23 Responses to Dateline on the Chinese housing bubble

  1. jesse says:

    Love the pyramid analogy.

    There is some debate about using gross national profit instead of product to track an economy’s health. As was mentioned GDP can be illusory. CalculatedRisk summarized this a while ago. I’ll try to find it.

  2. mac says:

    Do you really believe that manufacturing in China is a maximum of only 40% of their economy? Don’t you think that only a few coastal cities would be susceptible to a house price collapse? I’ve heard it told the way you say it (Chanos) and the way I’m saying it (Rogers), who even agrees with you that certain coastal cities could crash and then he says, ‘so what?’ Growth marches on.

    Their demand for commodities goes beyond housing, no? As the Chinese gov’t cracks down on speculation over there, speculators have been coming here. Perhaps they are taking stimulus money and getting it out of country. How does a Chinese housing collapse affect that money?

    There’s so much to this story and no one seems to understand it. Best to ask Mango.

  3. Best Place on Meth says:

    China doesn’t do pyramids (other than pyramid schemes) but if they ever get tired of building empty buildings and empty shopping centres they could always construct a Greater Wall.

    Not only will that keep GDP humming for another 50 years but it would also stop those pesky Mongolians dead in their tracks.

    • John in Ottawa says:

      Actually, there are some spectacular pyramids in the Xian area. One even had a running river of mercury. China could get back into the business.

  4. HAM - Sham says:

    Hmmm…. seems the more I read about the “economic miracle” of China, the more it looks like the greatest ponzi scheme on Earth! I read an interesting piece on another blog that shared similar concerns on China. Of note:

    “Govt. owned banks lending $$ to Govt. owned corportions to buy Govt. owned land.” What could possibly go wrong with this scenario? My gawd… it’s a GDP machine!

    Or my personal favorite:

    A local govt. official was coming in below his GDP growth target. So in a desperate effort, he borrows money to purchase explosives to demolish a recently completed bridge. Then borrows additional $$ to re-build said bridge. GDP target accomplished!

    Something about meeting GDP targets at all costs in a centrally planned economy makes me think that inefficient allocation of resources (such as above) must be rampant. Also underscores the fundmental flaws with using GDP as an accurate measure of economic growth.

    So China and their economy are what the rest of world is tying their collective financial hopes to…. uh oh! And if HAM is what is needed to keep Vancouver RE afloat amidst the strom…. uh oh ^2!!

    That said, don’t expect the house of cards to collapse any time too soon in the PRC. The govt.’s feeble attempts at credit contraction haven’t even put a dent in the runaway train yet. Mucking w/ reserve requirements and bumping rates 25bp isn’t going to do it. Only a signifcant revaluation of the yuan (in the face of a peasant revolt over food inflation) will bring about the contraction needed to resotre sanity. If/when this does happen…. all bets are off on the fallout for the rest of world.

  5. mac says:

    Jesse,

    We’ll have to wait and see who is right. Chanos or Rogers. While we’re waiting, there’s An Idiot Abroad series. Don’t know if you’ve caught Karl Pilkington at the not-so-Great Wall of China. Re-bricked in the 80s.

    • Great video.

      It’s worth weighing out both Chanos’ and Roger’s arguments for sure. At the end of the day, if Rogers is right, it stays status quo. But if Chanos is right…..well isn’t it worth pondering what that might mean to us here in Canada?

    • John in Ottawa says:

      Mac, most of the “Great Wall” isn’t much more than a mud berm. It was quite something in ages past though. It is said 2 million workers died building the wall.

      BTW, the portion that was restored, just north of Beijing, was sponsored by Kodak. Gives it a bit of a Disneyland feeling.

      .

  6. i.see.debt.people.in.trouble says:

    “China’s centralized economy has managed to orchestrate economic growth at a miraculously consistent 10% clip.”

    hmm. Bernie Madoff managed to orchestrate a return at a miraculously consistent 10% clip. Coincidence? I think not. There’s gonna be an army of buck-naked people when the tide goes out. :0

  7. Sams Mango says:

    If you can find at least 50 items in your house that are not made in China, then you might be on to something. They manu everything. The world balance sheet has and must include china always- Apple, great example. Rev = Steve Jobs, Expense = China

    China has always been on the expense side of the balance, money in for them. The scary part is they are making headwind in R&D and making way onto the revenue side. However, I don’t believe the culture helps instill creativity.

  8. Sams Mango says:

    Ben, enjoy
    -and a board of directors that is largely drawn from the real estate and building businesses, with little background in banking or insurance…

    http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/time-to-step-up-the-oversight-of-cmhc-operations/article1950704/

    This really sounds negative, but with an LTV of 45%, even the most gloomy situation can’t hit this place for a bill.

  9. Kevin says:

    Sam/Mango

    US manufacturing still tops China’s by nearly 46 percent
    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2011/02/06/made_in_the_usa/

    According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

    • John in Ottawa says:

      Tomahawk missiles are more expensive/man hour than Frisbees. Of course, unlike Frisbees, you only get to throw them once.

    • @ Mac

      “Do you really believe that manufacturing in China is a maximum of only 40% of their economy?”

      Not sure if you want to do the math for us, Mac, but the stated GDP of China is just a tad over $10 trillion.

      The key element in this is what is the actual wages earned by the people doing the manufacturing. We look at a $5 trinket on a Walmart shelf and think, “how can China not have a massive manufacturing base”, but we don’t ask how much they were paid to make that trinket. It’s deceiving.

      Perhaps the truth lies somewhere between Chanos’ calculation of export balance amounting to 5% of GDP and your questionable assertion that manufacturing accounts for more than 40%.

  10. mac says:

    John in Ottawa,

    I really had no idea until the round-headed Karl went there on behalf of Ricky Gervais & his spindly side-kick Stephen. If you have a chance to catch this series wherever you are, please do. Especially the China episode, which is so darned good. The guy just wants to stay home in England and tile bathroom floors and maybe call his mother to talk about UFOs. Anything more than that completely stresses him out and boy do they put him through his paces in China.

    You Tube has unfortunately removed the clips when Karl is on the Wall, reading the brochure that says is was rebricked in the 80s. He wanders over to a pit in the ground where starving bears are kept for the amusement of passers-by. I know how those poor bears feel!

  11. mac says:

    Kinda makes me wish I lived in a dictatorship:

    http://bit.ly/h9mXV1

  12. John in Ottawa says:

    Well, we have a budget and it looks like we have an election. I suppose Ben will be posting his thoughts on the budget. Should make for interesting discussion.

  13. JohnnyinAb says:

    What did Robers Shiller mean by:
    “Likewise, home prices have been booming over the past year or two in several places, notably China, Brazil, and Canada, and prices could still be driven up in many other places. But another housing bubble is not imminent in countries where one just burst. Conservative government policies will probably reduce subsidies to housing, and the current mood in these markets does not seem conducive to a bubble.”

    in the article: http://www.project-syndicate.org/commentary/shiller76/English

    • John in Ottawa says:

      He isn’t saying that a bubble won’t continue to form in Canada, if one is forming. He is saying that another housing bubble won’t form in Ireland or the US. Not a tough prediction.

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