. The lack of leverage throughout the system should mean that even if there is a significant decline in real estate prices, the financial system in China is unlikely to be crippled.

Chanos argues that there is more debt held off the books in local financing vehicles than the bulls care to admit, and that bad loans, once the real estate market turns down, will pile up more quickly than most think. This is an area in which government regulators in China have acknowledged they need to get more information into the marketplace, but even with what's known publicly, the bulls simply disagree with Chanos. Arthur Kroeber, managing director of Gave- Kal Dragonomics, a Beijing-based economic consultancy, says the central government is already forcing local governments to scale back borrowing, and in fact has ordered closed several LGFVs that did not have enough revenue to service their loans from banks. "China's government debt," Kroeber says, "is clearly manageable."

The second component of the bullish case is straightforward: They say the combination of price spikes and overbuilding in Beijing and Shanghai simply gets too much attention. Andy Rothman, the chief China economist for CLSA, notes that the total amount of floor space bought in smaller, tier-three cities (where nearly 357 million people -- or 57% of China's urban population -- reside) has been slowly increasing as a percentage of the national total. And in those cities prices are up to 70% lower than they are in the four richest cities in the country: Beijing, Shanghai, Shenzhen, and Guangzhou. "There is no national housing bubble," Rothman asserts.

The guy who'll get China over the goal line

Personal income, moreover, continues to rise in China, as does consumption. In the first half of this year, real urban disposable income rose by more than 6%, on top of a 10% rise last year. "Rising incomes still support middle-class affordability," Rothman says. As a result, "it's the world's best consumption story."

Chanos's response to those two basic points is forthright: "It's an economy on steroids," he says. Just as Japan in the 1980s grew largely on the back of capital investment, eventually it has to stop. "Japan became a capital-destruction machine, and that's what China is now. You have an economy that's 60% fixed-asset investment, and not even in the developing world is that sustainable. It wasn't in Japan; it wasn't in Korea."

Chanos is agnostic as to the timing of when a serious China bust might come, nor does he have specific ideas as to what might trigger a downturn. He just believes it's coming. One possibility -- reflected by a steep stock market decline on Nov. 12 -- is that accelerating inflation may force China's central bank to tighten credit more quickly than expected, putting additional pressure on real estate developers.

I tell him toward the end of an interview that I, too, am invested in China, that in fact I'm long real estate. My wife and I bought a modest house in suburban Shanghai a few years ago, and, on paper anyway, we've done pretty well. Similar houses in our area have sold for considerably more than what we paid. He smiles and says, "Well, good luck with that."

In truth, I am still, relatively speaking, a China bull. But I live near the Rose and Ginko Valley development, and even before meeting Chanos, I must admit, each time I drove by it at night, I secretly wished I would see a few lights on. I still do -- now more than ever.

quote:

Op maandag 6 december 2010 23:53 schreef tjoptjop het volgende:
Ik las vandaag een leuk stukje over Jim Chanos in Fortune magazine. Gelukkig ook (aangepast) online te lezen

[..]

http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/

quote:

Op zondag 26 oktober 2008 07:19 schreef 68Chevelle het volgende:
Zoiets zouden de amerikanen zien als een directe oorlogsdreiging.
..................

quote:

Op dinsdag 7 december 2010 11:51 schreef icecreamfarmer_NL het volgende:

[..]

dit past hier ook goed bij:

http://historysquared.com(...)or-wears-no-clothes/

quote:

Op maandag 6 december 2010 23:53 schreef tjoptjop het volgende:

http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/

quote:

Op dinsdag 7 december 2010 21:30 schreef JimmyJames het volgende:

[..]

Bijzonder interessant stuk idd. Zitten er nog fokkers in China die dit soort verhalen first hand kunnen bevestigen?

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Op maandag 8 december 2008 08:22 schreef Netstorm het volgende:

Indd.. als ze hun marktpositie kwijtraken en verovereren ze het maar weer terug met nuke's. Zijn net kleine kinderen op de basisschool die de baas willen blijven