Why China’s Actual Economy is Unraveling

Update:

Obsolete State-Owned-Enterprises (SOEs) are gobbling up the massive ongoing Chinese credit stimulus. This looming great debt mountain of China — complete with defaults, capital flight, political purges, ghost infrastructure and industrial overproduction, and toxic devastation of land, air, rivers, and near seas — will push China inexorably into the Russian Far East. Unfortunately, a lot of other unpleasant things are likely to happen at the same time.

Running a real business is extremely tiresome, full of risks and responsibilities, and profits are less than gains from real estate investments… this round of China’s real estate upsurge is not because of an actual demand for housing, but solely because of speculation by rich people with few investment opportunities.

Source

Running a “real business” to make real things and provide real services cannot hold a profit-candle to speculating in bubbles, in today’s China.

… China has become a credit-driven economic madhouse. The 50% of GDP attributable to fixed asset investment actually constitutes the most spectacular spree of malinvestment and waste in recorded history. It is the footprint of a future depression, not evidence of sustainable growth and prosperity.

__ David Stockman

Worse than we thought

Money is Fleeing China’s Economy for Greener Pastures

Purchases by foreigners, many with a connection to China, helped drive an almost 55 percent jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The rising demand has triggered community concern that locals are being priced out of the property market, prompting the government to tighten scrutiny of foreign investment. __ https://mishtalk.com/2016/04/11/bubble-who-cares-about-bubbles-chinese-buyers-double-their-aussie-property-investments-again/

The same thing is happening in Vancouver and on the US west coast. The rush is on to get money away from China’s actual economy, into real estate bubbles from Europe to the Anglosphere to a few select cities in East Asia (including China).


Global investors had hoped that China would ease off the debt bubble blowing machine, but instead China has doubled down on bubbles in 2016 — the government has no choice aside from a painful, and possibly fatal, deflation.

When poor people have trouble making ends meet and hope for lower rents, does it make sense to lend money to the wealthy to speculate and make a big fortune in real estate? When small and medium enterprises need funds to maintain their operations, does it make sense to pump money into the real estate sector that will hike up the costs for small and medium enterprises? Real estate speculation does not improve the economy or the lives of the majority of people. __ China Real Estate vs. China Economy

In the closed society of China, opportunity for advancement goes to whomever has the best political connections at the time. Such hierarchies of influence are subject to rapid readjustment, so smart investors will grab the money and run as quickly and as far as possible. China’s debt mountain — the bubble economy — is exploding far out of proportion to China’s actual economy. And China’s own people and China’s supply chain nations — from Southeast Asia to Africa to Latin America — are feeling the pinch.

Few in the markets believe an economic rebound is likely. This is partially due to Chinese debt levels, which have grown to $28 trillion over the last nine years from a relatively benign US$7 trillion. As a percentage of GDP, those numbers are far higher than debt levels in the United States. __ http://thediplomat.com/2016/04/what-hong-kong-reveals-about-aseans-economic-future/

Outsiders rarely understand the short lifespan of modern Chinese construction. Buildings, bridges, and other infrastructure have very short useful lifetimes compared to structures built in more advanced nations. Shoddy construction methods and materials, combined with easily bribed building inspectors and shady lending practises, make it vital for investors to take their profits and move them quickly, before the projects collapse.

Important background on the China bubble

The Chinese communists never understood capital markets or market economics. The rapid influx of foreign capital into China in response to China’s opening in the 1970s and 1980s, convinced China’s leadership that the nation was destined to continue growing wealthier regardless of whatever stupid and corrupt decisions they might make. But the flow of capital slowed considerably in the wake of the global financial deflationary crisis of 2007 to 2009. China tried to make up the deficit via bubble economics, but the dragon was not economically mature enough or disciplined enough to stand on its own. The CPC leadership is learning too late that the globally connected economy is fickle to those who never took the time to learn how the game is played. Debt and corruption combine to distort China’s markets far from any correspondence to reality.


In response to readers who have complained about Russian girls getting too much attention on this blog, I would like to point out that China also has girls — although the nation currently has a girl-deficit of roughly 35 million when compared to males. This gender imbalance is but a small part of China’s looming demographic crisis, which will see China growing old before the larger part of China can grow rich.

China has always been more poor than rich, and always will be. And the rich people who are there want to get out, with their booty.

China’s Poison Train

80% China’s water is unfit for humans. In fact, a lethal toxicity lies within China’s water, air, soil, food, medicines, toys, infant formula, and virtually everything else. This is one reason why so many of China’s young are in poor health.

http://www.bloomberg.com/news/articles/2016-04-19/china-faces-make-or-break-moment-says-forecaster-of-japan-slide

China is Desperate for Siberia’s Pristine Resources

The pristine resources of eastern Siberia sit like low-hanging fruit to Beijing’s demographic and economic policy planners. Russian leaders are becoming far more amenable to leasing and selling control of valuable territories, resources, economic rights, in the Russian Far East and other parts of east Siberia. China needs these things that Russia once controlled, and is willing to pay Russia’s corrupt leadership for the rights. China’s stability depends on these acquisitions, and the pocketbooks of Kremlin insiders could use some bolstering in these difficult times.

More:

The Tyrant Xi

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4 Responses to Why China’s Actual Economy is Unraveling

  1. Abelard Lindsey says:

    I wasn’t “complaining” about your emphasis on Russian women. In fact I think its rather nice.

    Your reports on Russia and China are spot on, I think. I know little about Russia. But I can tell you based on personal experience and that of friends that China is very corrupt. They have a rampant culture of corruption and it is the single biggest impediment to Chinese economic development. All other problems of China pale in comparison.

    It is difficult to build a sustainable business in, say, high technology manufacturing when you lack objective rule of law and commercial code and, instead, have a culture of patronage and cronyism.

    • alfin2101 says:

      Yes, patronage and cronyism spring up like weeds when people lose the discipline and will to keep them under control.

      As outsiders, the best thing one can do is to watch the fundamentals of a nation, to try to understand what is bubbling Potemkin propaganda and what is solid and sustainable. Both China and Russia spend massive amounts on propaganda smoke screens — else they would have collapsed long ago.

      Trolls and hackers, hackers and trolls. Without all the disinformation there would be no information at all!

  2. Herbert Z. Oinlein says:

    You’re a broken record. [Gratuitous insult deleted __ admin.]

    • alfin2101 says:

      One needs to put some actual substance into a comment before it is worthy of the name, Herbert.

      Sometimes readers attempt to use derision to steer a blogger away from particular topics which make them uncomfortable. That feeling of repeatedly falling outside of your comfort zone is often a clear indication of a self-inflicted blind spot. You may wish to get that sorted out.

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