# China next for an economic crisis?



## Firefly

An interesting article from Time...

"In Wenzhou, a real estate agent recently offered free BMWs to anyone who bought a high-end apartment" Sounds familiar 

http://business.time.com/2012/02/27/why-china-will-have-an-economic-crisis/


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## Firefly

More iffy news from China...

[broken link removed]

Time for a China thread??


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## smiley

I was in Beijing, Shanghai and Hangzhou on business a few weeks ago. The growth is staggering.

Money is kept in the Country which is further fuel on the property fire. It will go pop, if it hasnt already started to do so.


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## T McGibney

I reckon they'll have a soft landing. The fundamentals are sound.


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## Marion

China has definitely turned the corner.

Marion


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## Purple

China is different (well it is; it's aggressive, diverse, a police state and it has a huge army. But I'm sure it will all turn out just fine, I mean it's not as if china has experienced cycles of growth followed by political and economic collapse before... Oh, wait a minute...


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## Chris

T McGibney said:


> I reckon they'll have a soft landing. The fundamentals are sound.



Hahahahahahaha, that made me laugh!!!


My opinion is that based on numbers China will have something of a soft landing, and agree with Marc Faber that if China's growth goes down below 5% it will be a technical recession and property is definitely in a bubble in China. But I'm also with Jim Rogers when it comes to China, i.e. that in the long run a soft, firm or hard landing in China will look like a blip.

I haven't been adding to my Asian investments (bar Japan) in the last 18 months, but I'm also not going to sell; I'm not clever enough to trade markets.


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## ringledman

Chris said:


> Hahahahahahaha, that made me laugh!!!
> 
> 
> My opinion is that based on numbers China will have something of a soft landing, and agree with Marc Faber that if China's growth goes down below 5% it will be a technical recession and property is definitely in a bubble in China. But I'm also with Jim Rogers when it comes to China, i.e. that in the long run a soft, firm or hard landing in China will look like a blip.
> 
> I haven't been adding to my Asian investments (bar Japan) in the last 18 months, but I'm also not going to sell; I'm not clever enough to trade markets.



As Faber say's, the USA went through depressions, wars, civil strife, stock/property crashes, to become the world's largest and most dominant economy. 

It wont be any different for China although I think their economy will hit number 1 spot long before their politcal power does.

As for Japan, I think this will be the number 1 investment market for the next decade. 

Amazing fundamentals. Totally ignored. As cheap as it was expensive during the 1990 bubble.

Massive regression to the mean to occur.


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## antin

Some interesting points raised by Anatole Keletsky published in The Times (UK) last Wednesday.

China's single party political structure has been a huge advantage to the county's development in terms of facilitating quick decision making and promoting creativity. 
He then goes on to highlight the difficulties that will emerge with an unchallenged communist regime, particularly in relation to China's one child policy which remains in existence today. He estimates that China's working population will peak this year and then will go into rapid decline. Today there are five workers aged 20-59 supporting every citizen over the age of 60. By 2032 that ratio will fall to just 2 - the same as it is today in Italy and Germany.
He states that one of the questions one constantly hears in China is: will we get old before we get rich or the other way round?


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## Firefly

See here

[broken link removed]


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## ringledman

An interesting take in this week's Moneyweek from James Ferguson, looking into the future of China: 

'...what had it achieved by the end of its surge in infrastructure investment? Had it acheived any brand recognition? Any corporate governance? Had it established any quality control? Were people actually buying its products because they were cheap but starting to appreciate the fact that they were high quality as well? The answer to all these things is 'no'. China has done none of this. I think history may well look back on China and say "what a waste".

Who know's how they will end up. Personally from an equity invetment point of view their neighbour Japan looks way better IMO.


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## Purple

ringledman said:


> An interesting take in this week's Moneyweek from James Ferguson, looking into the future of China:
> 
> '...what had it achieved by the end of its surge in infrastructure investment? Had it acheived any brand recognition? Any corporate governance? Had it established any quality control? Were people actually buying its products because they were cheap but starting to appreciate the fact that they were high quality as well? The answer to all these things is 'no'. China has done none of this. I think history may well look back on China and say "what a waste".
> 
> Who know's how they will end up. Personally from an equity invetment point of view their neighbour Japan looks way better IMO.



I'd replace "Japan" with "Korea".
We buy Korean machine tools ahead of Japanese ones; just as good but 30% of the price.


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## ringledman

Purple said:


> I'd replace "Japan" with "Korea".
> We buy Korean machine tools ahead of Japanese ones; just as good but 30% of the price.


 
Yes but Japan has seen a 30%-40% rise in the yen every decade for the last 40 years and still remains up there as one of the major exporter. Should the yen weaken then no doubt Japan will take its share back. 

They still make the world's best quality products. Testement to the world's best quality and technology that they remain a top manufacturer despite such crippling currency moves for their exporters.

There is a very good book on the rise of each Asian country from backwater to first world titled 'The miracle, the epic story of Asia's quest for wealth'. Very interesting account of the reasons for first Japan's rise then HK, Sing, SK, etc.

The thing with South Korea is that the equity market there always has the cloud of reunification over it.


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## Firefly

ringledman said:


> They still make the world's best quality products. Testement to the world's best quality and technology that they remain a top manufacturer despite such crippling currency moves for their exporters.


 
Hi ringledman,

What do you mean by "crippling currency moves" and if exporting was so important to Japan why would they implement such moves? Asking out of interest as no real understanding of this side of things.

Thanks,
Firefly.


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## ringledman

Firefly said:


> Hi ringledman,
> 
> What do you mean by "crippling currency moves" and if exporting was so important to Japan why would they implement such moves? Asking out of interest as no real understanding of this side of things.
> 
> Thanks,
> Firefly.


 
Japan has remained one of the world's largest exporters despite it's currency rising year after year. 

The Yen was at 360 to the dollar in the 70s and now stands at 82. I think various reasons have led to its rise. Japan's exporting machine and huge current account surpluses over the years. The Japanese government have for decades tried to pull it down but like most governments are useless at manipulating markets.

Should the yen finally weaken and as the Japanese market is priced so low on a price/book level and heading towards being cheap on a price/earnings basis, then there could be a large upside to the market there as exporters finally make the profit margins. They have had to run a very lean ship to cope with the pressure from the yen.

Japanese property is back to 70s levels. Japanese equities back to 80s level. This graphs tells an interesting story - 

http://greenbackd.files.wordpress.com/2010/02/grice-japan-net-net-1.png

All asset markets finally revert to the mean from either overvaluation (ie 2000 tech bubble) or undervaluation (ie japan now).


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## Firefly

ringledman said:


> Japanese property is back to 70s levels. *Japanese equities back to 80s level. *


 
Wow...didn't know that. Japanese ETF soemthing to think about for a novice?


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## flattea2

And if China goes pop then it has huge implications for Austrailia.... and the Irish over there.


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## Chris

One reason that Japan, and many other countries, significantly benefit from a strong currency is twofold. Firstly, Japan has no oil or gas resources, and also lacks most other raw commodities; a strong currency makes it a lot cheaper to import these and this reduces production costs while increasing competitiveness. Secondly, a strong currency attracts capital investment which increases investment in production. Germany after WWII was advised by everyone to weaken the currency; Ludwig Erhardt did the opposite and thus set one of the main foundation blocks of the so called economic miracle. Strong currencies are a good thing and should be strived towards.


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## joe sod

i think japan is the natural leader in asia, look at germany it was in the doldrums for twenty years and now it is head and shoulders above the rest of europe, japan technically is way ahead of the rest of asia and is much more mature, china has yet to be proved in innovation


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## Purple

China’s export and infrastructure led growth boom is coming to an end, i.e. getting to more sustainable levels, so they now have to create growth by developing  their domestic consumer market. Not an easy task for a police state.


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## RMCF

China will struggle when the West can't afford, or indeed want, the cheap stuff they make any more.


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## postman pat

maybe the boom will get boomier there too


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## Purple

RMCF said:


> China will struggle when the West can't afford, or indeed want, the cheap stuff they make any more.



China don't just make cheap stuff, they make everything.


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## Chris

Purple said:


> China don't just make cheap stuff, they make everything.



Very important point. I've heard too many times people commenting on cheap Chinese stuff with the indication being towards crap made of plastic that you find in crappy Christmas crackers.
But it doesn't take much to point out the obvious by just mentioning laptops, iPads, iPhones, electronic components for luxury cars, designer clothes and accessories, the list is endless.
The cheap crap is a minuscule part of Chinese exports.


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## JoeRoberts

When discussing the quality of Chinese goods you need to distinguish between goods made in China where a foreign multinational controls the quality process of the factory and the suppliers, as against goods made by Chinese companies that do not have the quality systems that the multinationals require.
A product from a Sony factory in China has the same quality as from a Sony factory in Japan.


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## Chris

And computers made by Chinese company Lenovo are of good enough quality to be used by many multinational corporations. The Chinese tyres on my car, made in China by a company that originated there, are as good as the Eurooean ones that my car came with.
Components in electrical equipment are often made in factories that their customers have no influence on; their customers have the ability to choose from hundreds of companies to get the quality they need without directly running quality control. The same goes for factory assembly line equipment.


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## Purple

In the 1350's almost half of the manufacted goods in the world were made in China. They are returning to what's normal for them, not becoming something new.


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## Law.Tuc

The 20 year plan for China hitting the right point. When they can do the change from an exporting country and build up their consumer market (cf. "Purple")


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## Crowealethea

China economy is unpredictable and need to see what they will do to overcome from this.


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## MichaelDes

Purple said:


> In the 1350's almost half of the manufacted goods in the world were made in China. They are returning to what's normal for them, not becoming something new.


The Chinese miracle is beginning to get stuck on several fronts, companies in the US re-shoring or moving to lower cost centres notably Mexico as it's closer to market with shorter runs, workers being replaced by robots with Fox Conn losing one million workers to robots (robot penetration in China is about five times lower compared to the US or Japan ), Chinese banks hiding the mother of all debt bombs, wage rises making the country uncompetitive, foreign companies concerned about copyright infringements, overpriced property market, power supply issue to factories (this is a problem throughout Asia though) and today the World bank markdown on growth by 50bps to 7.5% even though better than expected US retail sales and jobs data announced was then offset by an unexpected fall in prices for US imports and exports signalling cooler economic growth worldwide (cargo grew 6% on the Baltic Index last year to 16.3 TEU containers - so it's not all bad out there, the worlds still spinning).

But the Chinese miracle to continue needs growth rates in excess of 10% with the huge numbers moving to the East coast. Still it's a very impressive country, daily new cars sales greatly exceeds the yearly amounts for Ireland. They love there Western goods and it's been bumper times for many quality German manufacturers that have been dug out of a hole with European sales sliding down the drain yoy.

Btw *Ringledman*- have been watching Japan closely and the fundamentals are amazing. The topix index has been soaring, but have been put off by the expectation of Yen a depreciation, and also the fact net government debt as a proportion of GDP remains off the chart and worse than Irelands or Greece!

What’s going on? Seems strange considering the JP GDP figures are acknowledged as being much better than expected when considered against de-population over the last 10 years, and many wondered why confidence was good, shops busy but this did not reflect in the statistics. What's you viewpoint on Japan. It had been in the wilderness for years, spiked recently, and not suffered from the profit taking sell-off at the moment in most emerging markets.


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## Gerry Canning

Very interesting views; From a Donegal View China has .
1. Too many people.
2. Not enough arable land.
3. One child policy has skewed the Demographics.
4. Not enough natural resources.
5. Not enough water.
6. Are creating a 2nd class citizenship on the people migrating to towns.
Bad so far , but this China, has 
1.Taken 700 million out of poverty.
2. Has maintained social cohesion.
3. Has vastly improved infrstructure.
4. Has catapulted itself into a manufacturing collosuus.
5. Now are setting up a space station.
6. Changed leadership without upheaval .
7. Their people seem to be happy enough.
8. Their people seem to generally accept their style of Communism.

I wish them well.


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## Firefly

Interesting article here from Constantin Gurdgiev...

http://trueeconomics.blogspot.ie/2015/04/29415-chinas-debt-pile-is-frightening.html


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## Firefly

China looks to be in a spot of bother...

http://www.irishtimes.com/business/economy/the-great-fall-of-china-1.2279281

Anyone got any opinions?


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## Firefly

China's growth hits quarter-century low

http://www.reuters.com/article/us-china-markets-idUSKCN0UX043


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## Firefly

Watching BBC New at 10 last night and they were making the claim that due to the slowdown in China, the Chinese were dumping steel on the international market at a loss, which is being blamed for the lay-offs in Port Talbot...


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## Purple

Firefly said:


> Watching BBC New at 10 last night and they were making the claim that due to the slowdown in China, the Chinese were dumping steel on the international market at a loss, which is being blamed for the lay-offs in Port Talbot...


Between the downturn in the Chinese economy and the oil industry (a massive user of steel) the price of steel has plummeted and so Chinese producers are flooding the world market. To put it in context China produces half of all the steel in the world, 5 times as much as the entire EU. The EU taken as a unit is the second biggest producer with Japan and the USA third and fourth. Up until 2014 China consumed about 90-95% of it's own production.


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