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End of the China bull?

Discussion in 'International Markets' started by Uncle Festivus, Feb 1, 2008.

  1. >Apocalypto<

    >Apocalypto< 20.03.2012

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    Can, like you I have spent some time in China, I was also of the opinion that the GFC would hammer the place. A Chinese mate told me the local economy is so strong it would carry it through with minimal damage.

    He was right I was wrong.

    My dad has done business with china for 15 years now, he was told be a manufacturing company there told him they were starting to have a labor shortage! yes a labor shortage in China! He could not find the right works with the experience he needed.

    I just about fell of my seat when I heard that.

    UF a civil war in china? Yeh right.:rolleyes:
     
  2. wildkactus

    wildkactus

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    Have been at meetings lately with a few main land factories and that is the same story they are telling me, things are not looking good After CNY this year for the return of workers to the Pearl River Delta, as there is a lot more jobs up north and west now, the workers don't have to travel as far to find good paying jobs

    The other thing is that a lot of the younger people don't want to work in the factories the same as their parents did, they all want the office jobs,

    The garment industry is in all sorts of trouble, as china is now getting to expensive for the low cost garment sector, they are moving the factories to indo, vietnam, Bangaladesh for the cheaper labour, plus these countries also attract the lower tarriffs.

    oh well i guess that's progress for ya,

    happy trading
     
  3. doctorj

    doctorj Hatchet Moderator

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    The contrarian call on China is starting to gain momentum. Hugh Hendry thinks the game is up...

    http://www.telegraph.co.uk/finance/...-warns-investors-infatution-is-misguided.html
     
  4. ducati916

    ducati916

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    From Bloomberg,

     
  5. Wysiwyg

    Wysiwyg Everyone wants money

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    If every country is in debt then who are the creditors?
     
  6. ducati916

    ducati916

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    Mr Printing Press

    jog on
    duc
     
  7. Aussiejeff

    Aussiejeff

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    Hey Duc..

    That "printing press" thingy sounds just the ticket.

    Know where I can pick one up cheap?

    ;)

    P.S. I tried to grow a "money tree" but it withered and died. Useless.


    aj
     
  8. Aussiejeff

    Aussiejeff

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    Speaking of yuans, it seems China is close to letting it rise 5% against other currencies.

    http://www.bloomberg.com/apps/news?pid=20601068&sid=aR0UEJblAXgc

    If so, what effect would such a 5% rise have on the cost of Chinese imports to Australia (a not insignificant part of our economy).

    I'm presuming prices on imported Chinese products would have to go up to cover the adjustment, thereby placing a bit more pressure on RBA's inflation targets??

    Sorry, I'm a dummy. :cool:
     
  9. Uncle Festivus

    Uncle Festivus

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    History never repeats?? They invented printing & paper money, so might as well put it to good use, as do their modern day financial counterparts........Helicopter Benny Berwanky


    Substitute "the Khan" for "the US Fed" and presto!

    Commodity glut & the second round of the GFC? Hard landing & reality for Australia?
     
  10. SirHenry

    SirHenry

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    Chinese exports dived by about 20% in 2009 so China is using it's foreign reserves to pump prime the economy. This strategy is similar to the spending policies of the Fed and European Central Banks except the Chinese don't have to borrow any money until their reserves run out. The problem for the Chinese is that they cannot convert to a consumer economy overnight. If the export market does not recover soon then they are in trouble and unfortunately for them growth rates in developed countries are likely to be lowish for the next few years so a pull back is likely. That means lower commodity prices.
     
  11. ducati916

    ducati916

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    Sir,

    The Chinese problem goes far deeper than that. The reserves that you speak of were sterilised inflows: viz. America buys $100 of Chinese goods, buys $100 of Yuan to pay for purchased goods. Chinese government, print Yuan to re-purchase $100 and [sterilise] purchase US Treasury Paper.

    In this way, exchange rates are stabilised, or, pegged. Chinese monetary policy therefore becomes Federal Reserve Monetary policy, hence, China inflates.

    Thus Chinese foregin reserves, are only fiat currency, which are only liabilities. Fiat currency is not an asset. It cannot extinguish debt. Therefore to reduce the debt burden in real terms, further inflation is created.

    jog on
    duc
     
  12. ducati916

    ducati916

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    By Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0 and Yves Smith

    Conventional wisdom holds that the Chinese are due (as in overdue) for a revaluation of their currency, the renminbi. For instance, a recent report from Goldman argues that China will raise the value of the RMB against the dollar by 5% this year. The argument is that the move is needed to slow down an overheating economy.

    But to a large degree, whether you agree with that as a remedy depends on what one’s reading is not just of China’s notoriously misleading statistics, but of the underlying growth dynamics, which are well out of bounds of any previous pattern, and not in a good way, either.

    We question whether a revaluation is the right answer for them, and more important, whether the Chinese themselves see a revaluation as a plus. The government has engineered an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years’ growth in credit in the previous Chinese bubble. The increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilised resources. Add to this the fact that China simultaneously is providing massive fiscal stimulus.

    This combination is the making of a very messy situation. If China seeks to sustain demand via fiscal policy, the result is likely to be a big inflation problem. With many Chinese students steeped in Chicago School monetary theory coming home and assuming positions of authority, they could push for an aggressive, Paul Volcker-style effort to stop inflation.

    But, what if the they don’t? Inflation can take off and thereby begin to ERODE the competitiveness of Chinese exports. Nouriel Roubini pointed out this issue in 2007: if China didn’t revalue, inflation would do the trick regardless. A continued high rate of inflation relative to its trade partners would push up the price of goods in home currency terms, which in turn translates into higher export prices. This might be the real reason why China is so reticent to revalue its currency. The Americans might go crazy if the Chinese devalued, but if the inflation is high enough, they might have to do it, as it will severely erode their terms of trade and cause their tradeables sector to collapse.

    Or the hard-line monetarists triumphing by fighting inflation and the result is riots as unemployment increases.

    It could get very ugly.

    This could be happening now in China, although this is the opposite of prevailing views. The consensus is that inflation is a couple per cent and even that is largely due to higher pork prices thanks to a lousy corn harvest.

    However, economists such as those at Lombard Street in the UK, Jim Walker, Simon Hunt and the like try to figure out the changes quarter to quarter in Chinese nominal GDP which is reported only year on year. And they come up with giant double digit growth rates for the second half of last year.

    Now this is complicated by the fact that the Chinese have revised up their GDP numbers and they put all the revisions into the final quarter of the year. But when these analysts try to adjust for that statistical screw up they still come up with giant nominal GDP increases. Lombard Street thinks it was twenty five per cent or so in the second half of last year. They think it was twenty per cent real and five per cent inflation.

    Economies of any size never grow at a twenty per cent real rate. And Simon Hunt says if you look at proxies like power output and rail traffic you don’t get those kinds of numbers for real growth, which suggests that inflation must be higher than four or five per cent. In general, if a real GDP figure looks sus, the first figure you examine critically is the GDP deflator.

    So some evidence suggests that China’s inflation could already be at a double digit level. It is hard to say. But if it is that high, then the resultant inflation will cause a real revaluation of the trade weighted exchange rate.

    And more so if the dollar rallies. That could well crush the volume of exports and the profitability of the industrial tradeables sector. Exports are the only area where China makes any kind of money because they can sell these products for about 10 times what they obtain for a comparable product in the domestic economy (where profits are virtually nil). The export sector is a big contributor to overall super excessive fixed investment in China. Dollar appreaciation means foreign direct investment will go to zero net.

    There will be strong forces for a reduction in fixed investment in this large sector. Hence, there is a good chance that even without monetary tightening by the Chinese authorities, the overall fixed investment boom in China will turn down.

    Nobody is thinking about this scenario but it is a real possibility. And with fixed investment now at fifty per cent of GDP (which is unprecedented in any economy) and exports at more than thirty, we’re looking at ratios that have never been reached before on a combined basis. Before readers argue that China can support that level of investment, consider the views of Professor Yu Yongding, who some analysts believe is China’s best macroeconomist. As reported in the Sydney Morning Herald:

    Yu, the recently retired director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, did not explicitly say I was barking mad. But his email continued: “When a country has an investment rate over 50 per cent [of] GDP and rising, you say this country is not suffering from overcapacity! … are you serious? ”To judge whether there is overcapacity you cannot just do a head account. With a 1.3 billion population and human greed, China’s needs are unlimited, you can say that China will never suffer from overcapacity!”

    The email noted that, on my logic, no developing country could ever suffer from overcapacity until it became rich and that the world should never have suffered a Great Depression in 1929.

    Since that salutary critique, Yu has elaborated further on his views.

    He believes China is trapped in a cycle where constantly rising growth in investment is constantly increasing China’s supply, but consumption has conspicuously failed to grow fast enough to absorb it. And so China is forced to increase investment in order to provide enough demand to absorb the previous round of increased supply, thus creating ever-widening cycles of oversupply.

    In this manner, the investment share of gross domestic product has increased from a quarter of GDP in 2001 to at least half. “There is sort of a chase – demand chasing supply and then more demand is needed to chase more supply,” he says. “This is of course an unsustainable process.”

    From 2005 China’s overcapacity problem had been “concealed” by ever-increasing net exports – but that strategy was interrupted by the financial crisis. Then came last year’s globally unprecedented stimulus-investment binge, which might not have been so worrying if it were delivering things that people needed. But the Government’s hand in resource allocation has grown heavier since the crisis without reforms to make officials more responsible for what they spend.

    “As a result of the institutional arrangements in China, local governments have an insatiable appetite for grandiose investment projects and sub-optimal allocation of resources,” as Yu previously said, in his Richard Snape lecture for the Productivity Commission in November.

    So there are now airports without towns, highways and high-speed railways running parallel, and towns where peasants are building houses for no reason other than to tear them down again because they know that will earn them more compensation when the local government inevitably appropriates their land.

    Reducing investment and exports could create a severe recession in China. China has gone too far this time. They appear to be in a box that they and others don’t recognize. The “Black Swan” event this year, as far as China true believers are concerned, could well be a devaluation of the RMB. Were that to happen, the political consequences could be as significant as the economic.
     
  13. Trembling Hand

    Trembling Hand Can be found on the bid

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    Of course the real question is how the hell are they going to do it? The often thrown around line of about 25% undervalued is a huge amount. How do you go from that level without causing huge problems if you move too fast?

    But then if you start to do it slowly you have signaled before hand a HUGE winning trade to all those nasty greedy speculators :)D) what your moves are and they will cause just as many problems.

    They are in trouble on this one. Which of course is what capitalise would always predict but all the Capo's have relied on the Como's to keep their half baked Capitalism system alive.
     
  14. Aussiejeff

    Aussiejeff

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    Strange bedfellows indeed, TH.

    Dr Strangelove himself could not have written a more intriguing script... which predictably ends with???? :eek:

    Nah.

    No worries.

    $hit could NEVER happen.

    China is waaaaaay too big to fail.

    Now, where have I heard that altruism before?

    Party on,


    aj
     
  15. Trembling Hand

    Trembling Hand Can be found on the bid

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    capitalise = Capitalism - you get my drift!? :eek:
     
  16. Uncle Festivus

    Uncle Festivus

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    Building a city for un-present residents?

    http://www.time.com/time/photogallery/0,29307,1975397_2094492,00.html


    ordos_01.jpg

    To be consumed by nature?

    ordos_13.jpg
     

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  17. Bushman

    Bushman

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    Reminds me of a recent visit to Malaysia and a tour through some of the new cities created during the last boom. Acre after acre of empty duplex housing amongst the palm oil groves.

    Then again, our very own BER is building unwanted school annexes and halls at 10x the market cost. :rolleyes:
     
  18. vincent191

    vincent191

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    Very educated and knowledgable people talk about monetary policies and fiscal policies in China but no one is talking about a lesser known economic policy call MORAL PERSUASION. Essentially all this entails is simply the Government tell the people what to do.

    I have observed this personally and seen the results with my own eyes. During the worst of the GFC last year when China's exports were falling and they needed to boost domestic demand and spending to stimulate the economy. The Government just "simply" told the people to go out and SPEND.

    The shopping centres and holiday places were PACKED. When I asked the locals, not just one but a few in the different places, how come it is so packed, the reply was "the people are obeying the Government's instructions to go out and spend".

    Many Westerners are not familiar with the workings of a Central Planned Economy - Communism. Under a communist regime the general populace have been conditioned to "do as they are told" and the majority generally follows those instructions in a manner that most Westerners call "blindly".

    I am not here to past value judgement as to the pros and cons of communism rather I am trying to point out a very effective policy that most Western observers have missed. With 1.3 billion domestic consumers, this gives them a very powerful tool to "spend their way out of trouble" without the Government clocking up a huge big deficit.

    Contrast this with the US and Australia's expensive efforts to get their people to spend their way out of trouble.
     
  19. drsmith

    drsmith

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    Whether it's on the government balance sheet or the individual credit card, debt is still debt.
     
  20. greebly24

    greebly24

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    "40% of the world's population has a great plan to get rich by selling stuff to 14% of the world's population," Napier observed. "That can work for several years, and it has - particularly if 14% of the world's population is prepared to gear like crazy to buy all of this stuff."

    Not sure where I read this, but it's food for thought.
     
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