The Asia Thread

[Plonk 3]

not sure if there is such a thread, but I'm reading a lot about Asia, as we belong to the Asian markets, and seeing we have the Euro thread, I thought an Asian thread might be relevant.

Anyhoo, I just saw this- bad loans for Chinese banks- contributing factor: Real estate.

http://www.marketwatch.com/story/china-bank-watchdog-warns-of-bad-loan-risk-2010-06-15

Property loans offer a particular source of concern, the report said.

"As uncertainties in the real-estate sector ratchet up, the risks associated with home mortgages are building, and the risk of chain effect might reappear in real-estate development loans as well," it said.

(Mods, please merge or purge if there is already an Asian thread- ta).

[Turkey 17]

Perhaps "The Asia Thread" would be a better title.

Otherwise one explanation for the lack of replies so far is that people think they have to be Asian to post in it (based on the title).

[Bernard L. Madoff 14]

Malcolm Turnbull has a rant (he has come out of the woodwork lately).

This raw deal for depositors is helping to fuel the property bubble. When Chinese banks are offering depositors a guaranteed loss after inflation of 1 to 2 per cent a year, is it any wonder that Chinese families are jumping into the property boom in the belief that residential property is a "hard asset" that holds value - unlike cash, which certainly does not. One property analyst was very candid when asked why there were so many apparently unoccupied flats in Beijing as there were no lights on at night: "The flats are occupied. Cash is living there."

HSBC recently calculated that the total value of China's residential property market was now 3.27 times GDP, which is nearly twice the peak reached before the subprime crisis in the US and approaching the levels in Japan during its 1980s property bubble.

http://www.smh.com.au/opinion/politics/chinese-debt-binge-is-fuelling-a-dangerous-property-bubble-20100615-yd1a.html

Funny old thing is the 'dangerous; China ratios are about the same as our 'no bubble here' ratios.

HSBC recently calculated that the total value of China's residential property market was now 3.27 times GDP

[Bernard L. Madoff 14]

Why does this lack of open-ness and disclosure worry me?

HONG KONG (MarketWatch) -- The Hong Kong government said Tuesday a radioactive leak took place last month at a nearby nuclear power station partly owned by the Hong Kong-listed utility CLP Group.

The leak occurred on May 23 at the Guangdong Nuclear Power Station at Daya Bay, located about 30 miles from the Hong Kong's border, the government said in a statement published on its Web site. The plant is located close to the mainland China city of Shenzhen.

The Hong Kong government said it had no knowledge of the incident and only began to investigate when it fielded a media inquiry on Monday.

It said the reactor unit is completely sealed and isolated from the external environment, with the leak posing "no impact" on public safety.

Because the leak was small, the plant is continuing operations as normal.

http://www.marketwatch.com/story/chinas-daya-bay-nuclear-plant-declares-leak-2010-06-15

[sydney3000 17]

Malcolm Turnbull has a rant (he has come out of the woodwork lately).

This was the strangest missive. It read like a repeat of some piece I read some days ago by some economist/journalist. It clearly was placed as a placeholder that could be called upon in the future to express: "I warned you there was a risk. If you had listened to me you would be better off now. Make me your leader."

Edited June 16, 2010 by sydney3000

[goethe 8]

This was the strangest missive. It read like a repeat of some piece I read some days ago by some economist/journalist. It clearly was placed as a placeholder that could be called upon in the future to express: "I warned you there was a risk. If you had listened to me you would be better off now. Make me your leader."

Pity he didn't have the courage to speak out when he was opposition leader.

[Chimerica 2]

China's chief auditor warns mounting local govt debt a risk to economy.

http://www.telegraph.co.uk/finance/china-business/7851504/Chinas-chief-auditor-warns-mounting-local-government-debt-a-risk-to-economy.html

Liu Jiayi, the head of China's National Audit Office said the financial crisis had left some Chinese provinces with serious debt problems.

"The scale is large, and the burden is quite heavy," he said, in an annual report to the Chinese government.

Chinese provinces are, in some cases, equivalent in size to major European countries and run with a degree of fiscal autonomy. The southern province of Guangdong, for example, has the same population size as Germany. However, provincial budgets have been classified as state secrets until now and this is the first time that China has disclosed the level of local government debt.

[Bernard L. Madoff 14]

China's chief auditor warns mounting local govt debt a risk to economy.

http://www.telegraph.co.uk/finance/china-business/7851504/Chinas-chief-auditor-warns-mounting-local-government-debt-a-risk-to-economy.html

Thats the cornerstone of Hendry's Bearish stance on China. The massive regional debts that are secret with a top layer of localised corruption... http://china.globaltimes.cn/society/2010-04/524244.html

------------------------------------------

The delationary spiral is confirmed in Japan.

SAN FRANCISCO (MarketWatch) -- Japan's core consumer price index dipped 1.2% in May compared to the same month last year, marking the 15th consecutive decline, according to data released Friday by the Ministry of Internal Affairs and Communications. The result for the core CPI, which excludes volatile fresh food, was less than a median market forecast for a 1.3% dip, Reuters reported, though it highlights deflation concerns still prevalent in the world's second-largest economy. Compared to April, core CPI was 0.1% higher.

[urchin 6]

The delationary spiral is confirmed in Japan.

deflation in real estate is much worse. i went to a presentation about 6 months ago by a japanese economist who was looking at the real estate valuations of inner city (urban, prime) and pretty much every year since 1990 it has dropped. of course buildings in japan depreciate quickly (typical lifespan of a building is 20-40 years) but land itself is going nowhere fast. my brother in law (a real estate agent in japan) bought the land for his house at *1/10th* the price of his next door neighbour who bought some 6 years before him. i suppose if he ever gets into an argument with the guy and wants to make him feel miserable they could compare purchase prices.

if only i had arranged my career in the reverse geographical order - start off in aus. in 2000, then move to japan in 2007 - i'd be on easy street.

[cobran20 110]

Interesting bit of news on China's domestic front. Looks like Chinese local government is up there with the US' municipal councils.

Think Greece is bad? Look at China’s provinces

We all hear about how bad Greece’s national debt is. We hear about how the rest of the PIIGS countries are threatening to derail the Euro. Then there’s Japan, followed by UK. Also, most of the US states are like mini-Greece (see Inside the Dire Financial State of the States). Worse still, the US Federal Government itself is projected to face bankruptcy. You can see the who’s who list of potentially bankrupt major governments in our previous article- Next phase of GFC is when governments go bust.

But no one looks at China. Since it is the world’s greatest creditor nation, surely its fiscal position must be solid right?

No!

Firstly, China’s US$2.4 trillion of reserves must not be mistaken as ‘cash at bank’ to be spent (see Is China allowed to use its US$2.4 trillion reserve to spend its way out of any potential crisis?).

Secondly, many Chinese local government are heavily indebted too. According to Liu Jiayi, the head of China’s National Audit Office, some Chinese provinces have serious debt problems. As this news article reported,

Mr Liu said the ratio of debt to disposable revenues at some local governments was over 100pc and in the highest case it was 365pc.

He said the audited debts of 18 of China’s 22 provinces, together with 16 cities and 36 counties amounted to 2.79 trillion yuan (£279bn) in 2009.

Several observers believe the situation is far worse. The China Daily newspaper, which is run by the government, suggested that the total sum could add up to between 6 trillion and 11 trillion yuan (£590bn-£1.08 trillion).

Victor Shih, a professor at Northwestern University in the United States, believes the sum in 2009 was 11.4 trillion yuan, equivalent to 71pc of China’s nominal GDP.

Mr Shih has warned that local governments have also succeeded in rapidly funnelling large amounts of debt off their balance sheet and into public-private investment vehicles.

Mr Shih forecasted that by next year, China’s government debt will hit 96 percent of GDP as “infrastructure projects continue to eat up cash and produce negligible returns.” According to him,

The worst case is a pretty large-scale financial crisis around 2012. The slowdown would last two years and maybe longer.

The good news is that the Chinese government is doing something about it today. But we doubt it will be painless. Fingers crossed on that one

[booboo 5]

Thought I might digress with some local anecdotal stuff. Remember how during the GFC there were many small shops, etc for lease? Driving along Victoria Road and Paramatta Road in Sydney, I have noticed that the number of shops for lease is heading back up towards the GFC level. Interesting times.

[Bernard L. Madoff 14]

Interesting bit of news on China's domestic front. Looks like Chinese local government is up there with the US' municipal councils.

Think Greece is bad? Look at China’s provinces

Like wow. Great find Cobran. Bunker down this may get messy.

my brother in law (a real estate agent in japan) bought the land for his house at *1/10th* the price of his next door neighbour who bought some 6 years before him.

Wow Mk II. 1/10th???!!!!

[Bernard L. Madoff 14]

From Cobran's link...

Several observers believe the situation is far worse. The China Daily newspaper, which is run by the government, suggested that the total sum could add up to between 6 trillion and 11 trillion yuan (£590bn-£1.08 trillion).

Victor Shih, a professor at Northwestern University in the United States, believes the sum in 2009 was 11.4 trillion yuan, equivalent to 71pc of China’s nominal GDP.

Mr Shih has warned that local governments have also succeeded in rapidly funnelling large amounts of debt off their balance sheet and into public-private investment vehicles.

Mr Shih forecasted that by next year, China’s government debt will hit 96 percent of GDP as “infrastructure projects continue to eat up cash and produce negligible returns.” According to him,

The worst case is a pretty large-scale financial crisis around 2012. The slowdown would last two years and maybe longer.

[urchin 6]

would be interesting to see how the chinese provincial debts have developed over time - i.e., if this is a long term ongoing process or one that bubbled out of control in the immediate post-gfc handout/speculation boom.

re japanese land, admittedly that is an extreme example. it was (when his neighbour bought at the peak of the bubble) a new & "desirable" (because it was marketed as desirable, i suppose) development. when my b-i-l bought they had to unload the land & get it built on ASAP because they were on the verge of going bust. so he was able to pick it up dirt cheap with the proviso that he settle quickly and commence building in a relatively short period of time (don't know specifics, only that things happened very quickly). but i don't think it is all that uncommon. people who bought at the peak of japan's bubble lost an enormous amount of wealth (a true boom/bust). 40% peak to trough would be a fairly modest loss if you bought in the "hot" parts of the bubble.

[Bernard L. Madoff 14]

When the music stops lets see who has a seat.

http://www.zerohedge.com/article/massive-downward-revision-china-leading-economic-index-refutes-china-recovery-myth

[Bernard L. Madoff 14]

The Shanghai stock index is down -3.85% in one day and the market is still open!

[Plonk 3]

Perhaps "The Asia Thread" would be a better title.

Otherwise one explanation for the lack of replies so far is that people think they have to be Asian to post in it (based on the title).

Lol!

Anyhoo, things are looking extremely bearish in China. No upside in stocks, and credit/liquidity drying up:

http://www.marketwatch.com/story/no-upside-for-chinese-stocks-as-credit-tightens-2010-06-29

Of note:

In Tuesday's action in China, the Shanghai Composite tumbled 4.3% to end 2,427.05, its weakest finish since April 2009. The index had already entered into technical bear-market territory, having already declined 23% year to date before Tuesday's sharp losses.

The Shenzhen Composite Index, tracking China's No. 2 equity market, also sold off Tuesday, dropping 5.4%.

Shanghai Composite already in a bear market of -23%, and then -4.3% loss on Tuesday. This is bearish. Could be more losses for China today, I suppose. It's looking that way.

[staringclown 73]

A couple of opposing points of view.

Jim Chanos: We're Shorting Autos, China, And Commodities But Not Financials

A few highlights from the video:

He's not short the financial sector right now, although he thinks there may be another shoe to drop and more losses. He is short some select financial names but not the sector.

There are opportunities for shorting individual companies in this market but he would recommend shorting the market as a whole.

He's shorting autos again, after covering in late 2008 and 2009. He said he is short manufacturres. Which ones? "I wouldn't be long Fiat and Ford, the F brothers, right now," he said.

China is Dubai times 1000. The government has too much control of the economy. The GDP numbers are not credible.

Because China bans short-selling, you have to short derivative plays. Short commodities and people shipping raw material into China. Not gold but those commodities involved in the China construction boom. Copper. Cement. Iron Ore.

"We're often early. You never get the top tick. You never get the bottom tick. And anyone who says they do is probably...doing the Chinese GDP reports."

Read more: http://www.businessinsider.com/jim-chanos-were-shorting-autos-china-and-commodities-but-not-financials-2009-12#ixzz0sKB3e7En

Christopher Joye - China's housing bubble myth

Let’s start with a simple yet fairly fundamental question: has China’s house price growth been unusually strong? China’s National Bureau of Statistics (NBS) publishes a monthly price index for both ‘newly constructed’ and ‘established’ residential homes in 70 medium and large cities. While the ‘newly constructed’ home index recorded 14.2 per cent growth in the year to March 2010, the ‘established’ home index rose by only 9.5 per cent.

In China today first time buyers require an extraordinary 30 per cent deposit, which has been raised by the central government from 20 per cent. Downpayments of that size have a huge impact on purchasing power and are about six times more than first timers need in most developed countries. Buyers of a second home are required to have an even larger 50 per cent deposit (it was 40 per cent). And in major cities like Beijing, Qingdao and Shenzhen, where housing supply is particularly tight, the government bans buyers of third time homes having any mortgage debt at all while prohibiting lending to foreigners. In fact, Beijing residents are currently being restricted to one additional home per family.

What about those debt ratios that are cause for so much concern around the world? According to UBS, Chinese household debt as a share of disposable income is just 57 per cent. Mortgage debt-to-disposable income is even lower at 33.5 per cent. Compare this to the US where the equivalent ratios are 124 per cent and 94 per cent. (Australia’s household debt-to-income ratio is over 150 per cent or nearly three times higher than China’s.) Total Chinese household debt as a share of GDP is just 24.4 per cent. In contrast, US and Korean household debt-to-GDP shares are multiples of this at 95 and 86 per cent, respectively.

This is not to say that leverage in China has not risen quickly. It has, but off a very low, non-industrialised base. The following three charts show the time-path of China’s household and mortgage debt-to-household income ratios, and the household debt-to-GDP ratio, compared with the US and Korea since 1990. Long story short: there is nothing here to worry about.

Christopher Joye is managing director of research group Rismark International which produces the RP Data-Rismark Hedonic House Price Indices. Rismark also operates a series of funds that invest in residential mortgages. His blog can be found here.

No housing bubble anywhere, ever. All backed by charts and figures.

[tom 20]

No housing bubble anywhere, ever. All backed by charts and figures.

Whats interesting is in China they are ringing alarm bells and tightening monetary policy when house prices have "only" risen by 9.5%. Of course supply levels are the issue in China with way too many completions for demand, theirs is a classic bubble you would expect in a free market economy, 10% rise in prices, leads to margins doubling in a normal market assuming margins of say 10%, of course supply responds dramatically to this in things worth as much as homes!

Joye thinks this 9.5% is unimportant but I would agree with the Chinese government better to put the shoulder to the wheel. Better this than ending up like Australia or the UK, not even developing countries with capital city house price rises you would not expect in the thick of an industrial revolution!

[staringclown 73]

Whats interesting is in China they are ringing alarm bells and tightening monetary policy when house prices have "only" risen by 9.5%. Of course supply levels are the issue in China with way too many completions for demand, theirs is a classic bubble you would expect in a free market economy, 10% rise in prices, leads to margins doubling in a normal market assuming margins of say 10%, of course supply responds dramatically to this in things worth as much as homes!

Joye thinks this 9.5% is unimportant but I would agree with the Chinese government better to put the shoulder to the wheel. Better this than ending up like Australia or the UK, not even developing countries with capital city house price rises you would not expect in the thick of an industrial revolution!

It's pretty much the same argument Chris uses about Australia. Substitute urbanisation for immigration and regions versus cities vs the new home market versus the established. Single out the tier one cities from the rest. Ease Australian property buyers minds about the risk from China. I must commend Joye, he is nothing if not thorough. I wonder who the anonymous female economist is. By implication the Chinese government are alarmist.

[Bernard L. Madoff 14]

A couple of opposing points of view.

Jim Chanos: We're Shorting Autos, China, And Commodities But Not Financials

Christopher Joye - China's housing bubble myth

No housing bubble anywhere, ever. All backed by charts and figures.

He's using the whole population of China as opposed to the minority in the eastern economic belt in isolation with a separate entity for the rural poor (the majority). A charlatan.

[staringclown 73]

He's using the whole population of China as opposed to the minority in the eastern economic belt in isolation with a separate entity for the rural poor (the majority). A charlatan.

Exactly. Selective figures to support a case for the consumption of the local market. But he does go to a lot of trouble with the graphs and all. He was on AK's sunday show recently as an "expert" I don't mind reading his view but a critical eye is not often cast over his work in the MSM.

[Bernard L. Madoff 14]

Exactly. Selective figures to support a case for the consumption of the local market. But he does go to a lot of trouble with the graphs and all. He was on AK's sunday show recently as an "expert" I don't mind reading his view but a critical eye is not often cast over his work in the MSM.

Its like his bullsh*t about 3X incomes for a house is still the norm accounting for both partners working (not that houses are 6x a single income the global norm of measurement being a single income).

Pity the bachelors, single women and stay at home mums/dads. A f*cking charlatan.

[urchin 6]

i only glanced at it but i thought it was quite funny when he compares beijing, shanghai, guangzhou, shenzen and tianjin to.... darwin.

what th--? was he just looking for an excuse to use more nifty graphs? even if such a comparison were valid (hahahahahaha) what is the point of it? it makes no sense... why compare price changes in the major metropolitan centres in china to... darwin? why not kalamazoo? broome? edinburgh? did he just close his eyes and throw a dart at a map?

all of this seems like a deliberate attempt to obfuscate. he seems to throw a bunch of random data out there, most of which is irrelevant to the issue at hand, and spins it as somehow (magically) justifying his claim that all is well in the world. he doesn't have much respect for the intelligence of his readers, it seems...

i guess what annoys me about CJ (and Keen) is that this has become a game of each of them proving their position right. keen, as an academic, has to be more careful about it but CJ is all bombast. in both cases the primary goal is not to figure out what is going on but to say "in your face! in your face!" to the other "team".

all pretty childish and idiotic.

[tom 20]

Its like his bullsh*t about 3X incomes for a house is still the norm accounting for both partners working (not that houses are 6x a single income the global norm of measurement being a single income).

Pity the bachelors, single women and stay at home mums/dads. A f*cking charlatan.

The thing that upsets me is why in a country with limitless land do we need even 6 person years to create a house yet in the USA with similar land restraints they can build them with 3 people years.

Clearly in China their market is working, capacity to pay has increased fueling a bubble in RE and the supply side is responding with too much viguor. It took ours till last year at ridiculous prices to have a significant supply response.

Just because we have the capacity to pay this much, why should we have to. Twice as many people in the work force should not mean things cost twice as much to produce unless this second half are involved only in paper shuffling which might go some way to explaining things I guess too!

How unproductive is our housing policy if this is the best we can do in new homes. Of course a large component, i.e. 3 of these years goes in the land but again we have virtually limitless land. It is like we have gone backwards over the last 20 years and people think rising prices are moving forward!

I could understand it if we actually had limited land as the rises are tangled up with the lack of land but on the urban fringe in Sydney, Brisbane and even now Melbourne which was traditionally pretty good value houses take 6 person years to create!

What a joke.