Credit And Housing Bubble In China - Will It Burst And How Will It Affect Thailand?

[ExpatOilWorker]

We are now 5 years into the Global Financial Crises and so far China has not been affected, or has it?

So far there have been a lot of writing about shadow banking, years of a overheating housing/condo market and lately a slowdown in GDP growth for China.
How and when will a credit and/or housing debt collapse unfold in China?

Interesting enough bad times in China could benefit Thailand. No doubt, there is a lot of wealth in China, but if the dream of endless growth is over, rich Chinese will most likely invest outside their own borders. Singapore is already feeling the cash inflow, but with less regulation some of the 3.6 million Chinese tourist that visited Thailand in 2012, might settle here for a second home.

[davejones]

As China grows, I think Thailand will benefit. I've met lots of Chinese in Chiang Mai that love it, and think it's more friendly than China. Many will end up buying property here, so sure to push up prices. I don't think a collapse in China would benefit Thailand - probably the opposite. The rich will invest in global cities - London, New York, HK, etc. They know their money will be safe there,

[ExpatOilWorker]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

[chainarong]

I would watch their banking sector, they have a funny way of recording defaults on outstanding loans, not all seems what it seems, I know some people like, are getting a bit touchy about this

[yoshiwara]

Speculative junk observations.

[mccw]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

Where as USA is not hardly growing at all yet the stock market is levitating like the Hindenburg.

[yoshiwara]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

Where as USA is not hardly growing at all yet the stock market is levitating like the Hindenburg.

....and at the same time the gold bugs are waving at them going in the opposite direction.

[davejones]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

Often, the stock market doesn't reflect the reality of the situation. Maybe it got too high and now it's coming back to normal. Or maybe investors see big money around the corner. Or maybe people prefer to invest in USA where they are practically giving money away. Give people cheap money and they have to invest somewhere. That's usually stocks or property.

[ExpatOilWorker]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

Often, the stock market doesn't reflect the reality of the situation. Maybe it got too high and now it's coming back to normal. Or maybe investors see big money around the corner. Or maybe people prefer to invest in USA where they are practically giving money away. Give people cheap money and they have to invest somewhere. That's usually stocks or property.

I agree with you that stock markets in short term (1-2 years) can over and under shoot fundamental logic and market valuation, but generally and long term the broader stock Indexes are good barometers for value being generated.

Two good examples are the Egyptian and Thai stock markets. During the first few days of the Arab spring in Egypt, the Egyptian stock market dropped off a cliff (when it finally opened). Despite of military coup, airport closure, occupying and burning part of the center of Bangkok, the SET index did nothing......it stayed flat. At the time Central World was burning and blood was being washed off the street, I could not comprehend why.

Now, a few years down the road, it is crystal clear. Egypt was heading for troubled times, but in Thailand it was just a temporary interruption. In both cases the stock market reacted correctly.

Things could be different in China, but 7-10% annual growth combined with a 63% drop in the stock market just doesn't sound right.

[davejones]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

Often, the stock market doesn't reflect the reality of the situation. Maybe it got too high and now it's coming back to normal. Or maybe investors see big money around the corner. Or maybe people prefer to invest in USA where they are practically giving money away. Give people cheap money and they have to invest somewhere. That's usually stocks or property.

I agree with you that stock markets in short term (1-2 years) can over and under shoot fundamental logic and market valuation, but generally and long term the broader stock Indexes are good barometers for value being generated.

Two good examples are the Egyptian and Thai stock markets. During the first few days of the Arab spring in Egypt, the Egyptian stock market dropped off a cliff (when it finally opened). Despite of military coup, airport closure, occupying and burning part of the center of Bangkok, the SET index did nothing......it stayed flat. At the time Central World was burning and blood was being washed off the street, I could not comprehend why.

Now, a few years down the road, it is crystal clear. Egypt was heading for troubled times, but in Thailand it was just a temporary interruption. In both cases the stock market reacted correctly.

Things could be different in China, but 7-10% annual growth combined with a 63% drop in the stock market just doesn't sound right.

So what do you think/suspect is going wrong. If growth is 7-10% a year, then maybe the stock market surged too much to begin with, maybe in a similar way to the dot com crash. With the dot coms, valuations got way too far ahead of themselves. They crashed back and took years to recover, even though many dot com companies were increasing profits in that time. Are there any theories as to why there is such a big difference?

[allalong]

Dont speculate on Chinas banks and economy in a negative way.they are doing just fine.ICBC and Bank of China are very well run and dont they have bonds of a certain western economy up to its ears in debt?

Sent from my GT-S7500L using Thaivisa Connect Thailand mobile app

[Naam]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

[midas]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

How do you value 64 million empty apartments in China that no one can afford to occupy?

[Naam]

I agree with you that stock markets in short term (1-2 years) can over
and under shoot fundamental logic and market valuation, but generally
and long term the broader stock Indexes are good barometers for value
being generated.

i repeat they are not. in most cased ther valuations of shares/stocks are

based on the mercy, stupidity, greed and of course the cleverness of

investors's offer and demand.

in the 80s the Nikkei225 went from 3,000 to 38,500 (1989) but a 13-fold value

was not created. it was nothing but "casino and gambling" and in a lesser way

that applies to most stock markets.

completely irrelevant are indices, e.g. Brazil, Egypt or Venezuela, where the price

of one or a couple of stocks can move an index 10% up or down whilst the remaining

ones are moving into the opposite direction. that happens even in highly capitalised

markets (e.g. DOW) where one heavily weighted stock lifts or depresses the whole

index and the other 31 stocks lose or gain.

i apologise for being such a pain in the àss

[mccw]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

How do you value 64 million empty apartments in China that no one can afford to occupy?

Maybe when the government is forced to take over these debts they wil simply give them away (or close to give away) to the millions of poor. Communist country could do that kind of thing and double popular ie popular with the new home owners and popular with the banks / developers getting bailed out; they could print up a load of currency to finance it n maybe its equal a small step to keeping pace with the American money creation/ devaluation. It would probably stimulate the economy as well since a load of new people have assets that can be borrowed against.

Not saying it will happen, but all dorts of things are possible.

[Naam]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

How do you value 64 million empty apartments in China that no one can afford to occupy?

i would like to know who counted all these empty apartments, who thinks they are without value and who is not aware that China needs per annum 20-24 million housing units. some, or even most of the existing apartments might not be affordable for the average Chinese Bill, Buck, Hank or Joe. but the time will come when they will be affordable and occupied as the move from rural to urban areas is accelerating exponentially.

[Naam]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

How do you value 64 million empty apartments in China that no one can afford to occupy?

Maybe when the government is forced to take over these debts they wil simply give them away (or close to give away) to the millions of poor. Communist country could do that kind of thing and double popular ie popular with the new home owners and popular with the banks / developers getting bailed out; they could print up a load of currency to finance it n maybe its equal a small step to keeping pace with the American money creation/ devaluation. It would probably stimulate the economy as well since a load of new people have assets that can be borrowed against.

Not saying it will happen, but all dorts of things are possible.

indeed a possibility.

[ExpatOilWorker]

I guess we will soon find out. China has had 7-10% growth and still the Shanghai Index has dropped from 6,000 to 2,200 the last 5 1/2 years.

It is like China is growing, but not creating any value.

stock markets do not reflect the economic situation of a country. and if you think years of double or nearly double digit growth rates did not create any value then try to think again... more rationally.

How do you value 64 million empty apartments in China that no one can afford to occupy?

i would like to know who counted all these empty apartments, who thinks they are without value and who is not aware that China needs per annum 20-24 million housing units. some, or even most of the existing apartments might not be affordable for the average Chinese Bill, Buck, Hank or Joe. but the time will come when they will be affordable and occupied as the move from rural to urban areas is accelerating exponentially.

Ghost Cities in China: http://www.cbsnews.com/video/watch/?id=50142079n

It is hard to put any value to empty apartments, when there is no rental income. There might be a future demand, but when? Next year or in 10-20 years?

[Naam]

It is hard to put any value to empty apartments, when there is no rental
income. There might be a future demand, but when? Next year or in 10-20
years?

without any doubt value was already created but it can't of course be quantified.

-the apartments exist, only an economic dummy would claim they don't possess

any value,

-the work force that built the apartments was paid = value generated,

-salaries and wages were taxed = revenue/value was generated,

-a part of net salaries and wages were saved = value was accumulated,

-another part of wages and salaries was spent on products = value and revenue was generated.

shall i go on? no problem to list another dozen examples.

[midas]

mccw your suggestion could be nice in principle but from reading these two articles it sounds as if psychologically this scenario could never happen because there are too many parties involved and all these different vested interests have a strange and seemingly unshakeable view that real estate values in China only ever go UP !

http://www.thechinabeat.org/?p=3610

http://www.washingtonpost.com/blogs/worldviews/wp/2013/02/25/chinas-riskiest-property-market-just-collapsed-is-this-how-it-starts/

Edited April 22, 2013 by midas

[midas]

It is hard to put any value to empty apartments, when there is no rental

income. There might be a future demand, but when? Next year or in 10-20

years?

without any doubt value was already created but it can't of course be quantified.

-the apartments exist, only an economic dummy would claim they don't possess

any value,

-the work force that built the apartments was paid = value generated,

-salaries and wages were taxed = revenue/value was generated,

-a part of net salaries and wages were saved = value was accumulated,

-another part of wages and salaries was spent on products = value and revenue was generated.

shall i go on? no problem to list another dozen examples.

But these activities have not created a sustainable economic model where the product of such labour can generate a stable revenue stream? If a group of workers dig a hole in the ground and then fill it back up again yes everyone earned a salary and they can then go off and purchase consumer items with this money. but how does this help in the long run? What comes next another hole?

[Naam]

But these activities have not created a sustainable economic model where
the product of such labour can generate a stable revenue stream?

the Chinese are running since nearly two decades an economic model most,

if not all, countries would like to have.

no yada yada sidestepping yakety-yak diversion changes that fact. period!

[ExpatOilWorker]

It is hard to put any value to empty apartments, when there is no rental

income. There might be a future demand, but when? Next year or in 10-20

years?

without any doubt value was already created but it can't of course be quantified.

-the apartments exist, only an economic dummy would claim they don't possess

any value,.......Unless they deteriorate over time for lack of maintenance and will be have to be torn down later.

-the work force that built the apartments was paid = value generated,...Income was generated. If you pay somebody $10 to make a 8$ product, no value was generated.

-salaries and wages were taxed = revenue/value was generated,......Yes, but only for the goverment.

-a part of net salaries and wages were saved = value was accumulated,.....Unless they invested it in the local stock market.

-another part of wages and salaries was spent on products = value and revenue was generated. Correct.

shall i go on? no problem to list another dozen examples.

[yoshiwara]

The trouble with Planet Eventually is that it freezes the inhabitants into permanent inactivity fearing for the future. Current China stats are mixed but the growth figures will have had no attraction for our gold bug friends worrying about the end of the world for ever and ever.

[midas]

But these activities have not created a sustainable economic model where

the product of such labour can generate a stable revenue stream?

the Chinese are running since nearly two decades an economic model most,

if not all, countries would like to have.

no yada yada sidestepping yakety-yak diversion changes that fact. period!

an economic model most, ifnot all, countries would like to have.

I don't think " most if not all countries " would want chickens, pigs, dogs, and fish dying inexplicably and polluting their waterways without even mentioning the 300,000 tons of dust and sand which annually covers Beijing as well as much of northern China that didn't used to happen on this scale before the beginning of the Chinese “ economic miracle “?

Edited April 22, 2013 by midas

[Naam]

3½ Trillion (3,500,000,000,000) Dollars value of reserves do not exactly point to "no value generated" or "holes dug and filled".

Dear God,

what crime did i commit that you force me to discuss macroeconomics with Midas and ExpOilW?

Edited April 22, 2013 by Naam

[midas]

3½ Trillion (3,500,000,000,000) Dollars value of reserves do not exactly point to "no value generated" or "holes dug and filled".

Dear God,

what crime did i commit that you force me to discuss macroeconomics with Midas and ExpOilW?

Can we stick to the economic facts rather than the character assassination route……..?

the banks in China have 21 trillion dollars worth of loans. That's a huge amount considering there are only 3 trillion in China's reserves. It's estimated by accounting firms that bad loans on banks' books is as much as 40-50 percent of total loans. That's 10 trillion in bad loans on the books total and it's unsustainable. This could cause a huge crisis.

http://www.safehaven.com/article/28129/the-coming-china-crisis-an-interview-with-bert-dohmen

Edited April 22, 2013 by midas

[Naam]

It's estimated by accounting firms...

...such as silver doctors, gold surgeons, consolidated chicken little unions...

[Naam]

Can we stick to the economic facts rather than the character assassination route……..?

you start with facts...

[ExpatOilWorker]

But these activities have not created a sustainable economic model where

the product of such labour can generate a stable revenue stream?

the Chinese are running since nearly two decades an economic model most,

if not all, countries would like to have.

no yada yada sidestepping yakety-yak diversion changes that fact. period!

...and as result of no regulations (no yada yada), you have rivers of dead pigs, baby milk that kills rather than giving life, air pollution so thick it burns your eyes.

Don't get me wrong, the China miracle is an amazing story in growth and western countries also have had their own history of pollution with burning rivers in the US, toxic river Rhine in Germany, Mercury from a paper factory in Japan.

Just have a funny feeling 2 decades of growth is running out of steam and wonder what will happen next.