What’s left of the debt-fueled property speculation that drove growth is a huge explosive mess and an enormous amount of debt. (You can also download the WOLF STREET REPORT wherever you get your podcasts).
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When you look at property, people can talk all the time about speculation and prices but generally there is one thing that holds it all up and that is buyers. China is not the only one, to have a massive loss in the numbers of potential young buyers through the lack of people having children but the numbers are staggering. I’ve seen a few numbers showing declining birth rates knocking about due to the one baby policy but its looking around the 12 million a year level. So, for the present age group of 20 to 30, that’s a missing 120 million, that’s 120 million not looking to buy apartments. Add to that a further 12 million each year from now on, in missing 20 year olds and it’s not hard to see why China may be heading into a housing problem. (and maybe problems in other areas as well, as you can’t sell electric cars, for example, to people who were not born)
Here in the UK we also now have a very low replacement rate but like many countries in the West we “import” children, so our population is growing. I believe China does not have a big immigration policy, so exactly where are all the buyers going to come from? Well they are not, at least for another 30 years or so and only if they can reverse their baby shortage. Tough times ahead, methinks….
China’s population has started to shrink. There’s nothing their govt can do to stop that downward slope which will only increase in steepness in the coming years. As an ethnostate they will never implement any policy which admits large numbers of immigrants. As every developed nation knows, financial incentive programs designed to encourage people to have more babies like generous daycare stipends, education stipends, maternity leave protections, etc don’t work. People in industrialized countries just want fewer or zero kids, full stop.
China’s rapidly aging population will soon leave them with the biggest inverted age pyramid in history. A majority of their GDP will start going to social welfare programs for the elderly and away from funds for the military.
They are fucked. Time to rattle sabers and make noise about invading Taiwan to distract their people from the CCP’s ineptitude.
As a GREAT fan of most, certainly not ALL, of my Chinese/American clients over many many years/decades, and having just listened to Wolf’s Report, for which I thank God as well as WR,,,
I am of the opinion, clearly biased,,, that China will do what needs to be done to either increase their more or less ”youthful” population, or really and truly ” cut back to the bank.”
That ”bank” being the bank(s) of their very wonderful and long running rivers.
Wolf has explained, to my total satisfaction, WHY no rational investor outside of China would continue to invest there,,,
but that is just an indication, one of many IMHO, why ”China” MUST agree to and adhere to many of the ”rules and regulations” of ”international trade,” as has been ruled and regulated for many decades..
Again IMHO, if China, or any other trading entity, fails to ”honor” global trading rules, as they SO clearly did years ago when my purchase of books there were SO cheap because of copyrights NOT honored,,,
we will most likely have to have one or more [[crises]]] until we have ”HONOR” of all copyrights of ”CREATORS” upon which WE the PEONS must insist globally,,, and, to be very very clear,,, UPON which the progress of our species and our GLOBAL wonderland depends now and forever.
AGAIN IMHO,,, ”Starve the ”creative ones,,, eventually Starve ALL of Us,, PEONS and Oligarchs alike…
Wow, did I miss the applause?
The UK has an immigration of the wrong type.
It has inflated property prices.
It has created an infrastructure problem.
It has created social problems.
It is costing the UK tax payer a fortune subsidising them.
It is going to also occur in the EU zone.
Tax donkeys are starting to figure what’s going on and are increasingly sealing up their tax wallets.
In addition to their U.K. wages going down so to match the levels of the immigration “donor” countries.
Less tax revenue + more dindu nuffins = breakdown of law and order.
Maybe 15-20 years down the road.
1-2 years no fuel to run economic engine equals disaster
The UK population may be “growing” but its economy certainly isn’t…
The UK’s GDP per head PPP global ranking has collapsed from around 25th to 37th place during the past quarter-century of (effectively) unlimited migration.
Resorting to immigration to create economic “growth” and keep a Ponzi financial system from blowing up is “can kicking” at it’s worst. Japan seems to have chosen a better path.
The UK, China, and the US do not have a “shortage” of people.
The EU already has enough problems without importing those from other countries who either can’t or won’t control their population and provide economic opportunity to theirs. It isn’t the responsibility of anyone else to do that.
Immigration policies in many EU countries along with demographic birthrates will lead to displacement of the European population and eventual destruction of European culture; effectively external conquest.
In bad economic times, sensible people adjust their procreation rates to *cope* with those bad times.
But we live in a demented age where allegedly representative governments (acting only in their own organizational interest) work very, very hard to defeat the efforts of its own citizens…by illegally and corruptly ignoring written laws (illegal immigration in the millions).
This is one of the core issues that illustrate just how, um, alien, governments can become relative to the much, much, much larger mass of citizens said governments playact as representing.
Destroying European culture is a feature, not a bug.
The UK currently has a massive shortage of various low wage workers, because only workers above a certain wage level are allowed to immigrate. Many of these were previously done by workers from the EU.
The problem is not too few people. It’s too much debt.
The world has too many people already. We’re crowding out all wildlife and wilderness. Let’s not promote more population growth so that greedy fools can avoid writing off their debts.
population excess was a myth which began with Malthus, 1720.
England did agriculture with hand implements
50% of population employed in agriculture
Malthus predicted world population would increase from 200M to 500M
at which time everyone would starve to death
obviously it did not happen
GDP growth =
population growth times productivity growth
falling population will cause major deflation
china has had a remarkable population control policy
they thought it would make them rich
by removing the costs of investing in children
i think it will be a great curse to them
it will also remove the wealth generating power
of young workers, employers, employees, citizens
Yes. However, in China reportedly the business model of most real estate developers was to get huge, pre-construction down payments in Ponzi like schemes that used later “purchasers” funds to finish prior purchasers’ property. Those development companies were usually run by CCP crooks that were steadily stealing funds from each developer, which is the reason that Ponzi schemes were used to get more.
The downturn in RE prices now likely will hammer China’s economy because Tofu like RE has been a huge portion of their country’s effectively stolen “savings/investments.” The numbers are amazing.
The local CCP governments are consequently deep in the guano, because they often made guarantees on loans and RE was their major revenue generator. They have amazing total debts allegedly. They fake numbers so much that the debt totals are probably not fully known.
Without any doubt, housing bubble is China is scary and no one can tell when the bubble will burst. This explains why we are seeing Chinese crackdown on “Too Big To Fail” real-estate developers” through tight monetary policy. However, the issue in China is moon to earth compared with our our own unique US-dictated model of money printing. Have we been shocked by the steep price increase in the past 12-18 months? That horrifying picture is not to going to end in the foreseeable future. In a nutshell, capitalism has already unfortunately died worldwide because of irresponsible governmental interventions.
Hanging in the wind. Who knows really how much and how widely spread bad debt in the shadow banking system there is.
How long before a major liquidity event triggered by fear that the government and the central bank can’t order people to ignore?
How many foreign banks and other investors are exposed directly or indirectly to the off balance sheet debt? Do they even know how much they’re in to?
How long before an entity, large enough to cause a liquidity event in Europe, Japan, China, is suspected of over exposure?
Events appear to be moving very fast, so mid-November?
As I understand shadow banking, it was created by Wall Street leveraging deposits at more than 50; at times, several hundred; which, in turn, saw the development of having to pass out to “friends” large batches of leverage to allow the development of the likes of hedge funds . . . which makes the recipients of the leverage unlikely to worry about the loss of funds they never worked for; more than anyone could ever create using conventional business purposes . . . so why would they worry about a liquidity event when such would only result in an eventual upgrade in the value of what was left?
Good point Chris:
From my POV, the worst component of the now more clear HUGE leveraging is the fact that WE the Peons, especially WE Peons who have worked hard and saved our money, have been paying and continue to pay for the ”derivatives” and other hidden ”stuff”.
And by stuff, I mean ”financial” manure that has no intrinsic value whatsoever.
Low or no real interest income from savings is just one way, but the increased degradation of the USD is the basic problem, and has been since the international banking cartels took over.
Looking at the charts of the loss of buying power since 2000 or other recent years used as a basis is one thing; looking at the degradation of the USD since 1913, the ”official version” of which is available at the BLS inflation calculator is quite another and even more alarming for anyone with savings, if for no other reason than as an indicator of what is still to come.
“…but the increased degradation of the USD is the basic problem, and has been since the international banking cartels took over.”
From the history I’ve read (Gods of Money), a century before any powerful international banking cartels existed, the good ol’ U.S. “money trust” cartel was fine with degrading the dollar if they could profit from it. This predation on the American public began with U.S. oligarchs creating macro-economic “crises” in the late 1800 when J.P. Morgan got the Sherman Silver Act repealed (silver reserves) so his cartel could exclusively manipulate gold as the only reserve.
“President Cleveland arranged for Morgan to create a private syndicate on Wall Street to supply the US Treasury with $65 million in gold, half of it from Europe, to float a bond issue that restored the treasury surplus of $100 million. The Treasury bonds were sold at rock-bottom sweetheart prices exclusively to the Morgan-Belmont syndicate, not to the general public. Morgan then resold the bonds at hefty premium to smaller regional banks and insurance companies, making a handsome profit at both ends of the deal at the expense of the economic health of the nation.
During the ensuing Great Depression of 1893, lasting for four full years, spending for capital goods collapsed, profits plunged, and depression hit the cities en masse. Over the course of this depression 15,000 businesses, 600 banks, and 74 railroads failed. There was severe unemployment and wide-scale protesting…”
This type of thing went on, in various domestic oligarchy strategies, for a hundred years or so until the U.S. oligarchs couldn’t exclusively control the system without getting in bed with international entities.
Concentrated wealth and power destroys free markets. There is no surer way to concentrate wealth and power than to license a privileged group the ability to create money.
It would be interesting to see the stress test & loss reserve requirements for highly leveraged positions at financial institutions dealing with the US banking system (inc Fed).
You can add the US to your list. The supposed financial wizards at the FRB aren’t any wiser than theirs.
Hey! I resemble that comment!
This can go on for a lot longer.
No big entity has to go bankrupt. The company simply issues Corporate Bonds and the Central Banks purchase them.
There is still another level to use after Central Banks, the Bank of International Settlement.
This can go on for quite a while longer.
Is the apartment discussion and ownership different in China than the USA? Most individuals don’t really buy apartments but rather pay rent monthly “usage” fee. The audio stated that China has the largest percentage of home ownership globally. Why are apartments, plural meaning building and the amenities, being discussed as impacting individual ownership?
Am I missing something?
The part you miss is one Chinese buys the entire apartment building and one Chinaman buys the entire townhouse complex. I know because I have the name of the buyer in Stouffville, Ontario Canada who bought the entire townhouse complex. This is what destroys foreign real estate markets and in this case the buyer lives in Stouffville.
Most people in China own their home debt-free. They have a title and are not renters. There is no property tax and utilities are supplied by the state and are very cheap. In urban areas everybody lives in mid-and high-rises. In rural areas, people live mostly in single family homes closely clustered together. There are no suburbs. Until 1998, every head of household got a home free as part of his job. These are all privately owned now. I have been in Qingdao for 7 years an down an apartment in a gated community. This is the standard way of building and living in China now.
Thanks for the insight and history. Good stuff. Are they condos or apartments? Sounds like 20 years ago they gifted everybody a “home” with all the amenities. Is your unit paid for (by whom) and do you pay anything to live there? Do you hold title?
“Apartment” is a housing unit in a multifamily building. This can be an owned apartment or a rental apartment.
There are several ways in the US in how apartment ownership can be structured legally, in terms of what you own and how you own it:
“Condo” (condominium): You own the interior walls of the apartment plus your percentage (such as 0.9% or whatever, based on square footage of your condo) of the building and land.
“Co-op”: you own shares of the building corporation not the apartment
“TIC” (tenancy in common, a San Francisco specialty). imho, no one should ever buy a TIC apartment.
You’re trying to put the US legal ownership definition of “condo” on the Chinese legal ownership definition.
Chinese ownership laws are different from the US “condo” definitions. For one thing, the land belongs to the state, and the building has a long-term lease on it. So apartment owners don’t own a percentage of the land.
I assume that homeowners own a percentage of the building in addition to the apartment, but I’m not sure.
roddy6667 might be able to explain what exactly you own (inside walls, % of building, etc.) when you own a Chinese apartment.
I own the same thing as a condo owner in the US. In the US you own a percent of the land shared with other condo owners. In China the government owns the land. In both cases, you have exclusive occupancy and usage of the unit. The inside walls, etc. Common areas are owned by the complex. I pay a fee of $25 US a month that covers maintenance, repairs, elevators, lobbies, foyers on all floors, trash pickup, lawn and landscaping, 6 fountains, and 24-hour live security with many, many cameras recording, outdoor and underground parking garage lighting, etc. There is no property tax. Heat is supplied by a community heating plant and costs less than $300 US for 151 days of heat. We bought our unit in 2009 for $101,000 US. It is sold as an empty shell. Another 20K finished it. No mortgage. Two identical units in our building in the past year sold for over $500,000 US. Yes, we have a title. It is recorded at a city office, and you get an official version for yourself. It looks like a passport, only larger.
Thank you Wolf, a primer I never got in high school or college.
In the old Eastern Europe countries of 1950s all the way to late 1990s, the State (via state owned enterprises) used to provide flats free of charge, with no prop tax and very low overheads. But the state was the ultimate owner. It was an effective way of securing the population’s unquestioned compliance.
Think USSR, Romania, Bulgaria, Poland, Yugoslavia. Czechoslovakia and Hungary as well I think. Mao’s China too.
Maybe the current Chinese model you describe is more akin to that?
The people own the home. Period. They buy them, they hold them, they sell them. Capitalism is alive and well in China. The government cracked down on huge businesses who want to exercise the powers they have as a monopoly. This needs to be done in America, which has turned into government and huge corporations ruling the land. When I went to school this was called fascism.
I’ve never read of housing as major control point in that era.
Stalin’s USSR & Mao’s China used sheer terror, killing (primarily starvation) tens of millions as they forced collectivization on agriculture (estimated 60-80M EXCLUDING additional WWII deaths…). At least in the USSR, concentration/death camps existed & consumed millions from 1920-1950s.
Healthcare and retirement payments are the biggest government tools for forcing compliance in USSA. Education (K-12 and college) is getting there. Housing will be next.
Standard template is to drive up the cost of the essentials, remove free competition and offer ‘affordable’ solutions.
Dependent population is compliant population. It’s less violent and far easier than open tyranny.
Let’s be clear that in China, under a totalitarian dictatorship, you only “own” what the CCP allows you to “own”. I put “own” in quotes because your rights as an owner in China are quite different than in a western nation with very different traditional concepts of ownership.
The Chinese ship of state had been sailing towards westernized economic and legal systems, but that has run aground under Xi. The future of “ownership” in China cannot be predicted.
The only thing a Chinese owner owns is a long term lease on a unit or house. They own nothing but the right to inhabit the space for up to 70 years max. If you buy a ten year old place, then you own a 60 year lease on the place, etc. This is why I don’t understand why prices rise as much as they do in China. Prices should be dropping as the unit ages and the lease is expiring.
The govt may renew the land lease on a building, but owners have no guarantee that it will. You might as just rent in China and pick up and move whenever you want. In their system owners are going into debt to pay rent. Might as well skip the debt and just pay the rent.
The lease rolls over and gets automatically renewed if the state does not want it. This is what will happen to most homes. If the city will needs it for a highway or something else, they pay you for it. Most people are quite pleased with the system. This is called Eminent Domain is America. In China they have it already set up, so they don’t have things tied up in court.
In Israel, the govenment owns the land. People still buy houses. It’s a different system than the US. Don’t forget that in America, the government can seize your house and land at any time they like. Google Kelo vs. City of New London. Even the city can seize your home for a private project, not even a public one.
Petunia, roddy6667’s post above has a different take on ownership than you state? Is there more than one ownership/use system in China? Curious to find out.
The Chinese govt owns all the land in China. When they “sell” land to develop, they are really only selling a 70 year lease on the land. All of China is under this system, but the actual sellers are the local govts, our city or county equivalent.
Maybe roddy6667 has no idea of what he actually owns.
“The lease rolls over and gets automatically renewed if the state does not want it. This is what will happen to most homes.”
So, to be fair, that indicates he does know that what he owns is a lease.
China’s land leasing system is less than 70 years old, so nobody knows whether these leases will be renewed or not. The Chinese govt may decide they want to be paid again, or they may decide to tear down the structure. It is not direct ownership of property.
To be fair, a similar system is in place in Hawaii, where high end condo’s are built on leased land owned by rich families. I believe those leases are ~100 years, but there are provisions for renewal in the contracts. This land lease system is also in place in Mexico, where waterfront condos are land leased to foreign buyers, because foreigners cannot legally own land in Mexico.
Bad events usually occur later than you expect and earlier than you are prepared for. The second condition results from the “false spring” effect of the first. Stay fresh, marines. You might not see them yet but the motion detectors are giving a clue that dark alien forces are assembling just beyond the barricades. Of course, corporate headquarters might be willing to sacrifice us in the name of profit development. So it’s gonna have to be low-interest flame units only in the tunnels near the reactor. Can’t allow that 3% live ammo to be chambered. The whole darn project could blow.
When you watch YouTube vlogs of Chinese ghost towns and see how much real estate has been built, part built and is empty and how fast these buildings are deteriating so fast it makes you wonder why anyone would invest in China property.
I am surprised that Chinese people didn’t just hold physical gold than falling apart empty buildings.
The Chinese will basically only invest in real estate and nothing else. As you can see in China the locals buy at any price making the Chinese the worst value investors.
It is not all black and white in China.
I am living here since over 25 years and have seen unbelievable improvements in all aspects of live.
When I first travelled to my wife’s hometown (it’s the rivertown decribed by Peter Hessler in his book “Rivertown”) it was unbelivable backward and outright dirty! If I drive their now it is a beautiful developed city with nice appartments and shopping malls, restaurants shops and factories as well as offices.
The improvements are incredible. I would nver have expected such a development. Most people own 2 -3 appartments, if they are middle class, more if they are upper class, none if they are below.
Part of it is because there are few other safe investment options with the stock market being a casino and on the mercy of government intervention.
Life has improved tremondously for everybody in China. People are working hard and earning reasonable money. They are die hard Dave Ramsey guys if they are older, saving their buts off to later live like no one else.
Only the younger generation resembles more of an american way of life, taking debts for houses and cars, but still due to high downpayment requirements few are in trouble to be underwater with their investments unlike US or European millenials.
Therefore even a big correction will not be a big problem for most of the people! They will not be amused, but it will not destroy them finacially!
“…Life has improved tremondously [sic] for everybody in China…”
I suspect the couple of million Uygurs slave labors in Chinese concentration camps might disagree with you. They might also take exception to forced “organ harvesting”.
JC-recalling a lyric from the late, great, Steve Goodman (which applies to ALL peoples, EVERYWHERE) :
“…and it ain’t too hard to get along with somebody else’s troubles, and they don’t make you lose any sleep at night…”.
may we all find a better day.
sounds like America, where the younger generation has been or is being subjugated to debt slave status to the older generation, courtesy of government and FED practices
I’m blowing the bullshit whistle on “subjugated younger debt slaves”:
US National Debt for selected fiscal years:
o 1999: $5.7T (Millennials now old enough to vote)
o 2008: $10.0T (end of Bush II presidency)
o 2016: $19.6T (end of Obama presidency)
o 2020: $26.9T (end of Trump presidency)
o 2021(est): $28.5T – BIDENS 1st YEAR IN OFFICE
Nobody gets to play the “…enslaved younger generation…” victim game: national debt has increased by 460% since Millennials (a larger group than Boomers) began to vote in 1999; Millennials have been voting for politicians running up the debt, just like everybody else.
Additionally, Millennials have exercised their full adult privilege to incur “college loans” for lots if questionable degrees & other expenses (spring break).
The “younger generations” are fully complicit in their financial mess…if you want to find the guy to blame it on, put your big boy pants on & go look in the mirror.
@ Javert Chip-
You know all about bullshit –
Bush wasn’t a millenial
Obama wasn’t a millenial
Trump wasn’t a millenial
Biden is not a millenial
I am not a millenial
and I doubt you are a millenial
The younger generation is mired in this financial mess, created by a FED creating money from nothing and blowing asset bubbles, pushing up the cost of living , the cost of housing, the cost of education, the cost of medical care, etc.
It was a much easier time in my day, and probably yours ….
The buildings are made of steel-reinforced concrette and do not eteriorate any faster than a concrete bridge abutment. The units above and below me in my Qingdao home sat for 5 years before they were finished. Other than some dust and a few cobwebs, no deterioration. You have to realize that those videos you watch on YouTube are not reality. They are usually posted by somebody with an agenda, especially those by the two guys on motorcycles.
Made in China rebar to provide strength to the Made in China concrete.
What were the components of the steel and the tensile strength? And what was the psi and slump test for the concrete?
Trust me, I’m from the Chinese government.
Probably have no access to gold state owns it
CCP created a lot of faked private enterprise in China, Hong Kong and Macau to be listed in capital markets. Prior to this move, they bribed or in cahoot with wall street and lawyer firms so that CCP can create fakeness in the markets. Because lawyer firms are the source of judges, prosecutors and lawyers in USA, CCP had collaborated, blackmailed and bribed all the big lawyer firms. As for wall street, they are earning the management fees no matter what happen to the funds they are managing. With all these, the monies cheated from capital markets are used to corrupt wall street and lawyer firms. It is further extended to the political arena. As such, USA is in such a chaos now.
When a communist system tries to use segments of capitalism to boost prosperity, it doesn’t quite work out.
It’s kinda like central bankers….
if you leave the free market alone, it will correct itself from time to time with the flushing of excesses…. known as corrections.
But, when the central bankers intervene, deny corrections and flushing of excesses, imbalances develop and excesses build. Then the eventual mega flush, the systemic threatening event. Result? More intervention, more concentrated power, more departure from the free market. And maybe that is all by design.
Here’s a little bit of economic history from the US Great Depression, a failed approach that economists do not want to repeat.
One of the most famous quotes from the depression is Andrew Mellon’s advise to the president:
“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”
Fiat money think they can do better than liquidation. When this episode of debt is over we will see if it was a better approach.
Except, Hoover didn’t take that advice.
Be careful you might get expelled
To that end I keep future tripping. What would stop the Central bankers from intervening if we have a large earthquake, mega drought, solar storm, nuclear accident….
What makes you think the government is going to continue to open up the wallet via loans/treasuries/IOUs for the money today without a thought for tomorrow?
“The Shanghai Composite had its largest weekly decline in 20-months on concerns that the government could get more aggressive in its efforts to contain rising home prices. Fearing a property bubble, the government has been trying to contain the market through tight policies.”
That story is from eight years ago. Also back in 2013, there were endless stories, including on “60 Minutes,” about “ghost cities” and the “real estate bubble.”
So the Evergrande debacle and the others were not unexpected by China. And even with the current focus on the RE bubbles, the Shanghai Composite has been on a steady climb, up 40% over the last three years. It seems that something much bigger than economics as we know it is at play. Adam Smith’s “invisible hand” may not be relevant there. Recall that about five years ago China even put strict limits on moving money out of China. We’re not in Kansas anymore.
In some ways China has done some remarkable things. They have moved hundreds of millions from the peasantry to the city … to live in huge farms of apartment blocks (reducing grinding poverty). They have flooded the economy with real estate money (especially through local governments) and infrastructure. What they have not done is allow individuals to make more money. The economy is still massively unbalanced with real estate and infrastructure making a higher percentage than any other country in history for this long. The consumer portion of the economy, despite years of efforts has not grown much in percentage terms.
The result is debt and lots of it. This is debt that has become increasingly non productive. Huge increases yield only marginal growth. The first airport helps growth, the 10th does too. The 1,000th, far less so.
The rich are still getting all the money they can out of China. They know what’s coming. That is the real canary. (My friend’s neighbor just rented out their house to a Chinese family recently arrived – father still in China family here – for 10,000 a month. Yup, money is still leaving China … lots of it.
Only a small fraction of wealthy Chinese are leaving. You see a few thousand Chinese in your city and you think that’s a lot.
It seems that something much bigger than economics as we know it is at play.
I would never bet against China. If it all blows up they’ll just do it differently. From what I understand their divisions are ruthlessly suppressed into mostly a homogeneous and directed operation on their citizens. They don’t seem to care about foreign criticism and have structured plans with measurable outcomes. 75 years ago they built runways one basket of earth at a time. Now they set up massive emergency hospitals in a few days. Empty buildings are bugger all from what I can see. Energy supply is a big big problem, as is pollution, but they’ll snap up supply contracts as per plan while the west is constantly in disarray and delusion. If the west tries to hem them in, as they seem to be trying to do now, one only needs to remember how well that worked out in 1940 with a different country.
You ever think about trying to get the foam mattress back in the shipping box? Not going to happen.
Yep, and that’s what makes the present situation so dangerous. The west trying to make sure there is no way out for China. If China’s property market truly collapses and all of the commoners gets hosed, then the external issue will become the only recourse. At that point, a 50% drop in the S&P is going to be the least of anyone’s problems.
This is why I’ve been saying for a couple of years now that Xi’s deviation from an established course, and negated basically thirty years of work by his predecessors, starting with Deng was highly dangerous. The only reason he has been more successful than others is because China had become indispensable in the 00s, and only more so in the 10s. There is still a chance he will pull things through, and I wouldn’t bet against it, but the odds aren’t in his favor. The west hasn’t helped at all, starting with idiotic populism that’s slowly turning more jingoistic, and well, the west has always been preachy. Goes back to missionary roots I guess.
I’m not sure that missionaries as we think of them have ever been much of a cause. Recall that early in the 19th century, Great Britain with its armada paid huge amount of silver to buy Chinese products such as tea, silks and porcelain. To compensate for their resulting trade deficit, British merchants sold opium to China.
So while the Yankees were still cleaning up after the Civil War and building farms and small industries, and with no navy, China opened five trading ports to Britain. It gave the British the right consider them British territory. It even made China cede Hong Kong to Britain after Britain lost its second Opium War. Apparently China didn’t like having 30% of its population become drug addicts.
It doesn’t seem that the U.S. at least is or has ever been interested in competing with China or ever had a missionary zeal. We are only interested in sticking to fair trade with a fair deal after we shake hands. Simple enough.
You seem to have a ton of your concepts almost exactly backwards, especially with re” who did what and with which and to whom” in the 19th century when ”Great Britain” ”ruled the waves”,,,
But also before and after that, when the clearly out of touch oligarchy in China just could not believe what was happening as the result of the many centuries of their total control of WE the PEONS…
That this is happening now in many places will not be and is not any surprise to those who have at least some perspective on his and her stories for the last thousand years or so…
How about you take a look at the Boxer Rebellion? And then elaborate about the lack of American interests in China over the years. And don’t tell me that you haven’t heard about our numerous CEOs who are interested in the Chinese markets. Everything from Hollywood to Apple to Walmart. Yes, our great CEOs, who are just wonderful human beings loved by all of America.
In China, there is a significantly negative view of western powers dating back to the British. The US is considered Imperialists for those very same reasons, although the Brits beat them to the punch. The US has done its best to make up for lost time.
As for competition, seriously, have you not heard Biden commenting earlier this year about US being the strongest competitor to China? Or Trump’s proclamations around China? You look at all the talk in the western world around politics and news media, is there any doubt that China sees the west as trying its best to constrain it? You know how China sees this… not much different from when the Brits made various demands of China backed by its navy. It sees a west that’s screwed with it over the course of the last century, and suddenly, it seems the same pattern is repeating.
I’m not saying that China is right, I’m just pointing out that history tend to be best not forgotten. Cause I can assure you, other people, most particularly, the victims, will remember. Most especially the horrible things that were done, and then neatly swept under the rug by the west that love to preach about human rights, and all the other things. You know… preaching, what missionaries love to do? It’s not that it’s wrong, but looking at the source, it just seems hypocritical.
An analogy would be Gavin Newsom telling people not to go maskless and gather in a crowd outside of your family, and then is photographed at the French Laundry… well, you know the rest.
Re: “I can assure you, other people, most particularly, the victims, will remember.” Usually, but not always. The memories of some nations can also be short.
Recall that after Japan invaded China in 1937, sparking the Sino-Japanese War, China fought Japan on its own for four years. Over 10 million Chinese died during that time. Then in 1941 a volunteer U.S. air corp, calling itself the “Flying Tigers,” came to help. It flew food and supplies over the Himalayan Mountains, the most rugged mountain terrain in the world, from India to China. We lost hundreds of planes during the three and half years it took to remove the Japanese.
Then just five years later, after North Korea invaded S. Korea, China forgot all that and helped the North fight the Americans, who were there to help the South, also “victims.”
No, I disagree, Chinese people definitely remembered. But let’s be honest, this was a situation where interest aligned. The US needed to fight Japan, and the volunteers were a great proxy to support China and bleed out the Japanese army.
The CCP also remembered very well that the same Americans supported the KMT during the civil war. So, given the rather antagonistic words being used in the Korean War, I am sure you can see why Mao decided it was better to fight in Korea than China.
The belligerence continued with two little islands names Matsu and Quemoy for a few years. And the only reason, there was rapprochement was because Nixon figured it was easier to give the Russians a belly ache by putting another enemy on their flank.
Let’s not kid ourselves, history has plenty of places where both sides can point their fingers. Yes… there are some fine people on both sides. The only reason no one interferes with the American civil war was because of two oceans.
One other thing, the Flying Tigers were there as a strategy to bleed the Japanese army by propping up the KMT and the communists, but it was also a bit of payback to the Japanese for the Panay incident and keeping up the pressure on the western front for Japan. But, the US hardly needed to do that, the only people who hated Japan more than the US back in that time frame was most of Asia.
Now, just as an aside, you probably should take a look at why the US Navy had a Yangtze patrol that basically lasted almost a century… and yes, the Yangtze is a river in China.
Re: “I am sure you can see why Mao decided it was better to fight in Korea than China.”
Not really. Two simple words to China’s arrogant juvenile neighbor, who was as totally dependent on China then as it is today, would have been easier than sending 3 million Chinese into a war against Americans: “Back off.”
What’s worse than a money/credit printer in a Western country?
A Dictatorship with a money printer.
Exactly how does a Politburo managed economy run out of coal when nearly 100% of their Thermal Coal is mined in China and Mongolia?
We get these two big China narratives, (1) China on the march to overtake world dominance. with money to throw around, and (2) China coming to grief on demographics, malinvestment and the breakdown of its model. It does seem (1) China’s rise since the 70s was head-spinning, and (2) this speed also included (and concealed) problems piling up at the same amazing rate, many of which are parallel to the developed world’s, but with Chinese characteristics, relating to its opacity and weird ways of managing (and mismanaging), top-down. (We have our weird ways too.) It is certainly a gripping puzzle to watch and try to unravel. Risks of social mania seem strong to me, one being, something like Japanese militarization in the 1930s.
How would you classify the current Chinese militarization that’s occuring?
Manifest Destiny. :P
Or, to reprise an old Firesign Theater album title (ol’ Earth being the vehicle and humans the passengers): “…we’re all Bozos on this bus…”.
may we all find a better day.
Bruce Sterling nailed it in ‘Taklamakan’:
Just the weather, basically.
Conservative investment isn’t that hard. Purchase something with a long term stable income stream, don’t use leverage and make sure your purchase price has a safety factor if things go wrong.
If following those rules you can’t buy the whole thing, then buy shares but follow the same rules.
@OldSchool – It IS hard when those options don’t exist in your nation, or may not exist in the future.
It’s hard even when those options exist.
Berkshire Hathaway still qualifies, but GE & IBM sure don’t.
@ Old School- No doubt you’re a Billionaire having recognized the simplicity of conservative investing.
Here’s a corollary: It’s quite easy to become rich ,,,,,,,,, just acquire a lot of wealth, property and money.
1) Linear thinkers : a 100 years chart from 1932 is a small step to the moon.
2) Sir John Glubb and Didier Sornette : every bubble have a terminal
3) SPX might decay to it’s backbone : Oct 2014 hi/ lo :
(4545 – 1900) : (4545 – 666) = 68%.
4) An anti bubble.
5) (4650 -1900) : 4650 – 666) = 69%.
6) The uptrend is very weak.
7) A bear market rally probably will not exceed the top.
Welcome back. I missed your comments.
Michael..we missed you….a fan.
Yes, welcome back, Mr. Engel. You have been missed.
If Chinese saving is extremely high relatively to the rest of the world and most of that is invested in real estate then don’t you face the argument that is sometimes used in this country about domestically owned government debt: Hey we owe it to each other; No big deal!
Will the Chinese government take control of the biggest companies by basically making their owned by China?
By US standards, 640 square feet per unit is tight for a family. That wasn’t the case 50 years ago as house sizes have been growing for a long time. Now my guess is that in the US 2000 square feet is not much more than a working man’s shack.
So, how long will it be before a lot of Chinese apartments start getting combined. Sure there’s expenses in such conversions but it will probably be cheaper than building a whole new larger apartment. And like Americans, Chinese people will just learn how to start enjoying the extra space, and spending more to furnish and maintain it.
FYI – America’s Federal Reserve model of dictated economic growth is blowing up.
Cause why? The real rule of law died sometime in the late 90s and early 00s.
Read through a story on civil forfeiture, and it may as well have been strong arm robbery perpetrated by the county and backed by the law.
I would say that it was the Law of Economics that has been violated by the Federal Reserve System and other central banks.
Capital must be of value, and future money must be worth more than current money. Negative interest rates, and as”historicus” reminds us, long term Treasury bonds trading at much less than inflation, are a violation of a sound monetary system & the Law of Economics.
I do agree with you on civil forfeiture though; it is simply robbery by those with guns and badges.
Last time I checked guns shoot two ways just saying
The Fed doesn’t dictate 6.5% economic growth. It prints money and represses interest rates and lets Wall Street run wild and makes the rich richer. That’s a very different economic model, I’d venture to say.
So could this solution be considered “suspend and extend?”
As opposed to “extend and pretend?”
The shadow banking system – for which numbers are available – is a gigantic inverted pyramid, based on a narrow base of collateral.
It really got going after banking regulation was tightened somewhat after the GFC. There’s no real regulation of shadow banking.
A lot of it is based in ‘offshore financial centres’. In onshore locations, the UK, the Netherlands and Ireland seem to have particularly extreme exposure.
Much of the small collateral base is US govt debt paper.
It’s been said that the system uses the same collateral multiple times – a bit like taking out multiple mortgages on the same house.
What could possibly go wrong?
If this is the case, it is only so because favored entities are allowed to create money out of nothing.
In a way, there is a common thread through all of this, whether it’s the US, or China, or cold war Soviet Union. There are always suckers, and it is always the same group. Usually, they are the ones who are highly uneducated and gets taken advantage of by empty promises and nice sounding words. When the time comes for the inevitable collapse, the elites are out of there, then the guys who are a little higher up than the peasants get royally screwed by whatever government mandates that comes down.
It is the course of history, there are no real socialists or communists, the ones who loudly proclaim themselves as such (and happen to be in charge) are never the one who has to go without heat, or electricity, or shelter, or food. It’s always the true believers (the suckers) who believe in those lies that are the ones to go without. And by the way, the second those true believers get a hold of power or money, or anything like it, they instantly become the same people they used to detest.
I couldn’t decide if that comment was about China, Soviet, Venezuala, or Texas. :-)
Liked the last sentence….sad but oh so true. Power power power then the connected get rich on yours/our dime. Everywhere, especially in the west.
All the above, +many others.
But then I haven’t been educated in the ways of equity, cis-ism, and a bunch of other stuff they are teaching kids today. So, what do I know.
Why leave out Capitalism? Is that not a pretty good system to concentrate wealth and power, destroy free markets and squeeze the little guy?
My quantum physics professor at the U of MN was on the last boat out of mainland China to Taiwan in 1949. His kids went to my high school.
My bachelor’s in physics took me five years. The professor’s son’s bachelor’s, master’s & PhD. took five years total. The daughter’s bachelor’s took her less than three years to earn.
No, the Chinese are not stupid. At least, not the ones that I know.
China is a giant economic lie. Their money printing makes Jerome Powell look like a piker. Yet the world accepts all of China’s lies and environmental destruction because greedy US businessmen and politicians became fantastically wealthy using China for their global labor arbitrage scheme, selling out the US worker.
Most people cannot conceive of the damage to the planet that China has done over the past 25 years. Back in the late 90s, I pointed out to family that China was building a city the size of Philadelphia every month. China poured more concrete in a 3 year span than the United States did in the entire 20th century. Contemplate that.
Their waste of natural resources alone, in conjunction with the associated land rape, is perhaps the most destructive act upon mother earth that has ever been perpetrated. All so a bunch of idiots can “invest” in an airbox. What an absolutely filthy, sinful model.
You have to remember, the damage done to the planet by China is at the behest of the rest of the world… us. Cause you know, we like our Walmart and Apple stuff. (I use those two examples because they literally cover everything you need to know about the consumer economy from the cheapest to the most outrageously expensive) Who gets screwed in the process, well, duh, the same guys that always gets screwed. The peasants. Whether it be the peasants in China or in the US. Yeah, we probably should use that politically incorrect term, but let’s face it, that’s what we are. Easier to face reality when you’re five feet under vs eight feet under.
But hey, let’s ignore all of that and celebrate ESG investing. Cause that’ll change the world.
Even better, we tried to throw our junk back to China. Of course now they are too smart to accept it.
Not sure if it is a complete lie. It seems like everything I buy is made in China. I remember making the comment 25 years ago to a friend how all small junky stuff like decorations were made in China. They moved up the value chain and now it is all TVs, computers, cell phones, car parts, etc. The U.S. would stop functioning without China. It is almost impossible to find a car to buy.
The U.S. is just service based. If people would start mowing their own yard and making their own coffee and cooking their own food….the U.S. economy would probably collapse. LOL
I’m old enough to remember when Made In Japan meant junk. When I was a kid my relatives brought me miniature radios, record players, and electronic toys from Japan. Most lasted a very short time, batteries would leak, dials would break, or they just stop working. This was in the 1960’s, by the 1970’s products were much better.
Pet-Japan realized its situation in world trade and ,
made a conscious effort to improve perceived quality of Japanese goods with the formation of the MITI. PRC/offshoring U.S. manufacturers found early on that U.S. consumers were more than happy to accept lower quality at insanely lower pricing because they could have-more stuff with a low replacement cost…(longterm, the growing inability of many of our fellow citizens to discern actual quality/cost of an item for themselves has led to much general grousing about Chinese/U.S. -factored goods, but little willingness to accept the costs of higher quality as world wages continue to seek a lower and lower universal equilibrium…).
may we all find a better day.
Before we get all sweaty mourning the supposed demise of US manufacturing, perhaps some actual facts might be in order:
o Global manufacturing totals $13.7T
o #1 China ($8.7T) + #2 US ($4.0T) represents $6.2T or 45% of global manufacturing
o The “top 5” global manufactures represent $8.4T or 62% of global manufacturing
o The “top 5” manufacturing nations are:
– China $8.7T
– USA $4.0T
– Japan $2.2T
– Germany $0.8T
– Korea 0.4T
o The EU (27 nations with 150% of US population) about equals US manufacturing value
o Russia comes in at #11 with 0.2T (roughly 10% of US manufacturing)
Ok. obviously, I made a couple mistakes in the above; with apologies, here the corrected numbers:
Global manufacturing totals $13.7T
o #1 China ($4.0T) + #2 US ($2.2T) represents $6.2T or 45% of global manufacturing (THIS LINE ITEM CHANGED)
o The “top 5” global manufactures represent $8.4T or 62% of global manufacturing
o The “top 5” manufacturing nations are:
– China $4.0T (THIS LINE ITEM CHANGED)
– USA $2.2T (THIS LINE ITEM CHANGED)
– Japan $1.0T (THIS LINE ITEM CHANGED)
– Germany $0.8T
– Korea 0.4T
o The EU (27 nations with 150% of US population) about equals US manufacturing value
o Russia comes in at #11 with 0.2T (roughly 10% of US manufacturing)
JC, check your math? Some of the number don’t add up to me….
Sorry J.C., I didn’t see your corrected post before I posted the above. Thanks for the interesting data.
Yeah, well if mommy and daddy can’t buy junior the PS5 he craves for Xmas..
…we’ll be on our knees *begging* them to build more coal plants. Just as long as it’s not in their backyard.
Remember the explosive growth of railroads and manufacturing in the latter part of the 19th Century in the U.S.
A mess of debt was one leftover and investors, many in Europe, took a beating.
But the United States had used that money to build a web of operating railroads and a massive manufacturing base, surpassing all of the old powers.
It might be correct to consider all that has been built in China over the last 20 years or so when deciding on whether China’s economic plan is succeeding or failing.
For the record, I don’t intend to defend the environmental effects in China nor do I think a directed economy will be the long-term winner.
But comparing the current U.S. system v. China’s system is like rummaging through the closet for the least dirty shirt.
U.S. capitalism over the last 20 years, it seems tome, has been focused on financial engineering.
The top U.S. business schools have classes teaching how to export the U.S. manufacturing to cheaper locales. The graduates go to McKinsey or the executive suites of GE, Caterpillar, Ford, and P&G and do just what they were taught.
Agree. Other than the uses to which debt proceeds have been put, I find China’s debt-fueled development of speculative residential properties (and a portion of infrastructure) to be conceptually similar to the debt-funded increases in the prices of stocks and bonds in the U.S. under the Fed’s purported “Wealth Effect” that has so benefited a narrow segment of the population financially while contributing to increased inequality and a decline in productivity. Merely different asset categories sponsored by the respective governments and central banks and funded with debt to create enormous asset price bubbles. Hard to say who has “the least dirty shirt”. Suppose time will tel.
Absolutely agree. Our financialization schemes have hollowed-out…most of nearly everything. At least China has world-leading infrastructure and manufacturing capabilities to show for its shenanigans…us? Not so much.
More people are waking up to this…and that’s good…but it’s difficult to see how the USA digs itself out of this mess.
Not to mention that we also stole a ton of technologies from the UK. Basically China has been following our script almost to a T, and that obviously has frightened quite a few people. Now in a world of bountiful energy, I would say it’s inevitable they would become the most powerful country in the world in the future. BUT, energy is limited so unless they were to come up with a mind boggling energy breakthrough sometime in the near future, the best thing to do is just mind our own business.
I heard value of China’s real estate is 60 Trillion or 2X the US. If they have a real estate problem it’s a big problem.
China warehoused all (and I do mean *all*) of its debt and took it off the books in 1993. It then depreciated the Yuan and US FDI flooded in, effectively, prevented them from succumbing to inflation.
The PRC *might* be able to do so again. Wall Street seems awfully keen to invest there..even after they are taught the “rules of engagement”. Perhaps it will really come down to whether the CCP still wishes to accept their dollars? Or not. I don’t know.
Retail is up big today. Macys, Dillards, etc.
Money is flowing out of peoples pockets like water.
Stocks, Cryptos, Services, consumer goods, housing, and even oil.
Warren Buffet said they have been raising prices but the consumer keeps coming back and pays the higher price.
As I said, best crisis ever. We have 700K people dead and yet the rest clearly came out ahead.
Clearly we need a new virus so that we can get even richer. Forget the Magical Money Tree, capitalism, self driving car, etc, etc.
It hasn’t even been a month since the enhanced UE bennies ended. The idea that every one of those recipients would be flat broke the moment the checks stopped is myopic and delusional. A large percentage were getting more money than they ever earned in life. Many have a large chunk of cash as a result. Remember, they didn’t have to pay rent, either (and still don’t in some places). They were/are swimming in Powellbucks.
Get back to me in 6-8 months and tell me how money is flowing out of pockets like water. Ain’t happenin’ unless there’s some more helicopter money. This whole sham is drying up as I type, it just takes a while.
People are spending their dollars like they are going out of style; and they are.
New term today. “Money POOR but Credit RICH”
The Chinese will not have to do anything. The Fed will over to bail them out. Otherwise the Spoos might tank, and we just can’t have that, can we?
Won’t someone think of our retail investors?
The Fed will offer to bail them out.
I have never been so ready.
That’s assuming if you are around in another eight months. Heard a rumor going around, JP is going down, this time it’s gonna stick.
I know, you say you came by your wealth as a matter of luck, ain’t never broke no law. But whether you broke the law or not is irrelevant, somebody posted your stock trades for the last eighteen months. Now, gonna guess that isn’t because they want to protect you.
But look, you had a nice run, cops on the corner always ignored, somebody was getting paid, JP’s got it wired and the law was for hire. You had it made in the shade. But your time is up. And looks like you’re running out of juice. So, time to move out quick.
Haha, can you guess where I plagiarized most of this comment from?
Not sure. But whatever the charge is, I am innocent!
No JP, you aren’t innocent…. You are transitory.
Come on, you have had to see that one coming from a mile away.
Wolf doesn’t see the real problem, though, does he?
This property boomed fueled an expansion of industrial capacity in the PRC.
Do you think they will remove capacity or simply dump the excess onto world export markets?
I know what I think will happen
Great report, Wolf. Really appreciated your viewpoints.
The CCP made a mercantilist economy that has reached some barriers now. The centrally planned activities have met the ever-present malinvestment in many markets, e.g. Real Estate.
The problems with Hong Kong and eventually Taiwan are an extreme danger for a hot war. If you think we have economic issues now, wait until that happens.
I have been concerned about this for decades. It might actually be happening soon. I hope not.
“It’s mind boggling just how important the residential property sector is to the” .. Australian “economy.”
We were nothing before ..
Is this because the Australian government had not the skilled knowhow to foster & nurture diverse investment for the nation ??
“Apartment’s are what Chinese households invest in, not just own apartment’s to live in but also as investments to remain .. [empty] .. ”
This mentality is so old fashioned
Do not rent out, they will destroy it / it will diminish in value
What .. sitting empty growing out of fashion won’t ??
This is the ancient thinking of hoarders & not good property investment .. but it also makes no sense .. isn’t property profit driven ??
How can there be profit with no rent collection ??
Is it that we are loathed to foot the bill for the services that are necessary thereof ??
But also .. residential property is worthless if it is not surrounded by real estate development to service the residential asset.
A park is worth more than the whole street of residential development
When you buy or rent you pay through the nose for the scenery ..
What is being taught in business schools today
How to tie ancient sailors knots ??
This is flawed thinking .. a venture that can never succeed .. but that it is artificially supported with government money to the detriment of the nations economy.
Be a little bit proud of me please.
Your gunna leave them empty to minimise tax ??
Why not donate that tax money to a .. not for profit charity that facilitates the residential real estate you own .. which will increase the value of your investment in leaps & bounds ??
It’s the Caucus race from Alice in Wonderland .. In order to get dry after a swim, the Dodo proposes that they run a Caucus race – where the participants run in patterns of any shape, starting & leaving off when ever they like, so that everyone wins. At the end of the race, Alice distributes comfits from her pocket to al as prizes.
Seems like an old Ludwig von Mises calculation debate coming up.
Gather around girls …
talk to me girl, speak
bold girls, artistic like
you just sing and let all the other chatter go wherever that chatter goes
a big talks, orchestrates shit, super hotties and good songs