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China way overbuilt

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November 11, 2009 – Comments (11)

Here is an article which gives reasons to expect China's economy to have a severe down turn.

One thing the author questions is how a Chinese collapse would affect their ability to buy US debt and he suggests they would be able to buy any more.  

I can't see this going anywhere but to get very, very ugly.  I have been expecting interest rates to go up, and they haven't and I think the world wide government spending has something to do with that.  Governments do not have the capacity to keep this up for much long and all they have done is increased the problem, which is the burden of debt.

11 Comments – Post Your Own

#1) On November 11, 2009 at 7:37 AM, dudemonkey (40.14) wrote:

The Chinese stimulus bill is "the fish that got away."  It gets bigger and bigger with every retelling.

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#2) On November 11, 2009 at 9:09 AM, AdirondackFund (< 20) wrote:

This is a theme that I have been studying too.  I have absolutely no confidence in any of the GNP numbers coming out of China.  People forget that China is a Totalitarian State and they can say pretty much whatever they want and never be held accountable.  In the old days we used to measure 'capability' based on Political Arrangements, whereas today we choose to ignore them at our own peril. 

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#3) On November 11, 2009 at 9:20 AM, dibble905 (31.92) wrote:

Good read Dwot, something to think about for a China bull - such as myself.

AdirondackFund,

To be fair, you don't need to be a Totalitarian State to "say pretty much whatever they want and never be held accountable" -- this goes for just about any government big or small, totalitarian, republican, democratic, etc.

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#4) On November 11, 2009 at 11:06 AM, AdirondackFund (< 20) wrote:

Good point dibble905.  Thanks for pointing out the Political similarities between the US and China.  I hadn't realized that we had morphed into a Totalitarian State ourselves, but give it time.  It's only been a year. 

You know, it hasn't always been like this.  It is a fairly recent phenomena brought about by those who 'serve' Investors and quite possibly started in the 90's and is best reflected in companies like Enron which said pretty much whatever they wanted about their books and financial condition.

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#5) On November 11, 2009 at 11:54 AM, jstegma (29.28) wrote:

Adirondack is right about the Chinese growth numbers being suspicious.  China's system does not favor reporting bad news. 

A good example of the situation is the Great Leap Forward back in the Mao days.  The local officals felt pressure to report huge increases in crop yields so they just made them up.  "Crop yields increased by 15%."  But that meant that more grain was owed to the cities, and the peasants were stuck with imaginary grain that never existed.  Millions starved while the brass of the party was reporting a huge success in growing crops.

I suspect that this culture of inflating results still persists in the Chinese bureaucracy.  They do not embrace the accounting principle of conservatism.

The US may fudge this and that using geeky technical formulas, but somewhere in the foundation of the numbers there is the conservatism principle that simply does not exist in the Chinese numbers.  We also have a strong culture of getting paid for properly calling BS while China has a habit of executing dissenters.

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#6) On November 11, 2009 at 12:19 PM, prose976 (< 20) wrote:

My Mom and her friend recently returned from a trip to all the major cities in China.  Exactly as the article reports, there are wonderful new shops and plenty of nice things and services for sale but everything was empty.  $10 for a scoop of Hagen Daaz ice cream.

She called it all smoke and mirrors.  The "Build it and they will come" mentality.  Problem is...who the heck wants to live in China unless they have an open market economy, where a person can really get in on the gold rush?  Nobody.

So, unless China decides to do a 180 on its political structure, it is very likely they will end up in a very bad way as soon as all this stimulus money dissapates.

Watch out below!

Foo on!

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#7) On November 11, 2009 at 1:41 PM, JaysRage (89.09) wrote:

This was definitely worth the read, especially for someone who has been as confident in the Chinese economy as I have been.   It makes me happy that I have been choosy about the stocks that I put real money into, those that aren't dependent on "American-style consumerism".   Good old-fashioned food, technology and green energy......and avoid consumer goods, durable goods and consumer luxury.  

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#8) On November 11, 2009 at 2:23 PM, Tastylunch (29.31) wrote:

Yes this is well documented.Empty Buildings, bridge to nowhere,  etc galore.

 However since China still has a huge surplus and structural trade imbalances, they can keep stimulating virtually indefinitely. Basiclaly they cna keep the fraud going for years, where as we can't.

Timing China on the short side will be extremely extremely difficult.

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#9) On November 11, 2009 at 2:23 PM, Tastylunch (29.31) wrote:

If chanos is going short though, it probbaly is wise to consider closing any china longs you got.

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#10) On November 11, 2009 at 4:16 PM, JaysRage (89.09) wrote:

There is a big difference between recognizing that a company is phony and their balance sheets are bogus than asserting that an entire country is full of it.   I could care less about GDP numbers, as long as the companies that are reporting revenues and earnings are on the up and up. 

If all of the revenue and earnings that are reported by every Chinese company traded on global markets are complete bogus, that would an incomprehesably amazing accomplishment, 1000X more impressive than Enron.  

If true, I guess you can count me as one of the fooled, I guess.   They play an amazing game of fraud, including a number of companies that don't meet their revenue or earnings estimates sometimes.  If it was all a big sham, why bother to ever miss revenue or earnings? 

And I suppose the contract for the Texas wind farm to be produced by the Chinese turbine factory is fake money too?  Then why is the senator from New York so upset?   Is he in on the sham? 

Anecdotal evidence is just one person's experience and what happened to have caught their eye.  Empty malls mean nothing, unless they were once vibrant bustling centers of business, which I think is where the mis-understanding occurs.   I think you're looking at some failed business ventures........and probably by American companies, if they are talking about $10 Hagaan Daas ice cream in the same mall.   

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#11) On November 11, 2009 at 4:58 PM, angusthermopylae (39.33) wrote:

People forget that China is a Totalitarian State and they can say pretty much whatever they want and never be held accountable.

I'm back in grad school, and there are a lot of Chinese grad students there.  I've become close friends with several, and we talk about a wide variety of subjects.  They ask, and I tell them about, local customs, history, language, politics, and such, and they tell me about life in China along similar lines.

What I've noticed, though, is that (at least these guys) don't seem to be the results of a "Totalitarian State."  Don't get me wrong--they are very patriotic, and will stay up late to watch national events and ceremonies.

But to tell the truth, this small sample is actually very apolitical.  National politics doesn't seem to hold much interest for them; if what they say is true, it seems to be the default viewpoint.

There are probably varying reasons for this...too many to go into.  But trying to view China as a single, unified, totalitarian regime is probably faulty.  Even if this were true, the government still has to keep 1.5 billion citizens fed, clothed, housed, and employed in order to keep down trouble.

China is still subject to the same internal and external influences that everyone else is.  Drought, disaster, oversupply, scarcity, surplus...even just bad planning.  All of these can turn a powerhouse economy into a disaster area in a short period.

Just my inflation-adjusted 2 cents....

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