• "Chinese Economy's Fall Will Be As Shocking As The Chinese Bull Case Bubble"

[zenith1107]

Too much hot money chasing a market is a sure sign of a bubble. Happened in dotcom, real estate, oil, now China.

Just as everyone was talking about $200 oil this time last year, people are talking about how China will "lead" the world out of recession. They could not be more mistaken.

To really understand China, you have to talk to an ordinary Chinese citizen, not as a foreigner, but as a friend (helps if you are Chinese/Asian and speak flawless Chinese), then you will know that the real picture is far uglier than the Chinese government or the Western media are trying to paint.

An ordinary Chinese citizen does not believe in "official" statistics (GDP, unemployment, industrial output, etc). He understands that those numbers are either made up or badly distorted -> so are any estimate based on those numbers, be it from World Bank or UBS.

An ordinary Chinese citizen thinks the government is corrupt and beyond repair. He sees the astronomically high income disparity and endless government scandals and is certain that it will be overthrown in due time, and until such time, China will not be a true world leader in anything.

In the mean time, however, ride along the bubble and enjoy the time, but make sure you bail out really fast when the ugly comes.

 

[ByLoSellHi]

Quote from zenith1107:

Too much hot money chasing a market is a sure sign of a bubble. Happened in dotcom, real estate, oil, now China.

Just as everyone was talking about $200 oil this time last year, people are talking about how China will "lead" the world out of recession. They could not be more mistaken.

To really understand China, you have to talk to an ordinary Chinese citizen, not as a foreigner, but as a friend (helps if you are Chinese/Asian and speak flawless Chinese), then you will know that the real picture is far uglier than the Chinese government or the Western media are trying to paint.

An ordinary Chinese citizen does not believe in "official" statistics (GDP, unemployment, industrial output, etc). He understands that those numbers are either made up or badly distorted -> so are any estimate based on those numbers, be it from World Bank or UBS.

An ordinary Chinese citizen thinks the government is corrupt and beyond repair. He sees the astronomically high income disparity and endless government scandals and is certain that it will be overthrown in due time, and until such time, China will not be a true world leader in anything.

In the mean time, however, ride along the bubble and enjoy the time, but make sure you bail out really fast when the ugly comes.

Thank you for this excellent post with obvious first hand knowledge of what's really happening on the ground in China.

We've had some outstanding posts on ET this week, and this one is right up there with the best.

I wouldn't trust any statistic the Chinese Government cites as far as I could throw it. The Chinese economy is running on massive subsidies, slave labor, and the propensity of the U.S. and Europe to keep buying discretionary goods, which is the bulk of what China produces.

China truly is in for a rude awakening with the winds of consumer behavior shifting significantly.

Westerners are just beginning to discover what they can do without, which includes a whole lot of Chinese made goods.

Chinese exports dropped 41% during Q1 this year. And we've just begun.

 

[Optional]

It's a long century.
If the bubble is about to burst, it should be over the next decade or so.
Beyond that, China will emerge as the global superpower and the BRIC nations will rival the US/UK/EU in military, industrial, agricultural, and economic might....

 

[Sell 'em]

Quote from zenith1107:

Too much hot money chasing a market is a sure sign of a bubble. Happened in dotcom, real estate, oil, now China.

Just as everyone was talking about $200 oil this time last year, people are talking about how China will "lead" the world out of recession. They could not be more mistaken.

To really understand China, you have to talk to an ordinary Chinese citizen, not as a foreigner, but as a friend (helps if you are Chinese/Asian and speak flawless Chinese), then you will know that the real picture is far uglier than the Chinese government or the Western media are trying to paint.

An ordinary Chinese citizen does not believe in "official" statistics (GDP, unemployment, industrial output, etc). He understands that those numbers are either made up or badly distorted -> so are any estimate based on those numbers, be it from World Bank or UBS.

An ordinary Chinese citizen thinks the government is corrupt and beyond repair. He sees the astronomically high income disparity ...

Well, I live in China ... and you are full of sh*t. More than a few on this thread who speak w/ certainty about things they only have a third-hand, or third-graders handle on.

I'm not going to spend my time debunking all of your nonsense, but only punch one gaping whole: China isn't propped up by 'hot money' but its own excess savings. A simple look at H-share and A-share spreads illustrates clear enough.

 

[zenith1107]

Quote from Sell 'em:

Well, I live in China ... and you are full of sh*t. More than a few on this thread who speak w/ certainty about things they only have a third-hand, or third-graders handle on.

I'm not going to spend my time debunking all of your nonsense, but only punch one gaping whole: China isn't propped up by 'hot money' but its own excess savings. A simple look at H-share and A-share spreads illustrates clear enough.

I also forgot to mention that there are a bunch of mostly young and naive people in China who are called "Fenqing" (Angry Youth in Chinese, see http://en.wikipedia.org/wiki/Fenqing), who are so completely brainwashed by government propaganda that they will attack anyone who raise the slightest criticism of it. I don't blame them. Chinese kids are constantly bombarded with "nationalism education" from a young age and foreigners in China are spoon-fed with the prosperity bullshit designed to fool them, either to have "face" or to make them shell out the dough.

 

[makloda]

One thing I find interesting with the comparisons of China 2000-2050 and US 1900-1950 is that while the US became the undisputed economic superpower in that period, the Dow Jones only managed to eek out an annual price gain of only 2.8% annualized (50 in 1900 to ~200 in 1950).

While I understand that these comparisons are never flawless (equities had relatively high dividend yields during that period, two world wars, Great Depression etc.) it could be a nail in the coffin for those who argue that Chinese stocks are without any doubt the place to be as it becomes the world biggest economy over the first half of this decade.

 

[Kassz007]

Quote from Optional:

It's a long century.
If the bubble is about to burst, it should be over the next decade or so.
Beyond that, China will emerge as the global superpower and the BRIC nations will rival the US/UK/EU in military, industrial, agricultural, and economic might....

I agree that if China's economy does have a bubble component to it, it's likely going to take time before it bursts. I don't think it's anything we need to be concerned about in the short-mid term.

 

[Sell 'em]

Chinese bubble perhaps more closely resembles that of Japan pre-1990 - and still has many years to run. This is one of the best articles I've seen on the phenomenon:


China's Real Estate Riddle
by Patrick Chovanec

Posted June 8, 2009

“The end is near!” That was the message top government expert Cao Jianhai delivered in April when he predicted that residential property prices in China will plunge by half in the next two years. He reasons that China’s recent run-up in housing—average prices have tripled over the past five years—is unsustainable given the huge volume of new apartments sitting empty throughout the country.

Mr. Cao’s forecast is pretty scary, and not just for homeowners ...

http://www.feer.com/economics/2009/june53/Chinas-Real-Estate-Riddle

 

[asiaprop]

fully agree. If anything then China will outperform European and US markets. Where Chinese equity markets will be by year-end? I dont know, but I know that the savings rate, GDP growth, production base, willingness of the masses to accumulate wealth and reach higher standards of living are all an ingredient for success, at least vs. the US and European nations which are heavily indebted. Those who now scream bubble did not say so in the end of 2007 and now want to sell the story that it will lack behind the US and Europe? You are the same as those who screamed bubble when Google traded at 200,300,400,500,...I am fine to concur when it actually breaks down and we see confirmation of such. So far we saw breakout after breakout, then a major correction that started in the end of 2007 and now this year we see again major outperformance.

If you believe this is a bubble and its about to burst why dont you short into it? Everything else is just as this poster said "third-grader chit chat" of those who really have never been to China nor lived there.

Quote from Sell 'em:

Well, I live in China ... and you are full of sh*t. More than a few on this thread who speak w/ certainty about things they only have a third-hand, or third-graders handle on.

I'm not going to spend my time debunking all of your nonsense, but only punch one gaping whole: China isn't propped up by 'hot money' but its own excess savings. A simple look at H-share and A-share spreads illustrates clear enough.

 

[asiaprop]

really? How come I get the impression you are talking about the US, actually? What we all witnessed was people in the US who in the majority believed they all deserve a house of their own, at least 2 cars,5 credit cards,....At least most Chinese pay with money they actually have instead of borrowing themselves into oblivion. Lets not even get started on government expenditures and financial management. This is what an educated human being would call "prosperity bullshit", creating wealth out of thin air.

I only made the US/China comparison to make my case that I believe in continued outperformance by Chinese markets over the American ones. I (and my positions) continue to hold onto such belief until markets prove me otherwise which will be he exact time I will take my profits and move on to other trades.

P.S.: Talking about financial issues I dont see where Fenqing, human rights, education,... fit in.

Quote from zenith1107:

I also forgot to mention that there are a bunch of mostly young and naive people in China who are called "Fenqing" (Angry Youth in Chinese, see http://en.wikipedia.org/wiki/Fenqing), who are so completely brainwashed by government propaganda that they will attack anyone who raise the slightest criticism of it. I don't blame them. Chinese kids are constantly bombarded with "nationalism education" from a young age and foreigners in China are spoon-fed with the prosperity bullshit designed to fool them, either to have "face" or to make them shell out the dough.