OT - The absurdity of the Chinese miracle

[ziggy]

Watch these videos about China.  It just blows my mind.

The Worlds Largest Shopping Mall  (you don't have to watch the entire 12 minutes, you can get the idea pretty quickly, but some of this is really surreal)
http://video.pbs.org/video/1218530801/#

The City of Ordos  (Consider just how much this investment actually was.  We are talking hundreds of billions.  They say that most of the homes have been sold, but to whom?  One gov't agency buying from another)
http://www.youtube.com/watch?v=0h7V3Twb-Qk

[rickortreat]

Here we see excess in the Chinese system of economic direction. Politicians everywhere stay in office by promising people a better future. In China, progress is attached to GDP and they set an absurdly high target of 8% annual growth. (They feel they need this level of growth to keep the people placated as the economy still isn't large enough to employ them all.)

Economic mal-investment can occur under any type of system. In the US our speculation in real-estate has created a simillar bubble of vacant properties, they're just not all in the same place!

China is struggling to find ways to continue to develop it's economy without over-reliance on over-seas trade. This is good for the rest of the world, since many manufacturers find it difficult to compete with Chinese export firms.

IN the US the bulk of expenditures are controlled by the US government just as in China, and US financial subsidies are at work in nearly every aspect of the US economy. I imagine with adequate scrutiny eggregious examples of US waste are just as easy to find as in China!

[jemagee]

What's the Chinese Miracle?  I've never heard of any such thing

[ziggy]

What's the Chinese Miracle?  I've never heard of any such thing

10%+ growth for 20 years, the massive trade surplus, the manufacturer for the world.

Here is an EU Chamber of Commerce report on overcapacity in China.  Note the info starting on page 20.  The amount of excess capacity in China is beyond belief, and it will have ramifications for the entire world, and it will have major ramifications for the Chinese banking system.  Just like the two video's show the amount of mal-investment is mind blowing.  Note the way China supports the banks and manufacturers on the backs of savers.  This is exactly what we are doing now, and have done for the past 2-1/2 years, and what we did in 2002-2004, and what Japan has done for 20 years.  They/we need to flush the system of the mal-investments.  Instead they/we are supporting these by setting interest rates such that banks will make a huge margin, given their level of leverage.  This support is how we keep "zombie" banks from collapsing.  These bad debts linger for a very long time, but the banks are able to survive only by this intervention.

http://www.sambablog.ch/fileadmin/user_upload/Roland_Berger/20091120_Overcapacity_in_China_1_.pdf

[rickortreat]

What's the Chinese Miracle?  I've never heard of any such thing

10%+ growth for 20 years, the massive trade surplus, the manufacturer for the world.

Here is an EU Chamber of Commerce report on overcapacity in China.  Note the info starting on page 20.  The amount of excess capacity in China is beyond belief, and it will have ramifications for the entire world, and it will have major ramifications for the Chinese banking system.  Just like the two video's show the amount of mal-investment is mind blowing.  Note the way China supports the banks and manufacturers on the backs of savers.  This is exactly what we are doing now, and have done for the past 2-1/2 years, and what we did in 2002-2004, and what Japan has done for 20 years.  They/we need to flush the system of the mal-investments.  Instead they/we are supporting these by setting interest rates such that banks will make a huge margin, given their level of leverage.  This support is how we keep "zombie" banks from collapsing.  These bad debts linger for a very long time, but the banks are able to survive only by this intervention.

http://www.sambablog.ch/fileadmin/user_upload/Roland_Berger/20091120_Overcapacity_in_China_1_.pdf

You do realize this equals economic insanity, right? The only way to balance the system is for everyone to suddenly have the money to invest that they don't have! When asset prices disconnect from people's ability to pay, the asset prices have to be allowed to decline. Mal-investment often means taking a loss.  Governments supporting these prices only make matters worse, things are only worth their liquidation price in the free market.  In addition the overhang of supply, causes a slowing in economic activity.

[ziggy]

What's the Chinese Miracle?  I've never heard of any such thing

10%+ growth for 20 years, the massive trade surplus, the manufacturer for the world.

Here is an EU Chamber of Commerce report on overcapacity in China.  Note the info starting on page 20.  The amount of excess capacity in China is beyond belief, and it will have ramifications for the entire world, and it will have major ramifications for the Chinese banking system.  Just like the two video's show the amount of mal-investment is mind blowing.  Note the way China supports the banks and manufacturers on the backs of savers.  This is exactly what we are doing now, and have done for the past 2-1/2 years, and what we did in 2002-2004, and what Japan has done for 20 years.  They/we need to flush the system of the mal-investments.  Instead they/we are supporting these by setting interest rates such that banks will make a huge margin, given their level of leverage.  This support is how we keep "zombie" banks from collapsing.  These bad debts linger for a very long time, but the banks are able to survive only by this intervention.

http://www.sambablog.ch/fileadmin/user_upload/Roland_Berger/20091120_Overcapacity_in_China_1_.pdf

You do realize this equals economic insanity, right? The only way to balance the system is for everyone to suddenly have the money to invest that they don't have! When asset prices disconnect from people's ability to pay, the asset prices have to be allowed to decline. Mal-investment often means taking a loss.  Governments supporting these prices only make matters worse, things are only worth their liquidation price in the free market.  In addition the overhang of supply, causes a slowing in economic activity.

Of course I realize it is insanity Rick, why do you think I posted it?

[jn]

Did you see the story about the Chinese woman who just bought the world's most expensive dog?  She bought a Tibetan Mastiff for 350,000.00 Euros.   

[JoMal]

Did you see the story about the Chinese woman who just bought the world's most expensive dog?  She bought a Tibetan Mastiff for 350,000.00 Euros.   

That should make for a tasty stir-fry.

[rickortreat]

What's the Chinese Miracle?  I've never heard of any such thing

10%+ growth for 20 years, the massive trade surplus, the manufacturer for the world.

Here is an EU Chamber of Commerce report on overcapacity in China.  Note the info starting on page 20.  The amount of excess capacity in China is beyond belief, and it will have ramifications for the entire world, and it will have major ramifications for the Chinese banking system.  Just like the two video's show the amount of mal-investment is mind blowing.  Note the way China supports the banks and manufacturers on the backs of savers.  This is exactly what we are doing now, and have done for the past 2-1/2 years, and what we did in 2002-2004, and what Japan has done for 20 years.  They/we need to flush the system of the mal-investments.  Instead they/we are supporting these by setting interest rates such that banks will make a huge margin, given their level of leverage.  This support is how we keep "zombie" banks from collapsing.  These bad debts linger for a very long time, but the banks are able to survive only by this intervention.

http://www.sambablog.ch/fileadmin/user_upload/Roland_Berger/20091120_Overcapacity_in_China_1_.pdf

You do realize this equals economic insanity, right? The only way to balance the system is for everyone to suddenly have the money to invest that they don't have! When asset prices disconnect from people's ability to pay, the asset prices have to be allowed to decline. Mal-investment often means taking a loss.  Governments supporting these prices only make matters worse, things are only worth their liquidation price in the free market.  In addition the overhang of supply, causes a slowing in economic activity.

Of course I realize it is insanity Rick, why do you think I posted it?

I should have realized that anyone quoting Mises and Hayek are way ahead of the curve. I really meant that comment for everyone else.

[jemagee]

Did you see the story about the Chinese woman who just bought the world's most expensive dog?  She bought a Tibetan Mastiff for 350,000.00 Euros.   

That should make for a tasty stir-fry.

I thought she was Chinese, not Korean

[Reality]

I just invested big time in a Chinese global venture.

[ziggy]

Europe is not much better

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6913074/Eurozone-credit-contraction-accelerates.html

[ziggy]

Another bit of confirming information.
Excerpted from the South China Morning Post

http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=c0e9127e4bad5210VgnVCM100000360a0a0aRCRD&ss=China&s=News

Horror storys
Massive property lending, oversupply and plunging rents point to an asset crisis in China
Jack Rodman
Dec 30, 2009

Major cities around the world, hard hit from financial institution failures and consolidations, are reporting record high vacancy rates from 15 to 20 per cent and most analysts are forecasting a commercial mortgage loan crisis of between US$3 trillion and US$4 trillion as commercial mortgages mature and buildings generate insufficient cash flow to refinance these properties. .........

Most of this lending is policy-directed with an implicit government guarantee. Despite thousands of closed factories in South China resulting from the global financial crisis, and hundreds of empty office buildings, retail centres and hotels that are not meeting their debt service payments, banks are still not foreclosing on these properties nor calling the loans due.

The banks prefer to rollover or extend the loans to avoid having to report an increase in non-performing loans. It is not uncommon for Chinese banks to extend a loan for as much as one year without interest payments if the lender ?believes? the ultimate recovery value of the assets will be greater than the outstanding principal and interest. However, it is nearly impossible for a bank to value an empty office building, in a market with a reported vacancy rate nearing 40 per cent (30 to 40 million square feet) and declining rents.

Bank exposure to the real estate sector has been at the root of previous financial crises worldwide including the savings and loan crisis in the United States, Japan?s bubble economy, the Asian financial crisis, and now Dubai World. All these crises share in common aggressive and exuberant real estate lending, an abundance of liquidity and the false belief that real estate can only rise in value.  If total exposure to real estate secured loans was transparent within the Chinese banking sector, it would approach 40 per cent of total lending ? the same level of total loan exposure reached in Japan in 1989, when it was believed Japan would dominate the economic landscape for decades.