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View Full Version : Why China Will Have an Economic Crisis



LouPhinFan
02-27-2012, 11:03 AM
A good part of this misdirected investment seems to be headed into the property sector. Real estate development has become the key driving force of Chinese economic growth. In theory, Chinaís very rapid urbanization makes such construction a necessity ó but that depends on what is being built. In Wenzhou, a real estate agent recently offered free BMWs to anyone who bought a high-end apartment ó a clear sign of overbuilding ó while there is an obvious shortage of housing affordable for most Chinese. On either side of my Beijing apartment building are three big malls that hardly ever seem to see real shoppers. Rents for top-quality office space in Beijing are now pricier than in New York City ó despite the fact that Chinaís capital is one big construction zone. Many of the buildings going up are of a quality unsuitable for major corporations.

Even worse, much of the investment in China is being financed with debt. The level of debt in the Chinese economy has been rising with frightening speed. Rating agency Fitch estimates bank credit in 2011 was equivalent to 185% of the countryís GDP ó an increase of 56 percentage points in a mere three years. Though that surge has not yet had a significant negative impact on Chinaís banks, many analysts fret that banks will eventually experience a rise in nonperforming loans. In an indication of what is to come, the Financial Times reported (http://www.ft.com/intl/cms/s/0/dc7035dc-553b-11e1-b66d-00144feabdc0.html#axzz1nY3246m9) recently that the government has ordered banks to roll over the $1.7 trillion of loans owed by local governments. If true, this tells us two key things: 1) these governments invested money raised from banks in projects that are not generating the returns necessary to pay them back and 2) the quality of loans on the banksí books are more questionable than official statistics suggest. On top of that, the fact that local governments amassed so much debt in the first place shows a complete lack of rule of law in Chinaís financial sector. Technically, local governments arenít permitted to borrow money at all. Meanwhile, as government entities run up loans they canít pay, many small companies, especially private ones, are unable to raise sufficient funds and remain starved of capital.


Read more: http://business.time.com/2012/02/27/why-china-will-have-an-economic-crisis/#ixzz1nauRnDLc





That attitude is what killed Japanís economic miracle, and now I see China slipping toward the same fate. Japan could not escape the forces of basic mathematics. China canít either, no matter how brilliant its policymakers might be. When would a meltdown happen? It is interesting to play with a bit of history. Both Japan and Korea suffered their crises roughly 35 years after the Asian development model was switched on ó the early 1950s to í89 in Japan, and 1962 to í97 in Korea. That puts a China crisis at around 2014-15 or so. Iím not predicting a firm date here. What I am saying is that China is running out of time to fix the problems of its economy.

See the Chinese aren't too much different from us. They like playing with their debt too, except they don't have debt to other countries, their people have debt to their own government and banks.

Tunaphish429
02-27-2012, 11:23 AM
I wonder what the consequece is for defaulting on a loan from the Chinese government? Death by dismemberment?

Locke
02-27-2012, 12:59 PM
I wonder what the consequece is for defaulting on a loan from the Chinese government? Death by dismemberment?

No chinese take-out for 1 year. Whether that's a punishment or not depends on the restaurant...

LouPhinFan
02-27-2012, 02:27 PM
No chinese take-out for 1 year. Whether that's a punishment or not depends on the restaurant...

I don't know about you, but all the hole-in-the-wall Chinese takeout places I frequent pretty much taste the same. It's like they all buy their food from the same supplier before they cook it. I'm a big sweet and sour pork/chicken fan and that dish tastes the same no matter which place I go to. Every once in a while you get one that has a different type of crab rangoon, but that's about it.

CedarPhin
02-27-2012, 02:32 PM
You guys just don't have the great array of Chinese places like we do out here.

CedarPhin
02-27-2012, 02:33 PM
Oh, and I've been laughing about China as a "threat" for awhile now. Nothing but scare tactics, reminds me of how the Japanese were going to take over in the 80s.

Locke
02-27-2012, 02:41 PM
I don't know about you, but all the hole-in-the-wall Chinese takeout places I frequent pretty much taste the same. It's like they all buy their food from the same supplier before they cook it. I'm a big sweet and sour pork/chicken fan and that dish tastes the same no matter which place I go to. Every once in a while you get one that has a different type of crab rangoon, but that's about it.

Agreed. However, there is one place owned by a family who moved here from Beijing down the street from me that is fantastic. Expensive as hell though, so I don't like to eat there too often. Everything else tastes the same, except for Panda Express, which taste like rice-shaped cardboard...

LouPhinFan
02-27-2012, 03:54 PM
You guys just don't have the great array of Chinese places like we do out here.

Are you in Cali? If so, agreed.

I've never been to California, but if I ever do make it out that way I definitely want to try some of the Asian cuisine.