i'm curious to hear what you guys think about China right now
if europe, one of their main export destinations, is clearly going in at least a minor recession, us economic growth is consistently sluggish, and their property bubble is in the early stages of bursting, i fail to see how you can reasonably argue for a slowdown from 9-10% growth to 7-8% growth.
I'd argue they fall to about 4% but that's just my opinion
There's a lot of other factors that affects China's growth besides real estate. News just came out that China's manufacturing index - PMI has crossed the 50 point threshold from the previous months indicating that the demand and output will begin to rise over the industry. Have you also seen the demand for real-estate in China? It's still astronomical! I think the main reason it has slackened over the previous months was the peak prices from speculation. However if you read about the millions that move into the city each year + the more stringent down payments for real estate I think the whoopla about real-estate being in trouble is just a load of bull. Sure EU as a market might be ass over this year, but I'm betting that better conditions in the US, LATAM and South-East Asia will help. Equity markets will suck though I'm betting the bear market will continue.
^ this.
Chinese equity market painted very different pictures comparing with growth in China throughout last decade. I am optimistic about US equity market in 2012.
China's economy will be slower this year. I've heard anywhere from 4-5% real growth (HSBC's figure) to 7% (PIMCO's figure) down from expected of 8-8.5%.
For what it's worth I know some guys in REPE in China who are adamant that all the reports on a property bubble in China are predicated on faulty data points taken only out of Beijing and Shanghai (eg they compare the cost of an apartment in Beijing to the average income in China, when in reality the 'average' chinese worker has probably never even been to Beijing). They are pretty optimistic on housing in tier 2/3 cities.
From spending a decent amount of time in China I would agree with the earlier comments on the differences between China and the US. With the household savings rates and the difficulty in accessing credit there is basically no such thing as a subprime lending market in China. With the urbanization trends I don't think the demand is going anywhere either.
The difference between China and US is that the former has a much stronger political hand. One of the problem China faces is "Local Bonds", bonds written by local governments. As far as I know, a large portion of it can be wiped out "volunteerly". China is very different from western countries as you must think politically. The Party controls and deals a large portion of business, and the rest of it survives only because the Party allows it to do so.
An example: Many of the "Local gov bonds" are held by commercial banks. The Party controls both of the local governments and commercial banks, no question asked. And when questions ARE asked, prepare for "Local political storms".
what about the shadow banking system (trusts, etc)?
The government is gradually relaxing the monetary policy again. So I think shadow banking problem will be alleviated through the process.
A more important indicator to look at is the ratio of load to deposit. If the limit of this ratio is not lifted, the banks simply cannot loan more than permitted, and you can ignore every other "relaxing" policies.
Well, it's not that simple in China. People don't just follow the rules. That's why shadow banking exists. Banks may not lend that high reserve money, but they can write explicit/implicit guarantees, which essentially is a loan but disguised in derivative form parked in a subsidiary. Regulatory system is not great. Effect of monetary policy is somewhat compromised.
I think the projected 7-8% of growth in china is due to remembi not allowed to be freely traded. i would say at least half of the 7-8% growth is contributed by this currency-control policy.
7%-8% is a must for China (at least for a while), the reason is that 1 percent of GDP grows = 20 million jobs, and China's unofficial unemployment population is around 150-200 million. Do the math and you will understand why 8% is so important and why China is so adamant on this.
Another example of the world going the route of over education and under utilization. The amount of credentialism that exist in China in general is insane. They try and out educate each other, hoping to give themselves an edge to get into an entry level position at some Red Chip company or the government.
I see similar thing happening in the U.S. as well. I think there are definite structural issues with global labor pool and misallocation of resources.
^ wrong.
China produces intermediate goods, which means they at best import raw materials, and export products. Others times they just assemble for the final product and tech heavy parts are imported from Japan, Europe or the US.
When RMB appreciates, the media will make you think Chinese product would be more expansive. It is astonishing to see 'experts' fail to acknowledge the fact, when RMB appreciates, it will have higher purchasing power. It means they import raw material cheaper, they import tech heavy part for cheaper. That ultimately means the goods, China produces, will be cheaper, which largely offsets the currency effect.
So yeah, don't always let the media feed you bullshit, and do some original thinking.
The currency is called Renminbi, not 'remembi'.
i have a hard time believing that china has a handle on the shadow banking system
The shadow banking exists, because the credit is tight. Once credit is relaxed, then shadow banking doesn't have the reason to exist. Besides, like levelworm said, everything there is political. Banks are state owned. They can simply put the hammer down on those guys, once the size shrank.
Why is it so difficult to believe? I'd say it's extremely difficult to measure the exact scale the figure out all the threads, but at least they know what is happening and probably understand some of the details. I do not have direct proofs though, so I won't try convincing you guys.
Additionally, even if the shadow banking system collapses, I don't think the economy will collapse with it. Consider an example: In the last decades tons and tons of local gov bonds were issued, which I consider them as part of the shadow banking system (lots of illegal or semi-legal deals involved). The majority holders of these bonds are state-owned banks (some city bonds are indeed held by private banks). I ask you to think over this: Say that some of the local gov goes "broke"(You won't see this in the news but it actually happens), what do you think the central government will do?
double post, sorry for that
i agree that the shadow banking system is extremely hard to quantify but if you have negative real interest rates, and credit rationing that directs most of the it at gse's, my gut instinct would be that the shadow banking system is probably much larger than people suspect
when i read about 'trusts' that invest in property developers, local government selling land to support themselves, etc I think this reeks of ponzi finance. i think sooner or later one of these 'soft landings' is going to turn into a catastrophe. the circumstancial evidence is too strong eg. China has 3 of the world's 5 most profitable banks. this is exactly like japan right before their lost decade.
yes, the government can just print money. but their response has to be at least somewhat restrained, given their massively stimulative response to the last crisis. I think they clearly have to understand the dangers of overstimulating here.
it will be interesting to see how walk the line between overinflating/undersupporting the economy if things get bad
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