China: The Next Great Economic Disaster

By DsRaider on March 4, 2013 3:10:45 PM from

DsRaider

Join Date 11/2008

+54

Check out this great video on the Chinese housing bubble. I have heard the same thing from multiple other sources but this is the best intro to the topic. It discusses why many believe there to be a huge real estate bubble in China.

http://www.cbsnews.com/video/watch/?id=50142079n

Here is a similar article if you don't like video.

http://www.forbes.com/sites/gordonchang/2013/03/03/chinas-property-sector-just-before-the-crash/

Here The Economist gives a brief summary of this sector's importance and explains why this seemingly obscure sector is so important.

http://www.economist.com/blogs/analects/2012/08/chinese-property

The consequences of a collapse in Chinese real estate would be huge. Much worse then the American housing crises. China is not a stable country, it has over 9000 mass incidents, read riots, every year. A housing bubble could easily lead to a financial crisis, to a economic crash, to maybe even total collapse. Before you get all excited remember how globalization connects us all. They call China the global growth engine of the world for a reason. With the rest of the world already depressed even a small correction in China could send the world spiraling back into recession or depression.

A housing bubble isn't even China's only problem. Municipal governments in China have very limited ability to tax. So instead they confiscate, read steal, land and sell it for huge profits to developers. Not only does this lead to unrest but makes local governments totally dependent on land sales for revenue. On top of that local governments are already having huge debt problems. Imagine what will happen if the property market goes bust.

http://www.businessweek.com/articles/2013-02-28/cleanup-begins-for-a-chinese-city-flooded-with-bad-debt

We are living in a house of cards and the wind is picking up.

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The demographic shift that China is (and definitely will be) hitting will only make matters worse...it's bad enough for Western countries having to support a bunch of old people with a disproportionately smaller work force than in the past (not bashing old people here)...but for a country like China to have to go through that...

Well, let's just say things aren't looking good for the country...

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I hear a lot of "China gonna take over the world!" but all I see is a tyranny with a whole bunch of long term issues.

Quoting Seleuceia,

reply 2

Some very strange things going on with their demographics. They have an aging population due to one child rule, with some people reporting 15% of men will go unmarried due to lack of women, at the same time successful women cannot find men because Chinese men are intimidated by powerful women. I also hear of how some corrupt civil servants keep numerous mistresses (one famous civil servant had 47) who are unlikely to marry the Average Wang (Chinese version of Average Joe?). All this cant be healthy in a society.

Not to mention their environment:http://www.businessinsider.com/cost-of-china-smog-2013-3

Smog and contaminated water are huge problems in china and thousands of people are gonna start getting crippling health problems.

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And yet they are the only thing propping up our economy.

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Quoting Mr_Book,

reply 4

And yet they are the only thing propping up our economy.

Pick a store...any store...all 'made in' labels read China due to all the outsourcing by American companies to take advantage of 'cheap' labor. Cheap labor = huge profits for them and diddly for the common folk. Some things eventually come back to bite you in the ass. Can anyone say ouch!

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Cheap labor = competitive prices.

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I am not entirely sure china will burst, but it is definitely leaning towards it. They have an extremely corrupt system that, between bribes and influence-traffic (don't know if you use that expression in English ) is increasing the costs too much, on an almost exponential rate. I read this article on the New Yorker a while ago and it got me shaking my head. It definitely can't last forever. Add to that the unrest and you have a brew for trouble.

The only thing is that with China, you never know if things haven't already exploded. Take the issue of the real-state bubble, which makes the abandoned cities of Spain look like a joke. Half the time in China you can't really trust the data because it is completely controlled by the one, single goverment. At least in Spain our greedy two parties are busy enough trying to uncover the other's corruption for some truth to emerge from time to time

On the other hand, I can't be sure of what will happen to China. Will it be a giant with feet of clay? Or will it go through a crisis more on the style of America's 1929, leading to a recovery and etcetera? One thing is that you stop growing a 20% per year (that obviously will end) and another is that you stop being a world economical and political player...

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The coming problems with China are not new, nor unexpected. They took the first step to get to the first world. But they are not taking the necessary steps. The housing crises is due to the simple fact of centralized management (google Ghost cities in china). The government still wants to control everything. It worked fine when you had companies from abroad asking to set up shops there. The government is supposed to regulate interstate commerce. But it does not work in determining what the population wants. Foreign companies told China what to build for export. So that was the easy part. They have no clue on what to build for the internal public demand. And thus you get the shortages, overages and busts.

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I got the impression the housing bubble was created by real estate being one of the few things private citizens could buy as an investment. They did just that, regardless of whether or not anyone was going to occupy the properties. People kept buying, so they kept being built. After all, real estate always increases in value right? (Sound familiar?) Same old story, different country.

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Saw the whole thing on 60 minutes the other night. Wasn't terribly surprised as there's a lot of buzz about Africa being the next great emerging market for business. Which in my mind translates to "A lot of poor people that can be heavily exploited because Chinese workers are starting to demand more than what we want to give them"

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Quoting BernieTime,

reply 10

not really. labor costs in Africa are actually higher than in China or South Asia. it has more to do with currency exchange rates than with poverty level. here's a source: http://siteresources.worldbank.org/EXTAFRSUMAFTPS/Resources/chapter4.pdf

also don't underestimate Africa. economies in Sub-Saharan Africa have high growth rates. http://www.economist.com/blogs/dailychart/2011/01/daily_chart

just an example: a colleague of mine from Togo regularly sends a container with used cars home and sells them with a profit. he could not do this if a companies like Tata, Maruti or Dacia would open car dealerships there. and they will.

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http://world.time.com/2013/03/12/china-a-river-of-pigs-and-5-other-environmental-nightmares/

Good article that shows how bad pollution can get and why I think the cost of pollution in China will be huge. Just imagine all the costly health problems that will arise from this stuff and the eventual anger when X% of the population gets crippling health issues.

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