ok i will give this a go.....
Quote from Renegen:
Thank you for your input, but you must tell me how real estate DOUBLING in 6 months isn't debt fueled speculation but conservative economic development. Did that economy around that area double?
You have to realize:
1) the amount of people in china
2) the sharp almost exponential rise of the upper-middle class population that demand home ownership
There is no "debt fueled" speculation or zero down mortgages. See my next response.
The specific area i am talking about is the massive development site for the world trade expo 2010. Think beijin olympic scale project. In other parts of shanghai the increase varies based on area from 10-30%.
http://en.expo2010.cn
And to think that most people use cash to buy houses, nonsense! One, if everyone uses cash, I can use debt and buy them at a cheap price and gain tremendous leverage. Two, banks don't make any money off of cash! They have every incentive to make mortgage loans.
this shows a fundamental lack of understanding of the culture and american way of thinking. The average person in china avoids the debt like the plague. Even the upper class native chinese. Put it this way, the average family saves close to 30% of their income, when they buy a condo whether to live in or invest, it's usually paid in full with cash.
You find the condo, agree on the price, then literally take a bag of cash, sign the paperworks, and exchange for the deed. The whole process takes 1-3 days, very different than US. It's a very much barter system still. Mortgage is only becoming popular with the young white collars in recent years, and people usually put down 30-40%. And it's limited to real estate only. There is no concept of using a credit line to buy TVs, etc. People will think you are crazy if told you can take the tv home and not pay for it till later. Also there is no property tax/condo fees, well <$50 a month for a luxury high rise.
The chinese do not like debt, period.
My personal opinion is that China has had a brutal fall from its drop in exports, but the stimulus is fanning domestic demand and the whole country is encouraged to spend. But which of these 2 forces wins out in the end? I don't know. Their prospect is somewhere in the middle of both extremes.
cause and effect. I agree china took a huge hit from the export drop, many factories were closed/impacted. However the govt stepped in quickly and with actual money (not borrowed or fresh printed), in addition the chinese upper-middle class has been growing at a tremendous pace. This in turn softened the blow quite a bit, domestic demand for those luxury goods reserved for foreigners have grown. You are correct the govt is encouraging that, they are trying to increase domestic consumption and decrease reliance on export.
My point is not to say china emerge untouched, far from it. But BY COMPARISON to almost every other major economic power, it fared far better.
And I don't hold any illusions that China is all perfect, they simply took advantage of the US's greed, China is a huge part of the problems we have today in the global economy.
The Chinese leaders grew their economy TOO fast (because no one liked them anyway and they needed to provide jobs) and as a result the western countries were not able to adapt in time. It takes a long time to establish a knowledge economy. 10-20 years was not enough for american industry to shift, for politicians to adapt new growth strategies, so everyone said fuck it and speculated like crazy.
China is not perfect, a lot of social issues still but those are not the point of this discussion. I dont think there are a lot of speculation, i really believe the economic foundation for the country is solid, at least a lot safer than us/uk/japan by comparison
The only major speculation i can think of is the leaders let some hotshot phd invest billions of the reserve for "higher return". The guy was considered a top expert in china, his team then got played badly due to lack of experience/understanding of the inner works of wall st. They invested in the us banks(ms been a major one) and other western companies, basically ended up losing most of that money lol. The govt shut it down after that, notice during the lehman days when morgan stanley was in deep shit, the chinese did not lift a finger, they were still pissed about being played like a child.
A big part of the chinese "miracle" is nothing more than stealing american technology too. There are no illusions on my part. [/B]
yep, and it is a miracle how well they can mimic everything.
