China's equivalent of the CDO imploding and needs $1 trillion bailout A Ponzi Scheme.... You don't say, where does this sound familiar? Oh, yes, the entire American and European banking system. I heard this morning the amount is more likely $2 TRILLION
I only skimmed the link article as think China still has a wild West justice system. I.e. the money paid in did not evaporate - some one has it. Thread of execution, should recover most of it.
From my reading it seems to most be housing speculation - similar to what has happened pretty much everywhere (except Japan).
China´s “housing bubble” is a fiction – more of western “China bashing” just like blaming China for US growing trade deficits. For reason I´ll discuss soon, China´s annual housing bubble related foreclosure per capita are less than 0.01% as numerous as those in the US. I.e. everyday there are more foreclosures in the US than China has in a year! (Despite China having a larger stock of housing)! The average drop in prices in the US from the peak until now is >30% and in China less than 3%! In many areas current prices in China are at a new all time high – fully recovered! This Forbes article was written nearly a year ago, with data one year old when many thought China was in for a “hard landing.” It did not happen. Chinese GDP is growing four times faster than the US with world bank and others increasing 2013 expectations to more than 8% growth! Note, by quick mental calculations: 1,364 Yuan/ m^2 is roughtly $15/ sq foot - less than 10% of the typical US cost and far below typical cost in European cities. Note maximum price decrease in “worst year 2011” is only 1.5% ! Stocks often fall more than that in a day and no one speaks of Stock market bubble bursting when that happens! Again: China´s housing bubble is ignorant "China bashing," pure and simple - an effort to make US´s real and economy destroying housing problems seems less unique. Why the big difference from USA? – Many reasons: Lower middle class and higher Chinese women will not marry a man until he owns a home (or is well off and renting). This, with the one child policy, means there are four parents and eight grand parents all anxious for a marriage and new baby to spoil. They pool saving and buy the young couple a house FOR CASH, in more than half the purchases – I.e. no mortgage to go into default. If there is a mortgage, it typically is for less than half the price. – So it is almost impossible to find in all of China an “under water” mortgage. Hence China has essentially a zero foreclosure rate. Furthermore, until a few years ago, wealthy people had few investment opportunities except to buy a dozen or so rental properties, and mutual completion kept rents affordable in all but a few of the biggest commercial cities. Now rich Chinese have new investment opportunities. Owning gold is now legal and many banks offer “gold accounts” –I.e. you give Yuan to bank and get account credited with X grams of gold (at the current price with very small premium for the banks profit and costs). If you don´t want a zero interest gold account, you can buy a Dim Sum bond. Usually issued by large foreign corporation that needs Yuan for expansion in China (or sometimes other Asian country as the appreciating Yuan is now more desired than the declining value dollar in many.) Dim Sum bonds pay interest and the principle back (typically in five years) in Yuan, not dollars. McDonalds was the first to issue a Dim Sum Bond, less than one month after doing so became legal about two years ago. Already it is a huge and rapidly growing bond market. There has been some economic fall-out in that many cities sold land at high prices five years ago to real estate developers and counted on selling more to balance their budgets, but now that the rate of building has slowed, the land prices have fallen about the same as US housing prices has and some cities are economically stressed – introducing real estate taxes, etc. to get some revenue. Few Americans know that most Chinese cities and states don´t have any real estate taxes! Wages in China are growing in purchasing power by double digits annually but still low, if converted into dollars by the exchange rate, but doing that is silly as cost of living is lower too. In one extreme case: a 1km taxi ride in Beijing cost only 10% of what a 1Km taxi ride does in NYC.
Right - but it is quite likely in the payouts to other participants in the Ponzi scheme. That's a lot of people to go after. And at best you can get back what people put in, not the amount their accounts are worth. Thus you may still bankrupt a lot of people.
In some cases only the rich real estate developers, but in other cases, you are right; however more than 100 people who got out in time from Madoffd´s Ponzi have had to give all but their investments back - net losers as they lost interest on the funds for a few years. Doing that in US courts is much harder and slower than doing the same in China. I forget the details as was not very interessted in them but just a few weeks ago I read of new court decision that forced those who profited (got out in time) to give up millions to help those who did not get out in time recover a significant fraction of their losses. Others, close to Maddoff are now being sent to jail. - In China they might be executed, if not making full restitution.
More today on post 5´s claim that the "Housing Bubble in China" is a western fiction: Prices are modestly rising at a sustainable rate (less than GDP growth) and at all time highs in most cities, but at the low end of the housing market the prices are soaring, but still very low prices per square foot by western standards - not what any reasonable AND Knowledgable person could call a "housng bubble."
Exports are LESS important to the Chinese economy than most believe: Most investors think the RMB will continue to grow more valuable and the dollar continue it decade long decline. Thus they want to get funds into China - skitrt the Chinese currency controls. The paper claim to have exported some item justify the inport of funds (from the fabricaated "saLe") to convert into Yuan. This also drives directly lowers real exports by China: An influx of dollars, etc. buying Yuan makes the Yuan more valuable despite China´s efforts to hold it value low. I.e. harder for Chinese industries to sell their production to foreigners, who need to buy expensive Yuan.
CDS != CDO. China is definitely in a tricky situation, but it is unlikely that they will face some kind of massive, systematic, problem unless, as the analyst cited suggested, investors start to drop managed products (effectively the same thing as a "run on a bank", which can cause a credit freeze, unless the government steps in).
Still more on post 5 (and my post 9) about China's basically non-existing "housing bubble." SUMMARY: Wages are growing more rapidly than housing cost, so there is less of a bubble than back in 1989, 24 years ago! What westerners fail to understand is how rapidly things get better for the average Chinese with decades of double digit annual salary growth.
