60 million (+) vacant residences in China ??

[robin-hobart]

According to Dr John Lee, China already has enough vacant homes to meet the next 20 years of ongoing urbanisation.

The mother of all property bubbles?

http://www.macrobusiness.com.au/2012/09/oz-elite-skewered-on-china/?utm_source=Media+List&utm_campaign=98f018221a-RSS_DAILY_MAILCHIMP_CAMPAIGN&utm_medium=email

[Guest kab]

Well according to our.... she'll be right mate government....there is nothing to worry about. ............meanwhile back on planet earth.

[proftournesol]

Yes, China has kept its economy running full speed for years with a state sponsored property bubble. Remember this is not an economy that is prone to market forces so it may have a different impact to that of a Western country with the same issue. The Chinese did put the brakes on their economy but are now about to loosen the brakes again with another big round of public infrastructure spending. At least they recognise that that provides some lasting community value (if spent wisely) rather than just private property speculation.

[rantan]

***

Edited September 10, 2012 by rantan

[DRC]

Yes, China has kept its economy running full speed for years with a state sponsored property bubble. Remember this is not an economy that is prone to market forces so it may have a different impact to that of a Western country with the same issue. The Chinese did put the brakes on their economy but are now about to loosen the brakes again with another big round of public infrastructure spending. At least they recognise that that provides some lasting community value (if spent wisely) rather than just private property speculation.

I would anticipate that the infrastructure building phase of the (planned) economy is all but over. The growth in consumption of consumer and, to a smaller extent, luxury goods would be the next focus.

[proftournesol]

From Fairfax today

As Barack Obama delivers another impressive speech in America and Mario Draghi in Europe generates another sterling rally through targeted short-term bond purchasing, policy makers in China are seemingly working on some pretty grand stimulus plans of their own.

After months of doom and gloom - some of which has finally caught up here in the form of declining ore prices and a slew of project cancellations from major companies - it seems that political leaders are doing what they're supposed to do and leading where the economy won't.

After months of waiting, bold reforms are outlined, fresh ideas generated and new hopes are emerging.

Yet beneath the soaring rhetoric and the market intervention, concerns are already being raised that what we've been offered are, once again, merely short-term fixes.

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While short-term fixes - like the doctor who prescribes a Band-Aid and an aspirin to a hypochondriac - are often as good as anything else, the worry is that the world's economic imbalances are still so great, five long years after the credit crunch, that political jawboning and monetary policy won't nearly be enough.

Band-Aids, to extend the idea, need to be replaced by tourniquets and aspirin by morphine for this patient.

Chinese medicine

There are hopes that stronger medicine, thus, is about to be administered in China, whose economic policy makers are rarely known to do things by halves. And leading up to the 18th Communist Party Congress - probably in mid-October - signs are emerging of concerted fiscal stimulus efforts across multiple projects and multiple provinces.

But just as Western efforts look flimsier at second glance, there are indications too that Chinese stimulus may not be all it's hyped up to be.

Despite arguments that Beijing needs to placate its restive citizens through gleaming infrastructure and rapid economic growth, the likelihood the dough will be splurged on another round of haphazard construction and unequal wealth distribution suggests some leaders are having second thought.

And so, despite the announcements of a string of development projects at the municipal and provincial level – forming, in aggregate, a multi-trillion yuan pipeline of plans - credit, manufacturing, freight and steel production data suggest that such spending remains mostly dreams of mid-ranking bureaucrats.

New Deal, with Chinese characteristics

If anything, China's new Politburo is more likely to unveil a stimulus of a very different kind: true, long-term reform to welfare, internal migration and healthcare, evidenced by the equally urgent challenges of rural unrest, urban unemployment, soaring living costs and demographic imbalances.

This deal, if realised would of course be wonderful for China's people, unlike the sticking-plaster solution of yet more urban construction and outlays on other so-called fixed-assets.

Such a reform path, though, won't trigger a restart delayed iron ore mine expansion in the Pilbara, nor cheer the investment banks of London and New York.

And whereas China's mammoth 4 trillion yuan stimulus package in 2008 came in response to a crashing global economy, today the main concern is not whether Greece will exit the eurozone, whether the United States will face a fiscal cliff or indeed whether Australian miners will have to sack a lot of workers.

Instead, it's whether the deteriorating cash-flows and capital productivity of the uneconomic boondoggles that 2008's stimulus first wrought will seriously hobble China's financial system or create a solvency crisis for heavily-indebted local governments.

In Chinese medicine terms, therefore, China overdid it on the stimulus from 2008 to now, leaving a severe case of indigestion. The remedy is not more of the same but the fiscal equivalent of herbal tea.

A preference for more natural remedies, though, is unlikely to provoke the adrenaline rush that markets have become so addicted to since the Federal Reserve chairman Alan Greenspan first stimulated the US out of the dot-com crash and post-9/11 crisis.

In other words, while China will most likely make a full recovery, the world's other economic patients are unlikely to get much benefit this time around.

Political shifts

Several months ago I agreed with the consensus that there was a strong likelihood of significant Chinese stimulus in the second half of 2012, but the country's political economy has since changed in profound ways.

Ostensibly, the same people are in control and the same priorities are pursued, but China's reformists have gained the upper hand in the Politburo jockeying, with the political purge of the more conservative Bo Xilai followed by the sidelining of Hu Jintao ally Ling Jihua. (The latter's case is bizarre even by recent Chinese political standards, with Ling's son dying in a Ferrari car smash in March, which authorities attempted to cover up.)

Since that time too other policy constraints have presented. Capital outflows are hindering central bank operations, while rising pork and fuel prices are stoking fears of inflation.

As local government revenues decelerate on falling land prices, and state-owned companies seek early rescue packages and bad-debt refinancing, the only policy tool left in the kit - to paraphrase prominent economist Andy Xie - is propaganda.

Despite having ample funds at its disposal and the ability to quickly discharge bold initiatives, Chinese authorities are unlikely to want to add to their woes by compounding a fixed-asset overhang, sinking capacity utilisation rates or a potential crisis of non-performing loans through conventional pump-priming and construction of yet more roads to nowhere.

Learning something of the lessons of Japan and the Soviet Union, it appears increasingly likely instead that China's new guard will turn crisis into opportunity through a wholesale rebalancing to a more sustainable growth and consumption model, and even wealth redistribution. The challenge will also have to include tackling rising chronic disease and ecological damage.

This New Deal, of sorts, is after all what China's leadership says it wants. And though we may, perhaps selfishly, hope for otherwise in Australia, this non-stimulatory kind of economic stimulus looks like what China will deliver.

.

[lusk]

Yes, China has kept its economy running full speed for years with a state sponsored property bubble. Remember this is not an economy that is prone to market forces so it may have a different impact to that of a Western country with the same issue. The Chinese did put the brakes on their economy but are now about to loosen the brakes again with another big round of public infrastructure spending. At least they recognise that that provides some lasting community value (if spent wisely) rather than just private property speculation.

Building whole cities that no one can afford to live in is not providing lasting community value.

The whole thing is a state sponsored Ponzi scheme that is going to end in a mess in a big way.

Edited September 11, 2012 by lusk

[proftournesol]

Of course its a giant Ponzi scheme, run by the PLA and the Communist Party, but because they run the country, the usual market mechanisms and rule of law doesn't apply.

[Cafad]

I know I'm a little behind the times, but when I saw the name of the thread I thought of houses that were going to be flooded due to the construction of a new dam or that were about to have coal mined out from under them. I am obviously living a few decades in the past, instead of demolishing entire towns to allow for the economy to grow they now build entire (spare!) cities to grow the economy. It still doesn't make much sense to me.

[lusk]

Of course its a giant Ponzi scheme, run by the PLA and the Communist Party, but because they run the country, the usual market mechanisms and rule of law doesn't apply.

The property boom in China was caused by massive credit expansion, the same market mechanisms will eventually apply.

It appears the music may have already stopped.

"China’s slowest economic growth in three years and aslumping property market, where many so-called shadow-banking investments are parked, are squeezing millions of Chinese who have invested the money of friends and acquaintances chasing higher yields to honor those payments. The slowdown also is putting pressure on the government to rein in private lending to avoid a spate of defaults that could increase the number of victims and lead to social unrest."

http://www.bloomberg...eing-scams.html

Edited September 13, 2012 by lusk

[proftournesol]

One factor working against 'market corrections' is that China doesn't really float its currency. It would cause enormous problems for the west if China had a liquidity crisis and drew on their enormous reserves in the world's banking system. I think that China is the largest holder of US bonds for instance, if they cashed them in.....

[Cafad]

Yeah, they could probably buy several US states outright!

[LogicprObe]

Speaking of that sort of thing............Australia has the fourth biggest amount of super funds, yet so little of it is invested in Australia's future.

Gambling it on the world's stock markets is much more fun..........apparently....

[proftournesol]

Speaking of that sort of thing............Australia has the fourth biggest amount of super funds, yet so little of it is invested in Australia's future.

Gambling it on the world's stock markets is much more fun..........apparently....

Well that's what happens when you leave those sort of decisions to 'the market.'

[Briz Vegas]

In my super scheme you have a choice, its was called Australian Shares or socially responsible last time I looked.

Edited September 14, 2012 by Briz Vegas