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Is China on the verge of a crash?

(I know who would like this.... for myself, I see predictions of Chinese crashes as reliable as predictions of the End of the World.
Sodomia delenda est

Certainly you are not talking about me, correct? :?

China's crash is going to be terrible to everyone, including us. But it is going to happen, sooner or later. And the more later, the harder it will be. It's false economic foundation, led by oriental style banking practices, is what is going to send it tumbling down. It is impossible to keep hiding poor investments, and sweeping it all under the rug. The only thing that keeps the Ponzi scheme going is the influx of cash, but eventually that runs out, and someone must pay the piper.

Personally, I am surprised they were able to keep it going this long.
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The article really does not say much, and backs up even less. Something with more foundation would be a better read.
[Image: SalmaHayekcopy.jpg]
Biker Dude Wrote:The article really does not say much, and backs up even less. Something with more foundation would be a better read.

This has been discussed, in vivid detail, on other links, over the last five years, that there is quite a bit lying around. You must have missed all of it?
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No, I simply did not then, nor now, see how one basically useless piece adds to it.
[Image: SalmaHayekcopy.jpg]
Biker Dude Wrote:No, I simply did not then, nor now, see how one basically useless piece adds to it.

Jim, During that 80s, when everyone was waxing poetic, about the coming ascension of the Rising Sun, there were others, writing 'useless' pieces about Japan's coming collapse.

I'm can imagine that, if you were the dedicated Professional Grinch you are today, you would have scoffed at it in your usual condescending manner.

But your opinion, no matter how skeptical(?), is greatly appreciated.
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If the pieces had been without facts or solely opinion pieces, yes I would have scoffed. Condescendingly even.
[Image: SalmaHayekcopy.jpg]
Biker Dude Wrote:If the pieces had been without facts or solely opinion pieces, yes I would have scoffed. Condescendingly even.

So, you are stating that you lack an 'imagination' gene? Wink1
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It would be closer to the truth to say that I am stating that pieces posted in and particular 'politics' section most likely should not require imagination.
[Image: SalmaHayekcopy.jpg]
I'm also surprised how China's financial assets have not crashed yet.
But bear in mind that they are living on huge stimulus spending: $586B the second largets economic bail out of the world after the US, and twice as much as all the EU countries combined.
China was far from being hit as bad as the US, but proportionaly to their econmy their stimulus package is at least as big.

What will happen when the stimulus ends?
They will start a new one and then again a new one. Probably the answer will be given when China will have exhausted their monatry surplus, and became indebted themselves.

The first impact of the Chinese crash will be a steep fall in US treasuries as China sells them to bail herself out.

Beside that I don't think that it will be a disaster for the world.
Well it will be a global market crash for sure, but not as bad as thecurrent financial crisis.
It will be a disaster for chinese and chinese funds and perhaps to banks highly exposed to China, but I think it will be limited to this country. Because only in China did we see such investment frenzy, overspending and overspeculation. Duba is a much smaller phenonmenon, mainly real estate based, not based on greed and speculation but on prestige and megalomania. Chinese contrary to Dubayis, have been investing heavily in stock and in about everything, not only real estates.
Contrarian Investor (short fund manager) Sees Economic Crash in China - article
Easy money didn't lead to our banking crisis,IMO.

Making bundled loans on mortgages predicated on ever rising property prices and AIG insurance if it didn't keep rising to people who could not be reasonably expected to pay the mortage fee was the main problem. That is ultra easy money.

I remain skeptical that China is going to "crash" and disagree Japan crashed. Japan is stuck in a deflation era,but,high unemployment is not so severe.

Still a tremenodusly wealthy nation.

I think China has greater odds of succeeding than failing myself.
No, Fred. I agree with Pal: Bundled toxic loans may look like the cause, but they are not. Sad to say, such a practice works as long as property values continually increase.

The mechanism that did the economic damage was falling property value that made loans toxic. This mechanism should have been prevented - and many tried to fix it, but were prevented from doing so.

The cause was investors pulling back funding to projects in all fields: Construction and manufacturing, primarily. The projects being suspended threw people out of work and mortgage payments could not be made. As empty homes glutted the market, their prices dropped and resales could not payoff the loans.

Now if you want to take a look at why the investors pulled back, you need to acknowledge the high energy prices at the time, and the attack on fiscal responsibility in politics, along with the threat that a socialist redistributive government would cancel any profits to be made by the investors. Investors didn't care about toxic loans, they cared about return on investment.
And I agree with the article. China is going to crash. It simply cannot sustain itself as an almost totally exclusive exporter, and prosper. With the US and many other parts of the developed world in economic down-turn, it depends upon consumers, who are not consuming.

Further, its banking practices are not sustainable. It cannot continue to hide bad loans under the rug, and not write them off the books, thus paying the temporary sour medicine.

As has been pointed out here, China relies almost exclusively on the cash cycle, and less goes into investment. Eventually, they must pay the piper, and the longer it is delayed, the greater will be the punishment.
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One point to think about is that China has a very interesting investment criterion built into its economy: Investors must be foreign. I read an economic piece a few years back that cited how Chinese investors had to hide their money in secret offshore accounts and hire an intermediiary to front for them to invest within their own country. It is fine for them to invest by buying up real estate or companies in the U.S., Britain, or elsewhere, but not at home. Yet foreign investors are invited in with open arms.

I wonder how a failure can occur when it would be the rest of the world failing first?
Bill, it is CHINA which should be doing the lion's share of its investing. If investors are spooked, they will halt investing. Right now, China is taking its cash and cycling it in such a way as to make it look good economically. But they have so many bad investments, such as SOBs(state owned businesses), that more of the cash cyle is going to covering up the losses.

It may look fine, but it really isn't. It's akin go someone, with excellent credit, who has many credit cards, with high limits. The person loses his/her job, and is forced to use the credit cards to maintain his/her lifestyle. This can go on for a long time, depending on the credit line. But the dept on the loans grow larger, and the scheme continues, until the person collapses economically. Right before the collapse, there are few signs of this, but when it happens, it is swift.
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One thing I've realized over the past 15 to 20 years is that it is simply unwise to take any economic report at face value.

There's nothing that replaces getting one's feet on the ground, looking around and talking to the locals. Governments write reports to make the incumbants look good. Private industry and individuals hide wealth from confiscatory governments. So, economic analyses derived from government data or from private concerns written for the benefit of the government (tax returns, revenue reports) can be rather misleading. The governments sources often make things appear better than they are, and the private sources make things look worst than they are.

The things I look for to get a feel for the real economy are:

Are the buildings well maintained or dilapidated?
Are the roads well maintained or filled with pot holes?
(The same for airports and train stations)
Do people have cars?
If people do have cars, are they new or are they mostly 20+ years old?
Do people have house appliances? (i.e. washing machines, dryers, dishwashers).

As has been discussed last year, I think China's headed for a big bust driven by the coming demographic crisis of an exceptionally top-heavy elderly population.

WmL and Palladin, I dodn't talk about the origin of the crisis and I don't want to talk with you about that anymore because we are turining in circles. But yet again:
Yes, the crisis was triggered by falling property prices but this is impossible to stop with a political decision. Talking about gov't interference in the market! And it's impossible to stop when there is a bubble. And there was a real estate bubble.

Then the bundled mortgage backed securities made things worse, 1/ by allowing the bubble to grow, 2/ by lying about the safety of the investment. Everybody thought they were super-safe and that's why so much money went in. Some poeple even didn't know they were invsting in real estate loans in some cases. 3/ By creating a snowballing effect which whiped out all the financial system. Poeple with not a cent invested in real estate or MBS lost their shirt because of the secondary effects. Poeple lost their jobs and GM went kaput etc.

To be back to the topic, IMO China is building up all the ingredient for that to happen again in their country. Ironicaly with measure supposed to stop the crisis. China may have huge surplus but their growth is artificial with all the icentives around.

I'm not sure you are right about Chinese not allowed to invest in China. There must be some investment pipelines reserved to foreigners, possibly, but Chinese still can and do by stocks and stuffs in China.
And Chinese are notorious for short sighted, sheep herded, inflated speculation.

Not only China has an export-based economy (which became more domestic consumer based only thanks to their disproportionate stimulus), China also built its fortune on the easiest way to do it.
They are cheaper. Doesn't make them competitive though.

China is the champion of what we call here facadism. Showcase towns for foreign investors while the rest of the country is still half in Middle age.
Fredledingue Wrote:...Showcase towns for foreign investors while the rest of the country is still half in Middle age.
You mean Potemkin Villages, neh?
Sort of.

The Olympic Games was a gigantic firework to attract investors. But they can't make an OG every 3 years.

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