25 September 2011

China's Economic Problems Deepen; World Is Not Immune

“We’re reaching a tipping point where land sales are dropping much faster than before, developers are losing more access to bank financing, and housing prices are showing weakness,” Nomura’s Zhang said in an interview in Beijing yesterday.

...The price of land in Beijing slumped 76 percent in August from a month earlier, while in Guangzhou it plummeted 53 percent, according to Soufun. Land auction failures surged 242 percent in the first seven months of this year because of government curbs on the property market, the Beijing Times reported Aug. 3.

...Funding problems are just “the tip of the iceberg” and “sharp declines in property sales and prices are likely in the next two to three months,” said Shen Jianguang, an economist at Mizuho Securities Asia Ltd. in Hong Kong.

...“The risk of China replaying the hard landing of 2008 is increasing as the property sector cools and exports weaken,” Shen said. “ I fear that once the real economy deteriorates and officials do loosen policies, it will already be too late.” _Bloomberg

When global markets contracted in the 2008 crash, China lost a huge portion of its export income. Without its economic mainstay, China was forced to create an artificial real estate boom inside its own borders, to boost GDP and support employment. China's ongoing construction and real estate bubble has consumed a huge proportion of global commodities production -- helping to support the economies of commodities producing nations.

When China's internal bubble collapses, the repercussions will spread around the globe, adding to the ongoing economic turmoil.
In Europe, the situation may be more dire as the inability of policymakers to solve Greece's debt crisis over the last two years has allowed its problems to ripple into Italy, Spain and other struggling economies.

The stock market's slump this week resumes the sell-off that slammed share prices in early August. The Dow dived 2,000 points, or nearly 16%, from July 21 to Aug. 10. _LATimes
China's government is brittle, and difficult to change. When state policies fail and threaten to create massive disruption, China's brittle ruling apparatus may find itself at a loss.
In democracies, economic shocks typically result in electoral defeat for the incumbent government, which at least provides the public with someone to blame, and a test of the hypothesis that the crisis was the result of mismanagement.

In a closed oligarchy like that of China, there is no such mechanism. The system could break down from within, as factional disagreements within the central committee spill out into the broader party and the public at large. Alternatively, large-scale public protests, combined with disagreements over the extent to which repression is desirable and feasible, could bring about a rapid breakdown. _NationalInterest
The empire is still riding on its vast cash reserves, built up during the golden days of exporting. The clout from these reserves has allowed China to push Russia around in many ways, and to work its way into positions of strength and influence on several continents. But the economic equation is shifting and changing in several ways, both subtle and unsubtle. If China cannot shift and flow with the changing currents, terrible troubles may soon confront the celestial kingdom.
China has had a gigantic bubble. Now, will it collapse or will it just slow down, that is a different issue but some sectors of the economy will collapse," [Faber] said. _IndiaTimes

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Blogger PRCalDude said...

This had to happen. We kept hearing how the Chinese had all this money even though their inflation was out of control and costs to do business there kept rising. Once this pops, I think American corporate officer enthusiasm for the Far East will finally wane. The only question is if it's too late to get back our manufacturing and engineering ability.

Sunday, 25 September, 2011  

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