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When Will China's Bubble Burst?
Wednesday, May 12, 2010
When Will China's Bubble Burst?
As Bloomberg notes, Marc Faber thinks China may crash in 9 to 12 months, and hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff are also warning of a crash.
Nouriel Roubini told Bloomberg:
In China, where property prices rose at a record pace in April and consumer prices climbed at the fastest rate in 18 months, the economy faces the risk of a “significant slowdown,” Roubini said.
“China should be tightening monetary policy, increasing interest rates and let its currency appreciate over time,” he said. “They are too slow, they are not doing it fast enough.”
On April 20th, BusinessWeek wrote:
China’s Shanghai Composite Index may drop as much as 6 percent after breaching the 250-day moving average for the first time in a year, Shenyin & Wanguo Securities Co. said.
The benchmark gauge plunged 4.8 percent to 2,980.3 yesterday, the most in eight months, on concern government measures to curb real estate speculation will slow economic growth. The index may extend losses until reaching the next support level of 2,803...
Yesterday, Calculated Risk noted that the Shanghai composite is continuing down:
Vincent Fernando notes that Beijing property prices are starting to fall rapidly (and that Shanghai is next), as China clamps down on the property bubble.
As MarketWatch notes:
China's economy is teetering on the edge of a major slowdown ... according to a noted China strategist.
David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world's third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.
"We've got the beginnings of a credit-bubble collapse in China," said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.
While that may not sound bad, Roche believes the collateral damage from the cooling will be anything but mild, as the banking sector comes under pressure from cumulative years of bad investment and mispriced capital.
***
More worryingly, as bank lending dries up, there won't be the firepower to sustain new investments in infrastructure, eroding a core pillar of China's growth model, he said.
Much of the focus on potential asset bubbles in China has been on the property sector, but Roche suggested that housing-price inflation is intertwined with unsustainable gains in other areas.
***
He said government efforts aimed solely at property prices will prove ineffective.
"What they are trying to do is ration the amount of credit to one sector, that won't work. Roche said. "The bubble will just burst in its own way, you don't control this."
He also said that China's rising middle class could be stung with "real panic" when leveraged purchases go sour.
As Northwestern University's Victor Shih points out, the Chinese government will slowly reveal more and more of the true ratio of bad loans to good loans, and raise its figures for local government debt. Shih says that recapitalizing Chinese banks to cover losses for the bad loans will eat up more and more of China's reserves.
On the other hand, Citigroup, William Chen and Gus Lubin point to various signs that the bubble is still in the mania phase.
When Will China's Bubble Burst?
As Bloomberg notes, Marc Faber thinks China may crash in 9 to 12 months, and hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff are also warning of a crash.
Nouriel Roubini told Bloomberg:
In China, where property prices rose at a record pace in April and consumer prices climbed at the fastest rate in 18 months, the economy faces the risk of a “significant slowdown,” Roubini said.
“China should be tightening monetary policy, increasing interest rates and let its currency appreciate over time,” he said. “They are too slow, they are not doing it fast enough.”
On April 20th, BusinessWeek wrote:
China’s Shanghai Composite Index may drop as much as 6 percent after breaching the 250-day moving average for the first time in a year, Shenyin & Wanguo Securities Co. said.
The benchmark gauge plunged 4.8 percent to 2,980.3 yesterday, the most in eight months, on concern government measures to curb real estate speculation will slow economic growth. The index may extend losses until reaching the next support level of 2,803...
Yesterday, Calculated Risk noted that the Shanghai composite is continuing down:
Vincent Fernando notes that Beijing property prices are starting to fall rapidly (and that Shanghai is next), as China clamps down on the property bubble.
As MarketWatch notes:
China's economy is teetering on the edge of a major slowdown ... according to a noted China strategist.
David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world's third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge.
"We've got the beginnings of a credit-bubble collapse in China," said Roche, predicting the economy will likely cool from its stellar double-digit growth rate to a 6% annual expansion as a result.
While that may not sound bad, Roche believes the collateral damage from the cooling will be anything but mild, as the banking sector comes under pressure from cumulative years of bad investment and mispriced capital.
***
More worryingly, as bank lending dries up, there won't be the firepower to sustain new investments in infrastructure, eroding a core pillar of China's growth model, he said.
Much of the focus on potential asset bubbles in China has been on the property sector, but Roche suggested that housing-price inflation is intertwined with unsustainable gains in other areas.
***
He said government efforts aimed solely at property prices will prove ineffective.
"What they are trying to do is ration the amount of credit to one sector, that won't work. Roche said. "The bubble will just burst in its own way, you don't control this."
He also said that China's rising middle class could be stung with "real panic" when leveraged purchases go sour.
As Northwestern University's Victor Shih points out, the Chinese government will slowly reveal more and more of the true ratio of bad loans to good loans, and raise its figures for local government debt. Shih says that recapitalizing Chinese banks to cover losses for the bad loans will eat up more and more of China's reserves.
On the other hand, Citigroup, William Chen and Gus Lubin point to various signs that the bubble is still in the mania phase.
Then what happens to the vast debt we owe them and getting bigger .
This is an interesting article. China will either become the next world Superpower or completely collapse economically (at least in my opinion.) Thanks for posting.
In the Bible the US is not listed as a superpower in the last days. I think China will be the next world superpower personally, but only time will tell. You c I do believe a one world currency and all that will happen, just place the credit to a different source. It also tells of things that resemble what we consider to b nuclear war. All the reasons I do not personally believe we are in the end times, too many things yet to happen first. IMO... I find it interesting seeing it all unfold in my lifetime tho.
There is a book you might enjoy that sort of address' this. It's called Collapse. It basically talks about the rise and fall of all the major superpowers, starting with the Roman Empire. It's not written from a biblical perspective, but I think you might like it based on some of your posts. It's really interesting. The basis is that as countries get too powerful they sort of implode on themselves.
I don't have any problem believing that we will face end of times at some point, I just think that much of what is happening today can be explained in other ways. Who knows though. I guess we'll know it when it happens. Maybe I just don't want to believe it...the thought is rather scary to me.
I don't have any problem believing that we will face end of times at some point, I just think that much of what is happening today can be explained in other ways. Who knows though. I guess we'll know it when it happens. Maybe I just don't want to believe it...the thought is rather scary to me.
I agree with you adgal. The thing I am pointing out is that the bible is the biggest conspiracy theory ever written and predicted thousands of years ago. But how many generations have said, we are living in end times? We may be correct and then again? Maybe not. It is interesting to me tho, how it all turns around to a political conspiracy when it is in the book. I have to remember tho, not everyone believes in the book. To me it is this reason, to hear people blame one individual or group of individuals for all the ills of the world is just downright funny and unjust.
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