The following was seen at an Arizona Sprouts market:
Not quite the Grauniad, but as any bureaucrat would say, “Good Enough for Government Work!” In any case, we have to watch what we buy from any store these days. To wit:
This Fund Manager is putting his money where his mouth is, again;
Hedge fund manager Mark Hart bets on China as the next ‘enormous credit bubble’ to burst
Mark Hart, an American hedge fund manager who has made millions predicting the crises in US sub-prime market and European debt, has launched a fund to bet on the imminent implosion of China.
Mr Hart, who runs Corriente Advisors from Fort Worth Texas, has told potential investors in a presentation that China is in the “late stages of an enormous credit bubble”.
When this bursts, the financier said he expects an “economic fall-out” that will be as “extraordinary as China’s economic out-performance over the last decade”.
“Complacency among market participants regarding China is eerily similar to the complacency exhibited prior to the United States sub-prime crisis and European sovereign debt crisis.”
Well, he has a great track record…and it’s a million dollars to get into the fund…so waht data is he basing this bet on? From the article:
In the presentation, which amounts to a devastating attack on the prevailing belief that China is an engine for growth, the financier argues that “inappropriately low interest rates and an artificially suppressed exchange rate” have created dangerous bubbles in sectors including:
Raw materials: Corriente says China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan’s total production so far this year.
Property construction: Corriente reckons there is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year.
Property prices: The average price-to-rent ratio of China’s eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis. Corriente argues: “Lacking alternative investment options, Chinese corporates, households and government entities have invested excess liquidity in the property markets, driving home prices to unsustainable levels.” The result is that the property is out of reach for the majority of ordinary Chinese.
Banking: As with the credit crisis in the West, the banks’ exposure to the infrastructure credit bubbles isn’t obvious because the debt is held in Local Investment Companies – shell entities which borrow from Chinese banks and invest in fixed assets.
Mr Hart reckons that “bad loans will equal 98pc of total bank equity if LIC owned, non-cashflow producing assets are recognized as non-performing.
As a final blow, Mr Hart says that the market belief that the Chinese government has “ample resources” to bail out its banks is flawed.
Corriente’s analysis of the ratio of China government debt to GDP comes out at 107pc – five times higher than official published numbers. The hedge fund says this number uses “conservative assumptions” and the real figure could be as high as 200pc.
The result is that, rather than being the “key engine for global growth”, China is an “enormous tail-risk.”
He is so convinced by his arguments that he has warned investors that the fund, called the China Opportunity Master Fund, is prepared to “burn” 20pc of their cash each year until his theories are proved.
Well, Mr Hart is calling the Chinese a pack of liars more or less. I can’t say that i disagree with him on this topic. If his debt/GDP analysis is correct, the Chinese are not only in really big trouble, they would also then be rather hypocritical in bashing the US for the same thing…debt. The above factors will be well worth watching as the Chinese economy unwinds.
This video shows what will happen in America keeps up on its present course.
It always seemed to me that China and their amazing growth numbers seemed somewhat questionable. I have always had a sneaking suspicion that the Chinese would run out of steam just like the Japanese did in the late 1980’s. So now there is some evidence that the Chinese ‘miracle’ may come to an end after 30 years of growth:
BEIJING — Three numbers should suffice to give Chinese economic policymakers a sleepless night: 65.4 million, $28.7 billion and $2.45 trillion.
In order, they are the estimate by a government researcher of how many apartments stand vacant in China, many of them bought as speculative investments; the country’s trade surplus in July; and the international reserves the central bank has accumulated by buying dollars to hold down the yuan.
Together, they encapsulate the distortions of an economy that favors investment by suppressing the cost of capital and other inputs at the expense of consumers, whose spending power is held down by low wages and low deposit rates.
Unable to sell at home all that it produces, China exports the rest…
…This template has powered 30 years of headlong growth that is catapulting China past Japan to become the world’s largest economy after the United States.
But it is a formula that Beijing readily agrees is unsustainable: China needs to rely more on household spending, especially as its export prospects are darkening now that the West is tightening its belt to purge excess debt.
Many experts are confident that a pragmatic China will succeed in making the transition in the coming decade to a new growth model anchored by urban-based consumption, technological upgrading and a greater role for market forces.
Please, read the rest, its an excellent article!
Buy buying dollars, the Chinese have managed to hold down the value of their Yuan. By forcing the value of the Yuan down, this makes exports, especially to the US, cheaper and more marketable. In effect, this is the Chinese exporting unemployment. The problem with an imbalance as noted in the article is that as the West and America tighten their belts and consume less, the export market in China can crash, leading to unemployment and other economic problems. The trick for the Chinese is to increase domestic consumption, which is going to be a problem because of the resistance of the entrenched interests and the desire of the Party to retain control.
This situation is something to keep an eye on. Watch for the term ‘China Trap’ to start making its way around the economic circles.
The Diary of Daedalus
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