China the blowback.......

quote:

Op zaterdag 10 september 2011 16:41 schreef Sloggi het volgende:
Wie gaat al die mensen te eten geven, vraag ik me dan af. 500 miljoen mensen van het platteland naar de stad betekent dus een flinke vermindering van de voedselproductie.

Probleem is alleen dat die boeren geen geld hebben, dus hoe kunnen die kopen..... subprime the Chineese way ?

China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear

Here is an interesting email from reader "Kevin" regarding the crashing loan-shark market in China.
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Hello Mish

I am a long time reader and want to bring to your attention on a new development in China: private business owners are disappearing or jumping off buildings because they can no longer pay off black market shark loans.

According to national new paper Economics Information (part of state media Xinhua), on 9/22, Hu Fulin, owner of the biggest eyeglass manufacture of the city of Wenzhou disappeared, leaving behind 2 billion RMB debt.

On 9/25, 3 more business owners in Wenzhou disappeared (owners of copper, steel and shoe manufacture).

On 9/27, owner of "Zhengdeli", a shoe manufacture jumped off of a 22 story building and killed himself.

Since April this year 29 private business owners have disappeared, all of them had over 100 million RMB businesses. 11 of the 29 owned shoe manufacturing businesses.

An analyst from China Investment (China's Sovereign investment fund) pointed out that it's because they are squeezed by a rapid increase of component and labor costs. A rising RMB is also a reason why many export oriented companies are hit. In August, Zhou Dewen, President of Wenzhou Small-Medium Business Development Association said the profit margin of Small-Medium businesses in Wenzhou has dropped to under 5% and absent of policy changes, 40% of businesses in Wenzhou will go out of business by next Spring Festival (late Jan 2012)

The complete article is here (in Chinese): http://www.jjckb.cn/2011-09/29/content_334954.htm.

Another article http://finance.sina.com.cn/roll/20110929/005910558780.shtml (titled: China's Shark Loans Crashing; "Grey Finance" Brewing the Chinese Crisis) states that most of those owners have borrowed "private" loans (typically 70% of all loans), with MONTHLY interest rate ranging from 3% to 10%.

About 89% of families/individuals and 59% of companies in Wenzhou participated in such "private loan" schemes. In Erdos (the ghost city you blogged many times), such "private loans" are more than 200 billion RMB with annual interest rate over 60%. Now they are crashing, causing rampant unfinished real estate projects in Erdos.

Note that Wenzhou is one of riches cities in China (No. 3 in disposable income per capita), and is considered the "Birthplace of China's Private Economy". Wenzhou people are among the first that got in trades, manufacturing, export, and in recent years real estate investment/speculation. The Wenzhou economy is considered the "weathercock" of Chinese economy.
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Loan Shark Credit Crisis Brewing

Courtesy of Google Translate please consider Gray Chinese-style financial credit crisis brewing area

"Economic Information Daily" correspondent from the multi-confirmed the day before and then there were two causes of Wenzhou City, inability to repay loan sharks and jumping events. According to informed sources, the two business owners are the local shoe factory owner, debt of millions.

Since April this year, Wenzhou, missing more than 80 business owners, the company closed, the event staff pay talks, since September alone, there are up to 25 cases. A local lender told reporters, "At present, only the flight of capital Longwan area estimated to have 100 million or more, many SMEs liabilities, the banks accounted for 30%, accounting for 70% civil usury."

Crazy expansion of private lending market chaos

Some sharks can reach up to 180% per annum. ... "many companies debt snowball, private lending market has not been given attention now has about 25% local to 30% of companies in trouble, some in the suspension or semi-shutdown state, but by the end of this class companies are more likely accounted for 40% to 50%. "

Financial Earthquake Triggered by Loan Shark Business

Also courtesy of Google Translate, please consider loan-sharking business owners who jumped to escape

September 22, Wenzhou, Zhejiang Jiang Xintai largest optical company chairman Hu Fulin liabilities 2 billion fled, triggering a major earthquake Wenzhou business. Wenzhou Zhou German SME Development Association president, said Hu Fulin liabilities involving nearly ten thousand people, dozens of companies, including upstream and downstream Nobuyasu and creditors, the incident is still fermenting, the impact will be further expanded.

Hu Fulin fled after the September 25 Wenzhou enterprises have three big boss fled; afternoon of September 27, Wenzhou shoe boss is profit because of debt problems from Wenzhou Shun Building, 22 Floor, Jin jumped to death.

The translations are choppy, but the ideas very easy to spot.

$SSEC - Shanghai Exchange -Daily Chart



China is down another 1% (not reflected in the above chart), to 2368 as of 2:00 AM Thursday. It closed at 2365.

The Shanghai stock market depicts a credit bubble that collapsed in 2008, partially rebounded, and is sinking once again.

China did not decouple from the global economy, nor is there any reason to believe it will, or should. China's debt bubble, housing bubble, and copper Ponzi financing schemes are collapsing.
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Owke.... feest in China dus.

Property Prices Collapse in China. Is This a Crash?

Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

What started slowly in September turned into a rout by the middle of last month—normally a good period for sales—when Shanghai developers started to slash asking prices. Analysts then expected falling property values to move Premier Wen Jiabao to relax tightening measures, such as increases in mortgage rates and prohibitions on second-home purchases, intended to cool the market.

They were wrong. After a State Council meeting on October 29, Mr. Wen affirmed his policy, stating that local authorities should continue to “strictly implement the central government’s real estate policies in the coming months to let citizens see the results of the curbs.” Then, the selling began in earnest as “desperate” developers competed among themselves to unload inventory. One builder—Excellence Group—even said it would sell flats in Huizhou at its development cost.

Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.

When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse. In any event, the markets are bracing for trouble. Investors are dumping both the bonds and the shares of Chinese developers, and legendary bear Jim Chanos, citing the property market, late last month said he is still not covering his short positions on China.

One does not have to agree that China will be “Dubai times 1,000—or worse”—Chanos’s memorable phrase—to understand that the unwinding of “the biggest housing bubble ever created” will be especially painful. Analysts have great confidence in Beijing’s technocrats because they managed to continue to manufacture growth through the global downturn, but most of us seem to forget that the Chinese, through massive stimulus, created even bigger challenges for themselves. At the moment, Beijing has yet to resolve two intractable problems: persistent inflation and artificially high property prices.

The dominant narrative at the moment is that China’s economic managers will skillfully deflate the property bubble and land the economy softly. As Time observes, “Many observers say a sharp economic decline won’t be permitted to happen before the change of leadership in 2012.”

Won’t be permitted? It is true that Beijing’s technocrats have had the advantage of working in a semi-closed system that has allowed them to use the considerable resources of the state to achieve outcomes not possible in freer economies. Nonetheless, they can continue to do so—in other words, defy economic principles—only as long as market participants—in this case builders, local officials, and homeowners—cooperate.

The last four weeks, however, must have been a sobering period for Premier Wen, and not only because developers began to lose their nerve. For one thing, recent purchasers have taken to the streets because they had suffered losses even before taking possession of their homes. A crowd of about 300 people in Shanghai smashed windows at the sales office of Longfor Properties on October 22, two days after the builder had ended a sales promotion on a project. The protestors had bought properties in earlier phases of the same project at prices as much as 30% higher than the discounted ones.

And then, on the 23rd, a smaller crowd—on the same street—demonstrated against another developer, Greenland Group. Protesters were injured in Shanghai at another demonstration, this time against a unit of China Overseas Holdings. There were also protests against builders in Beijing and in other cities, Hangzhou and Nanjing.

The cities of Hangzhou and Hefei have reportedly told developers to limit discounts to 20% to avoid unrest, but the attempt to establish fiat prices will not work for long because many builders face insolvency.

Moreover, Premier Wen has to be concerned that sometimes he cannot control his own cities, which have flouted his decrees by removing curbs on property ownership. Nanjing defied Beijing and relaxed mortgage rules, as did Anhui province. At least in Foshan, a city in Guangdong, central authorities apparently convinced local leaders to rescind their earlier decision to scrap centrally mandated curbs.

The overriding reality is that, because of Beijing’s stimulus spending, there are too many properties and not enough buyers at this time. The market will have to arrive at equilibrium at some point, but what is surprising is the rapidity at which this is now happening. In common parlance, it’s called a crash.

One does not have to agree that China will be “Dubai times 1,000—or worse”

Fake Disneyland

China’s deserted fake Disneyland
Dec 12, 2011 11:52 EST

By David Gray

Along the road to one of China’s most famous tourist landmarks – the Great Wall of China – sits what could potentially have been another such tourist destination, but now stands as an example of modern-day China and the problems facing it.

Situated on an area of around 100 acres, and 45 minutes drive from the center of Beijing, are the ruins of ‘Wonderland’. Construction stopped more than a decade ago, with developers promoting it as ‘the largest amusement park in Asia’. Funds were withdrawn due to disagreements over property prices with the local government and farmers. So what is left are the skeletal remains of a palace, a castle, and the steel beams of what could have been an indoor playground in the middle of a corn field.

Pulling off the expressway and into the car park, I expected to be stopped by the usual confrontational security guards. But there was absolutely no one to be seen. I walked through one of the few entrances not boarded up, and instantly started coughing. In front of me were large empty rooms and discarded furniture, all covered in a thick layer of dust, along with an eerie silence that gave the place a haunted feeling – an emotion not normally associated with a children’s playground.

Once outside again, I came across some farmers who originally owned the land and are now using it to once again to grow their crops. Their tracks and plantations can be seen running through and surrounding the uncompleted buildings. Walking further, I came across a rather farcical sight of some farmers digging a well next to a castle; a moment I will always savor as a photographer in a place like China where castles are not in huge supply. I explained this to the farmers and they just shrugged their shoulders, oblivious to a photographer’s happiness. I asked them what happened, and they simply answered the developers ran out of money, and they are getting back to doing what they do best. They are even slowly starting to plant trees and build shelters near the buildings, adding they think it is now safe to think the developers are never coming back. This I can believe, as the absence of any security (something very rare in China) leads one to think that even the developers have given up on what is already there.

All these structures of rusting steel and decaying cement, are another sad example of property development in China involving wasted money, wasted resources and the uprooting of farmers and their families. It is a reflection of the country’s property market which many analysts say the government must keep tightening steps in place. The worry is a massive increase in inflation and a speculative bubble that might burst, considering that property sales contribute to around 10 percent of China’s growth.

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Crash in Progress, Pollyannas Proven Wrong

China's property bubble is clearly in free-fall. Just as happened in the United States, developers are offering "free" cars, BMW's no less, for those willing to take the plunge.

The numerous Pollyannas who said this would not happen have been proven wrong. China did not "decouple" and home prices cannot stay elevated over wages and rental prices forever.

China's epic hangover begins

China's credit bubble has finally popped. The property market is swinging wildly from boom to bust, the cautionary exhibit of a BRIC's dream that is at last coming down to earth with a thud.

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, as much in real terms as Wall Street from 1929 to 1933.

It is hard to obtain good data in China, but something is wrong when the country's Homelink property website can report that new home prices in Beijing fell 35pc in November from the month before. If this is remotely true, the calibrated soft-landing intended by Chinese authorities has gone badly wrong and risks spinning out of control.

The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains.

The question is whether the People's Bank can do any better than the US Federal Reserve or Bank of Japan at deflating a credit bubble.

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.

"Investors are massively underestimating the risk of a hard-landing in China, and indeed other BRICS (Brazil, Russia, India, China)... a 'Bloody Ridiculous Investment Concept' in my view," said Albert Edwards at Societe Generale.
contracts as global demand slows

"The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow."

"There is so much spare capacity that they will start dumping goods, risking a deflation shock for the rest of the world. It no surpise that China has just imposed tariffs on imports of GM cars. I think it is highly likely that China will devalue the yuan next year, risking a trade war," he said.

China's $3.2 trillion foreign reserves have been falling for three months despite the trade surplus. Hot money is flowing out of the country. "One-way capital inflow or one-way bets on a yuan rise have become history. Our foreign reserves are basically falling every day," said Li Yang, a former central bank rate-setter.

The reserve loss acts as a form of monetary tightening, exactly the opposite of the effect during the boom. The reserves cannot be tapped to prop up China's internal banking system. To do so would mean repatriating the money – now in US Treasuries and European bonds – pushing up the yuan at the worst moment.

The economy is badly out of kilter. Consumption has fallen from 48pc to 36pc of GDP since the late 1990s. Investment has risen to 50pc of GDP. This is off the charts, even by the standards of Japan, Korea or Tawian during their catch-up spurts. Nothing like it has been seen before in modern times.

Fitch Ratings said China is hooked on credit, but deriving ever less punch from each dose. An extra dollar in loans increased GDP by $0.77 in 2007. It is $0.44 in 2011. "The reality is that China's economy today requires significantly more financing to achieve the same level of growth as in the past," said China analyst Charlene Chu.

Ms Chu warned that there had been a "massive build-up in leverage" and fears a "fundamental, structural erosion" in the banking system that differs from past downturns. "For the first time, a large number of Chinese banks are beginning to face cash pressures. The forthcoming wave of asset quality issues has the potential to become uglier than in previous episodes".

Investors had thought China was immune to a property crash because mortgage finance is just 19pc of GDP. Wealthy Chinese often buy two, three or more flats with cash to park money because they cannot invest overseas and bank deposit rates have been minus 3pc in real terms this year.

But with price to income levels reaching nosebleed levels of 18 in East coast cities, it is clear that appartments – often left empty – have themselves become a momentum trade.

Professor Patrick Chovanec from Beijing's Tsinghua School of Economics said China's property downturn began in earnest in August when construction firms reported that unsold inventories had reached $50bn. It has now turned into "a spiral of downward expectations".

A fire-sale is under way in coastal cities, with Shanghai developers slashing prices 25pc in November – much to the fury of earlier buyers, who expect refunds. This is spreading. Property sales have fallen 70pc in the inland city of Changsa. Prices have reportedly dropped 70pc in the "ghost city" of Ordos in Inner Mongolia. China Real Estate Index reports that prices dropped by just 0.3pc in the top 100 cities last month, but this looks like a lagging indicator. Meanwhile, the slowdown is creeping into core industries. Steel output has buckled.

Beijing was able to counter the global crunch in 2008-2009 by unleashing credit, acting as a shock absorber for the whole world. It is doubtful that Beijing can pull off this trick a second time.

"If investors go for growth at all costs again they are likely to find that it works even less than before and inflation returns quickly with a vengeance," said Diana Choyleva from Lombard Street Research.

The International Monetary Fund's Zhu Min says loans have doubled to almost 200pc of GDP over the last five years, including off-books lending.

This is roughly twice the intensity of credit growth in the five years preceeding Japan's Nikkei bubble in the late 1980s or the US housing bubble from 2002 to 2007. Each of these booms saw loan growth of near 50 percentage points of GDP.

The IMF said in November that lenders face a "steady build-up of financial sector vulnerabilities", warning if hit with multiple shocks, "the banking system could be severely impacted".

Mark Williams from Capital Economics said the great hope was that China would use its credit spree after 2008 to buy time, switching from chronic over-investment to consumer-led growth. "It hasn't work out as planned. The next few weeks are likely to reveal how little progress has been made. China may ride out the storm over the next few months, but the dangers of over-capacity and bad debt will only intensify".

In truth, China faces an epic deleveraging hangover, like the rest of us.
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'Chinese beleggers halen banken leeg'

SJANGHAI - Chinese beleggers hebben in de eerste 10 dagen van december honderden miljarden yuans van rekeningen bij Chinese banken gehaald.



Ze zouden teleurgesteld zijn dat de koers van de yuan niet stijgt en daarom hun geld wegsluizen.

De banken zagen in totaal 400 miljard yuan (48 miljard euro) weggehaald worden, waarvan de helft van rekeningen van de Bank of China, aldus de krant 21st Century Business Herald vrijdag.

Door de recessie in de eurozone en de moeilijke economische omstandigheden in de Verenigde Staten krijgt de Chinese export het moeilijker. Een duurdere yuan zou die problemen alleen maar versterken, zodat wordt verwacht dat Chinese beleidsmakers willen voorkomen dat de koers van de yuan verder stijgt.

Dollars

De investeerders, die hadden gerekend op een stijgende yuan en deze daarom hadden aangekocht, zien hun gedroomde koerswinsten nu in rook opgaan en ruilen hun yuans daarom massaal in voor dollars.

Deze valuta wordt door de onzekere vooruitzichten voor de wereldeconomie nu als veilige haven beschouwd.

De opname van de honderden miljarden yuans lijkt invloed te hebben op de kredietverlening in China. Tijdens de eerste 10 dagen van december gaven de vier grootste Chinese banken slechts voor 30 miljard yuan aan leningen. In de gehele maand november werd nog voor ruim 560 miljard yuan aan krediet verleend.
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