Understanding China, One Blog at a Time

An American in China

On China’s Impending Collapse

Posted by w_thames_the_d on February 27, 2012

Here comes the truth, from the Brew-man, a guy who knows more about China than OBO and Biden together…
From Brewskie

“Quality Chinese products fall in the realm of quality Sigmund Freud theories: a few diamonds buried deep, if you’re willing to dig through endless cow dung or Canadian tar sand goop. Actually… one wouldn’t even find fool’s gold buried deep here.
What’s going on with the Chinese? Well, a few gurus are getting nervous. I’ve always felt a few top apples knew the shit was going down, but were too weak-spined and cowardly (or greedy: as in enjoying the trip) to steer a different course. A senior government economist warns about the can of worms China’s opening:
“A property sector downturn and slumping global demand may knock China’s economy into a hard landing in 2012, a senior government economist told Reuters, putting more pressure on Beijing to speed up economic reforms and to open up the market.
The economy is not just slowing but is also haunted by over-investment that could constrain Beijing’s options, said Shi Xiaomin, vice president of China Society of Economic Reform (CSER), a Beijing-based think-tank.
“A hard landing of the economy is possible this year as slackening domestic and external demand pushes (full-year) GDP growth below 8 per cent, probably even to 6-7 per cent,” said Shi.
“More worrying is that such a slowdown is going hand in hand with a sharp decline in the overall economic efficiency.”
The world’s second-largest economy may even slip into a period of deflation late this year or next year, he added.
Shi is an adviser to the government, specialising in reform. His think-tank is under the under the National Development and Reform Commission, China’s top economic planner.
But Shi warned that a downturn in property investment, which accounts for an eighth of gross domestic product (GDP), as shrinking land sales hit local government revenues, possibly forcing them to default on loans.
China’s banking regulator has issued guidance to banks to roll over some of their loans made to local governments to ward off a potential wave of defaults.
China cut banks’ required reserves on Saturday to support the economy that is widely expected to slowing this quarter for a fifth consecutive quarter. The market consensus is for full-year 2012 growth to have slipped to 8-9 per cent.
“But monetary policy cannot solve structural problems,” Shi said.
REFORMS STALLED China’s reforms were launched by former leader Deng Xiaoping in 1978 and gained steam after China’s entry into the World Trade Organisation in 2001, propelling the country’s break-neck growth in the past three decades, Shi said.
“Unfortunately, reforms have almost come to a standstill in recent years, especially concerning the monopoly,” Shi said.
State-owned firms have staged a come-back as they received the bulk of Beijing’s massive spending, sparking criticism that “the state advances and the private sector retreats”.
“There are growing calls for reforms, but such discussions are restricted to the academic circle,” said Shi, who was among economists who helped draft China’s reform plans in the 1980s to steer its transition from a planned economy.
Shi said “vested interests” — state giants in oil, power, railway and banking — are the biggest obstacle to reforms.
Premier Wen Jiabao has repeatedly called for accelerating reforms to help sustain economic growth, but Shi reckons that “stability” will be the watchword for the Chinese Communist Party ahead of its leadership transition in late 2012.”
What we know: Central CCP lords want local laddies to build crappy affordable homes. What’s different? They want the debt-riddled local lords to front up the $320 billion needed to snap them together.
Alas, the European soap opera saga never ends. I’ve been aware they possessed larger problems than the US since late ’08; remember me stating I predicted America’s implosion+aftermath in ’04 (unfamiliar newbies: I’ve also been forecasting China’s baby crap to splatter on the shit fan by ’13 or ’14). Europe, as China’s biggest export market, is a monster concern for China. Three dudes – Michael Novogratz, Jamie Zimmerman and the esteemable Jim Chanos – lament of the euro’s fate, saying it’ll be a “liability currency for years; Jim even believes some countries, including Greece and Portugal, will leave the EU.
Jim, as always, left several tasty nuggets on Europe, plus China;
Chanos said he is shorting, or betting against, Chinese developers and banks, as well as financial-services, machinery and cement companies. Chinese lenders don’t have enough capital to offset bad loans as economic growth slows, he said. He is also wagering against Australian and Brazilian mining companies, which sell commodities to China. In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.
“The government is now acknowledging it’s going to have to defer repayments of lots of loans,” said Chanos, who predicted the collapse of Enron Corp (ENRNQ). in 2001. “It’s just unprecedented, whether it’s infrastructure, manufacturing, residential real estate, commercial real estate. Everything now is going into over-supply over there.”

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