Deflation leaves China on the brink of financial crisis

[SiSePuede419]

"can you explain why the chinese stock market recently rallied nearly 50% over the last 9 months when you at the same time claim the property market bubble burst last March? There seems to be some disconnect in my opinion."

Even a dumb Mexican can explain that.

People who made money in RRE have been getting nervous about the oversupply and demographic of likely buyers decreasing:

https://www.google.co.th/url?sa=t&source=web&rct=j&ei=Hcq1VM_HJYWPuAT3hICQBQ&url=http://www.ft.com.financialtimes.han.w-hs.de/cms/s/0/ca218cbc-7c63-11e4-9a86-00144feabdc0.html&ved=0CB8QFjAC&usg=AFQjCNFDKMY4xoCvtpJx34c0fEWOiZ2xwQ&sig2=WYw848yvTGGdMjXrKnyyvA

They have been trying to diversify by buying property overseas in major cities and have been putting money in the rising stock market.

I think you're assuming the Chinese stock market is not a bubble, too.

I'm guessing the Chinese stock market is being manipulated even more than the DJIA or S&P500, by computer fiber optic "lookahead".

The game is rigged, boys. Crash: 2016. Maybe 2015 or 2017. Black Swan. Long Tail event...

[thailiketoo]

The US didn't fail the way Russia has. What does Russia have for an economic engine?

In the US the big tech companies didn't fail, and there are lots of them from Microsoft and other software providers to Intel and other hardware providers. ISP's and trunklines didn't fail. Farmers didn't fail. In fact beef and corn prices went up. I grew up on a large beef and cattle ranch and that ranch made more money during the "crash" than it ever had.

The difference between the US, and Russia and China is diversity and innovation. Russia and China have all of their eggs in one basket and when that goes down it all goes down.

Not to go off topic, but it's easier to see by looking at Thailand because its smaller. Still, it lacks innovation and technology and like China, it picks up the scraps from what others invented and learned to manufacture, it picks up the scraps of others' spending money in tourism, it grows low value crops due to the type of land it has and the climate... Thailand can grow its own food and that's the one advantage it has over China and Russia. But there are more similarities than differences.

With all the above plus the natural resources including massive amounts of good farmland that the US has, it can't be compared to China or Russia in the ability to bounce back.

The US is bouncing back strongly because of its resources and its business model. Russia and China have no such thing. Neither does any of Europe or Asia and its showing.

I agree that China and Russia won't actually cease to exist. They could very conceivably cease to exist as world powers just as the USSR did. I actually question whether they are such world powers today.

Just off the cuff I believe that the Russians are taking people back and forth to the space station and the Chinese have high speed trains not the USA and the AK-47 was a better rifle that anything we produced during the Vietnam war.

My grandfather said the same thing about Japan that you say about China and my great great great............grandfather said the same thing about the USA in 1764 when the USA stole the technology to make Kentucky rifles.

Do you know know that all up and coming countries have the same things said about them that you are saying about China? If you were smart you would have moved to Asia in 2000 like I did. I called my buddy Jim below and told him to join me. See the interview below. He is a better speaker than I so I enclosed his video instead of mine.

[Naam]

-snip-

Russia is definitely screwed. That does not mean they are going to completely fail and cease to exist or become an American territory.

The USSR completely failed and ceased to exist. Some of those countries aligned with the West. The Ukraine is unpredictable today as to whether it will fall into a complete revolution.

Russia only recently has looked prosperous due to oil discoveries. Now that is letting them down.

Both China and Russia are communist and responsible to feed and house their people. Russia has had its ups and downs and right now is down.

China has 1.3 billion mouths to feed. It is a net importer of food. It's impossible to get an accurate figure for what China's GDP is, but even if known it has to be divided by 4 to get a comparison with the US for GDP per capita.

I think it's sort sighted to think China can't fail if fail means what's happening to Russia. Russia is already in the mire.

When the US took the hard hit at least it could feed its people and it had the inventions, natural resources and technology that were driving the world into the new century. That private sector including farm land and natural resources is what has put the US economy back into overdrive. That and capitalism.

China has no such thing.

gdp/capita = as irrelevant as the uterus of a nun who pledged eternal celibacy.

[squarethecircle]

The US didn't fail the way Russia has. What does Russia have for an economic engine?

In the US the big tech companies didn't fail, and there are lots of them from Microsoft and other software providers to Intel and other hardware providers. ISP's and trunklines didn't fail. Farmers didn't fail. In fact beef and corn prices went up. I grew up on a large beef and cattle ranch and that ranch made more money during the "crash" than it ever had.

The difference between the US, and Russia and China is diversity and innovation. Russia and China have all of their eggs in one basket and when that goes down it all goes down.

Not to go off topic, but it's easier to see by looking at Thailand because its smaller. Still, it lacks innovation and technology and like China, it picks up the scraps from what others invented and learned to manufacture, it picks up the scraps of others' spending money in tourism, it grows low value crops due to the type of land it has and the climate... Thailand can grow its own food and that's the one advantage it has over China and Russia. But there are more similarities than differences.

With all the above plus the natural resources including massive amounts of good farmland that the US has, it can't be compared to China or Russia in the ability to bounce back.

The US is bouncing back strongly because of its resources and its business model. Russia and China have no such thing. Neither does any of Europe or Asia and its showing.

I agree that China and Russia won't actually cease to exist. They could very conceivably cease to exist as world powers just as the USSR did. I actually question whether they are such world powers today.

Just off the cuff I believe that the Russians are taking people back and forth to the space station and the Chinese have high speed trains not the USA and the AK-47 was a better rifle that anything we produced during the Vietnam war.

My grandfather said the same thing about Japan that you say about China and my great great great............grandfather said the same thing about the USA in 1764 when the USA stole the technology to make Kentucky rifles.

Do you know know that all up and coming countries have the same things said about them that you are saying about China? If you were smart you would have moved to Asia in 2000 like I did. I called my buddy Jim below and told him to join me. See the interview below. He is a better speaker than I so I enclosed his video instead of mine.

All I could see from what he said is that Japan is f------d. I don't know where you'd get the idea from living in Singapore that the future is here. They have all the bad parts of countries like the US - crass soulless commercialism - but none of the vision or idealism that drives the former.

[SiSePuede419]

I was wrong about how falling oil prices will affect the U.S. economy.

Because Republicans in the U.S. adopted a "scorched earth" policy to oppose EVERYTHING Obama wanted, including jobs.

The only jobs they allowed to be created were jobs benefiting Texas Oil Milliinaires.

Now that those jobs are drying up, the American economy is in a deflationary downdraft.

30 year interest rates are a historical low:

http://www.marketoracle.co.uk/Article49044.html

Republicans, of course were the cause of the bad economy. They SQUANDERED the Clinton Surplus. They started 2 wars based on lies (off the books). They refused to raise taxes on corporations who outsourced jobs. They opposed the extremely modest healthcare plan cooked up by the extreme Rightwing Heritage Foundation in the 1980's and supported by both Bob Dole and Mitt Romney. They opposed EVERYTHING Obama did to help the 99%.

And they will blame Obama for the crash in 2016.

100% Sure.

Hell, they claim the most Capitalistic country in the world (China) is "commie", yet it was a Republican Ricard Nixon who "opened up" trade and laid the foundation of destroying the American factory workers.

I think China's real estate bubble will be the cause of The Great Crash...

[Publicus]

The post China world will not miss the crashed or the crashing Chinese economy because the PRChina is not an engine of global growth. China is an arithmetic contributor to global GDP, but it does not drive or power the engines of global growth. The economies that have advanced technologies and deep human and financial capital are and always have been the engines of global growth.

We're talking about the United States and the G-7, the EU, Japan, the surviving Asian Tigers such as Singapore, Taiwan, South Korea and several others.

China imports capital, it does not export capital. China imports financial capital, it imports human capital, technological capital etc etc etc.

China imports FDI and only recently has it begun some FDI exports to Africa, South America and SE Asia, but the amounts of it are negligible and increasingly failing. China imports high value luxury goods and services from cars to watches to financial expertise but it exports none.

China pays low wages and its economy has a small base of consumer goods and services and a low quality of production and productivity. It's economy and financial system are inefficient and massively corrupt. China has an off the books shadow banking system that needs completely to be dismantled and eliminated. The Chinese currency is local, it is not a regional currency as the yen is, nor it the CNY a global currency such as the yen is.

For all its deflation, Japan stands in contrast to the PRChina as an engine of economic growth. Japan exports massive amounts of FDI. It exports massive amounts of capital, advanced and sophisticated technology, technological efficiencies, goods, services and the like. Germany is a high end exporter of technology, envied technological products and systems, and of human capital.

The $5 Trillion of new infrastructure advanced economies are eyeing in the emerging markets will more than replace the loss of massive and grotesquely wasted infrastructure construction in the PRChina, up to $6 Trillion of Chinese investment wasted and misdirected as typified by its many ghost cities, a number of which remain unfinished as the bubbles across the economy continue to burst

The rapid and steady decline of cheap manufacturing in the PRChina is being assumed by the Post-China 16 low wage countries identified earlier in the thread. Commodity impacted countries such as Australia and Brazil will be presented with trillions of dollars of new infrastructure construction in emerging economies across the board

In sum, China is not a global growth engine because it is a cheap low end exporter, not an importer, and bottom feeding exporting countries are a dime a dozen anywhere in the world. Cheap wage exporting countries with a fragile economic base rise and fall as we see in the PRChina. The Post-China 16 countries and $5 Trillion of infrastructure in emerging economies are what the advanced economies have in development, to probably expand into the Post-China China before too much longer.

Edited January 18, 2015 by Publicus

[LawrenceChee]

I think anyone that discounts China in the context of the global economy and its effects needs to read Alice in Wonderland again as it panders to the imaginary world ...

[NeverSure]

I was wrong about how falling oil prices will affect the U.S. economy.

Because Republicans in the U.S. adopted a "scorched earth" policy to oppose EVERYTHING Obama wanted, including jobs.

The only jobs they allowed to be created were jobs benefiting Texas Oil Milliinaires.

Now that those jobs are drying up, the American economy is in a deflationary downdraft.

30 year interest rates are a historical low:

http://www.marketoracle.co.uk/Article49044.html

Republicans, of course were the cause of the bad economy. They SQUANDERED the Clinton Surplus. They started 2 wars based on lies (off the books). They refused to raise taxes on corporations who outsourced jobs. They opposed the extremely modest healthcare plan cooked up by the extreme Rightwing Heritage Foundation in the 1980's and supported by both Bob Dole and Mitt Romney. They opposed EVERYTHING Obama did to help the 99%.

And they will blame Obama for the crash in 2016.

100% Sure.

Hell, they claim the most Capitalistic country in the world (China) is "commie", yet it was a Republican Ricard Nixon who "opened up" trade and laid the foundation of destroying the American factory workers.

I think China's real estate bubble will be the cause of The Great Crash...

Wow.

Clinton had a balanced budget and a surplus near the middle of his tenure only because the Speaker of the House (which controls spending) was Republican Newt Gingrich who insisted on it. Clinton was smart enough to know he had to work with Gingrich. By the end of Clinton's tenure, Gingrich was gone and so was Clinton's surplus. The country was back into deficits and entering a serious recession which Bush 2 inherited from Clinton.

Those are facts which you can look up and for the rest of what you posted I'll just leave it right there.

[NeverSure]

-snip-

Russia is definitely screwed. That does not mean they are going to completely fail and cease to exist or become an American territory.

The USSR completely failed and ceased to exist. Some of those countries aligned with the West. The Ukraine is unpredictable today as to whether it will fall into a complete revolution.

Russia only recently has looked prosperous due to oil discoveries. Now that is letting them down.

Both China and Russia are communist and responsible to feed and house their people. Russia has had its ups and downs and right now is down.

China has 1.3 billion mouths to feed. It is a net importer of food. It's impossible to get an accurate figure for what China's GDP is, but even if known it has to be divided by 4 to get a comparison with the US for GDP per capita.

I think it's sort sighted to think China can't fail if fail means what's happening to Russia. Russia is already in the mire.

When the US took the hard hit at least it could feed its people and it had the inventions, natural resources and technology that were driving the world into the new century. That private sector including farm land and natural resources is what has put the US economy back into overdrive. That and capitalism.

China has no such thing.

Hey buddy, what does fail mean. Such an ambiguous term. We pretty much failed in 2008, but we loaned money to bring reserves back in line.

When I speak of fail, I mean they go belly up, totally broke, no options and cease to exist. That is not going to happen to any super power.

Question of semantics at this point. For sure Russia has failed. China is failing. Nevertheless, I think both countries will bounce back like we did in 2011.

I agree with you. I'll quote what I posted.

"I think it's sort sighted to think China can't fail if fail means what's happening to Russia. Russia is already in the mire."

[Publicus]

I think anyone that discounts China in the context of the global economy and its effects needs to read Alice in Wonderland again as it panders to the imaginary world ...

Alice in Wonderland is an eternal allegory and so is China......

The following sounds like a financial and economic data report of the People's Bank of China to the Central Committee of the Chinese Communist Party.

China allegory of the day

A Chinese museum has been forced to close after claims that its 40,000-strong collection of supposedly ancient relics was almost entirely composed of fakes.

Mr Wei said that objects of “dubious” origin had been “marked very clearly” so as not to mislead visitors and vowed to sue Mr Ma, the whistle-blowing writer, for blackening the museum’s name.

The owner, Wang Zonquan, claimed that “even the gods cannot tell whether the exhibits are fake or not,” the Shanghai Daily reported.

China is in the midst of a museum boom, and it is believed that eighty percent of the fossils in Chinese museums are fake.

http://marginalrevolution.com/marginalrevolution/2013/07/china-allegory-of-the-day.html#sthash.s9VwiTix.dpuf

[SiSePuede419]

I was wrong about how falling oil prices will affect the U.S. economy.

Because Republicans in the U.S. adopted a "scorched earth" policy to oppose EVERYTHING Obama wanted, including jobs.

The only jobs they allowed to be created were jobs benefiting Texas Oil Milliinaires.

Now that those jobs are drying up, the American economy is in a deflationary downdraft.

30 year interest rates are a historical low:

http://www.marketoracle.co.uk/Article49044.html

Republicans, of course were the cause of the bad economy. They SQUANDERED the Clinton Surplus. They started 2 wars based on lies (off the books). They refused to raise taxes on corporations who outsourced jobs. They opposed the extremely modest healthcare plan cooked up by the extreme Rightwing Heritage Foundation in the 1980's and supported by both Bob Dole and Mitt Romney. They opposed EVERYTHING Obama did to help the 99%.

And they will blame Obama for the crash in 2016.

100% Sure.

Hell, they claim the most Capitalistic country in the world (China) is "commie", yet it was a Republican Ricard Nixon who "opened up" trade and laid the foundation of destroying the American factory workers.

I think China's real estate bubble will be the cause of The Great Crash...

Wow.

Clinton had a balanced budget and a surplus near the middle of his tenure only because the Speaker of the House (which controls spending) was Republican Newt Gingrich who insisted on it. Clinton was smart enough to know he had to work with Gingrich. By the end of Clinton's tenure, Gingrich was gone and so was Clinton's surplus. The country was back into deficits and entering a serious recession which Bush 2 inherited from Clinton.

Those are facts which you can look up and for the rest of what you posted I'll just leave it right there.

Typical drivel from people who think the Universe revolves around American Republicans.

"The 1993 Clinton tax increase raised the top two income tax rates to 36% and 39.6%, with the top rate hitting joint returns with incomes above $250,000 ($400,000 in 2012 dollars). In addition, it removed the cap on the 2.9% Medicare payroll tax, raised the corporate tax rate to 35% from 34%, increased the taxable portion of Social Security benefits, and imposed a 4.3 cent per gallon increase in transportation fuel taxes."

Bubba done good, something no Republican president has ever done.

Look it up, 555.

[SiSePuede419]

"China imports financial capital, it imports human capital, technological capital etc etc etc...China is not a global growth engine"

I agree with most of what you say. China steals technology.

However, Boeing is the #1 exporter in America and I'm guessing Airbus is a major exporter of the E.U.

In the next 20 years, China might be a major competitor:

http://www.cnbc.com/id/101409883

As the old saying goes, Capitalism is the mistaken belief that you can cut wages and drive your competitors out of business, but the competitor's (out of work) employees will still be able to afford your product.

555

Edited January 19, 2015 by SiSePuede419

[Scott]

Please stay on topic, which is about China.

[ExPratt]

Shanghai shares 7.7% down today , the biggest daily drop since 2008 apparently

[harryfrompattaya]

The house of cards are coming tumbling down!!

And we are all going to be affected!!

First it was EU than Japan than USSR now China all paper fakes were to over take USA

Is India the next fake country or maybe Africe

[harryfrompattaya]

Maybe time to sell the shares and buy gold.

This Gold crap shall see 250 in the next year

[Publicus]

Number one, the sudden fall of the Shanghai market had no impact on other regional or global markets, which indicates how internal and internalized the CCP's finances and economy are. It doesn't matter to anyone outside of China whether its domestic equities or other markets rise or decline because market fluctuations affect the Chinese almost exclusively.

Number two, the equity markets in the PRC, mainly Shanghai and Shenzhen which is adjacent to Hong Kong, bear no relation to reality because the state owned corporations that sell stock make no reports of their finances. The ordinary Chinese investor has no clue of what he's buying in to. Hence the sudden volatility, in this case caused by regulators moving in to ease the growing equity market bubble.

Number three, the Shanghai index shot up by 55% last year for several reasons, most ominously because the PRChina doesn't have a Glass-Steagall law. The Shanghai is way up because people are borrowing money to buy stocks with most unsuspecting purchasers using their property holdings as collateral which, in turn are losing value because the property bubble is bursting. Property holdings in Beijing alone are in a $24 Trillion bubble.

There's more about that but let's look at the latest macroeconomic analysis....

Global investors now recognize China will not have a Lehman Moment....its particulars will instead be to enter a deflationary spiral during the current quarter, which is expected to mean experiencing a grinding plunge toward 4% growth from the current 7%. China needs 9% growth just to meet labor market demands.

[squarethecircle]

Well I'll chip in, there are three great things if this does happen:

(1) Massive frustration in these little dictators' heads. They act as if they are gods, and having the gods of economics pimp slap them in the face will be enjoyable to see.

(2) A reaffirmation of its stature as a glorified factory whose best and brightest leave to enrich other countries.

(3) A humbling of the corrupt/connected who are current going abroad en masse. I look forward to the day when they accept their ability to leave China with gratitude rather than acting like they own other countries, as we see in Vancouver.

I even dream of a day when the Xi goblin steps down and his successor comes to Silicon Valley and admits the future belongs to the nerds. Then we can send a contingent of jacka**es from other countries to China to pork it in return.

[Publicus]

China continues its steady slide into deflation, which is expected to become official before too long in to this year.

The week ending Jan 15 more prices declined in more of the key items that are tracked to measure price fluctuations throughout the economy.

While last June, 23 of the 50 items on the monitored list experienced price declines, by mid this month 38 were suffering lower prices and most of them were sharply lower.

This revealed growth in the services sector which is required to rebalance the CCP''s economy is even slower than had been thought.

Since Prez Xi Jinping and PM Li Kejiang took over in 2012 the CCP Boyz in Beijing have sharply accelerated the rebalancing of their economy, toward consumption and increased household income,away from infrastructure and a wild GDP growth. They know what they must do, which is to begin transferring growth in GDP to growth in income of households. The Boyz need to increase household income by 6% to 7% of GDP annually (for about the next 20 years).

GDP growth is falling but not because of anything the Boyz are doing right, which they aren't doing anyway as there are two dozen new construction megaprojects underway or about to begin, from longest bridges to longest tunnels to nuclear plants.and the biggest this to the biggest that.

Under the two years of Xi and Li household consumption is up 0.4%.

Not only is it too late, it was too late before Xi and Li began.

The country is perilously vulnerable to a chaotic adjustment. --- Michael Pettis, Professor of Finance, Peking University, Beijing, China.

Edited January 24, 2015 by Publicus

[F430murci]

3 Reasons Chinas Stock Market Will Crash in 2015

# 1

Margin trading out if control similar to what caused US market to crash in 1920s.

The Shanghai Composite Index cratered on Monday, losing nearly 8% of its total value in the steepest single-day selloff since the depths of the 2008-2009 global financial meltdown.

What triggered Chinas sudden stock market slump? In short, Chinese regulators who were worried Chinese stocks were hitting new highs without merit. The China Securities Regulatory Commission, or CSRC, banned Chinas three largest brokerages from allowing new margin trading accounts for the next three months.

# 2

Housing Bubble

Over the last four months, 67 out of the 70 cities tracked by the Chinese government have seen home prices decline or remain stagnant in successive months. Real estate and other related activities are responsible for an estimated 33% of economic activity, the International Monetary Fund said in October.

. . .

And, according to a December article in the New York Times, developers are holding two to three times their normal apartment inventories in major Chinese markets. With Chinese buyers waiting on the sidelines, the central government took action in November, lowering interest rates. Those lower rates, in turn, helped fuel the speculative buying-stocks-on-margin bonanza that the government in turn had to snuff out.

# 3

Secular Growth Deceleration

The plainest reason that Chinas stock market is set up for a crash is simply its broadly decelerating growth. The Chinese government was quick to spin the most recent GDP numbers, which show China grew at just 7.4% in 2014 its lowest rate in 24 years as the new normal.

. . .

As recently as 2011, the government regarded 8 per cent annual growth as a quasi-mystical threshold, below which Chinese society would descend into chaos and the Communist dynasty would implode.

http://investorplace.com/2015/01/china-stock-market-crash-2015/4/#.VMRUwKa9LCQ

[Publicus]

There are many odd things about the Chinese economy, but perhaps the oddest of them all is that even in deflation and under the worst economic trends, the Chinese economy can continue to grow. Even in a depression the Chinese economy might grow at 2% to 3%. The Chinese economy is so big that there will be enough economic activity here and there for growth to occur. Radically disparate growth is also a factor in the phenomenon.

Nomura Securities for instance last year defined a Chinese recession as five consecutive quarters of "only" 5% growth or less. The CCP Boyz in Beijing are looking at growth this year in the 6% range as the economy continues to claw more frantically at the edge. Chinese economic growth of 6% is just not good....it's certainly not good enough, nowhere near good enough. We're talking about the Chinese economy, the economy in China. China is not the EU nor is it the USA....nor is it Japan.

The vital factor for the Chinese economy is however not the GDP growth, not any more. GDP growth is the headline figure anyway. What matters short term and long term is the growth of household income and the growth in rates of household consumption. Both are flat and the economy is going into deflation.

While Chinese GDP growth is declining, Chinese GDP growth can decline as long as household income and consumption increase, at least reasonably in proportion to the decline of GDP.This is not happening.

Japan has had a zombie no growth economy for 20 years and has a sovereign debt that approaches China's disastrous sovereign debt situation. But the Japanese economy remains intact because each year household income has increased rather than decreased. The rates of increase in Japan have ranged from 1% to 3%. In the US the economy is plowing ahead but there are many people who don't see it or feel it because household income is stagnant or declining.

The reality is that the CCP Boyz in Beijing know what they have to do. They know they must increase household income and household consumption. They're been working hard at this since 2011 and very hard at it the past two years. That they still have nothing to show for all the effort and focus is beginning to wear down both the CCP hard core, and the many hard core Chinese among the general population who believe in a China forever and no matter what.

Edited January 25, 2015 by Publicus