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That said, a bubble is still a bubble.
Based on these pics it would seem there are a lot of singles there.Yep, things are definitely a little different in China. Home buyers in China are required to put down 30% on their first house and 50% on their 2nd house. People I talked to in China said that every young male's # one goal is to own property because that is a prerequisite to getting a wifeThat said, a bubble is still a bubble.
I don't know about the demographics but the current generation of young people are often only childs. I heard home buyers have to go through bidding wars there. If a developer built 50 units, they would say only 2 or 3 were available for sale. After those were sold at really high prices the developer would say,"Hey, what do you know? We have two more for sale."Based on these pics it would seem there are a lot of singles there.Yep, things are definitely a little different in China. Home buyers in China are required to put down 30% on their first house and 50% on their 2nd house. People I talked to in China said that every young male's # one goal is to own property because that is a prerequisite to getting a wife
Sorry, but Chanos has been talking this book for a over year now and it hasn't happened. I'm not gonna say he is wrong...there definitely appears to be a property bubble in China when you look at certain metrics such as affordability and hot money in real estate, but personally I think he's underestimating the sheer will of the Chinese government and the psychology of the average Chinese person.
From a "market can stay irrational longer then you can stay solvent" argument I agree with what you said. Chanos talked about the housing bubble in the USA for a few years before the meltdown. It didn't mean he wasn't right early on because it took several years for the house of cards to fall.More then half of the economy is propped up building entire cities they don't need. What happens in 1-2-4-8-16-1000 years when someone speaks up and says we don't need these cities and more then half the economy is eliminated? The housing bubble in the USA was bad, by the numbers the China bubble could be 4X worse. The leverage argument does have to be considered though.
I know nothing about the Chinese Economy... but I do know that they've been hiring every major architect (and even a whole lot of less major architects) throughout the world for the last 10 years or so. For the both the micro and macro level. It's shocking to see the empty towns, but not shocking for me to see all the new construction given the sheer amount of foreign hirings.
How so? I didn't say there wasn't a housing bubble in China. But I've heard plenty of arguments for for and against this point that go much deeper than just construction as a % of GDP and pictures of ghost cities. One pretty convincing metric I've often heard about is the GDP/capita threshold where house ownership has historically started to accelerate rapidly for developing countries...which is somewhere near US$5,000 on an inflation adjusted basis. I think China is still below that level but getting quite close to it now.Everyone debating "is there a housing bubble" is completely missing the point. If 60% of GDP is construction-related, and massive cities are sitting completely empty (in particular, check out the pics of the city that has been empty for a decade, or the university with 11,000 students vs. an expected 2.1 million students), then this is without a doubt unsustainable. It is a giant house of cards. A govt-run ponzi scheme.You can't misallocate that much money - on that massive of a scale - for such a long time without suffering serious consequences. Look at Japan. It's a great indicator of what can happen.How so? I didn't say there wasn't a housing bubble in China. But I've heard plenty of arguments for for and against this point that go much deeper than just construction as a % of GDP and pictures of ghost cities. One pretty convincing metric I've often heard about is the GDP/capita threshold where house ownership has historically started to accelerate rapidly for developing countries...which is somewhere near US$5,000 on an inflation adjusted basis. I think China is still below that level but getting quite close to it now.
Also, like I said before, the LTV's on mortgages on China are nothing like we saw in the US - usually around 50%, and household debt is far lower. These two factors will undoubtedly mean that a large drop off in housing prices won't have the same proportional impact on the economy, despite the % of GDP stats. This thought is enhanced by the fact that the government is driving that number and not the private sector and, also like I said before - they want to see cheaper houses so that lower income citizens such as the rural migrants and new college grads can afford a home.
So, when I said that Chanos might be underestimating the sheer will of the Chinese govt, what I meant was that the scenario is possible where home prices in China drop by 20%, or even 40%, but we could still see spending as a % of GDP remain stable, if not go up, because of the govt's urbanization plans.
On the flip side, I do think that we would see the stock market crash even harder than housing prices if housing prices fall, and I think the gamma of both the Chinese housing and stock market are even higher than the US. This is because the avg. Chinese investor, at the risk of over generalizing them, really only knows how to invest in 2 markets - stocks and real estate. So as their real estate values decline, they will likely start selling their stocks out of fear, which will trigger further selling of real estate and so on. So I think Chanos could be both right and wrong on this issue - right in that there could be a big drop in China asset prices, wrong in paralleling the impact on the Chinese economy with that of the U.S. in 2008.
Finally, my point about timing is really related to flows, asset allocations, and Chinese policy activities over the last year to cool down the housing market. This post is getting long...but to put it simply there were plenty of things that should have caused the bubble to start to crack over the past year if this bubble were so egregious. Now flows are starting to move in ways that are supportive of the Chinese economy and, to a lesser extent, their housing market. This doesn't mean that there isn't a bubble and that it won't burst at some point. But it does mean that the perception of the probability of that scenario is declining.
The risk is that China loses the billions it spent building these cities and gets no return. Those are very valuable resources that went for naught if these cities turn out to be useless.
Like I said in my previous response - I think you are grossly over simplifying the situation based on just 2 factors - the % of GDP and the fact that there are pictures of empty cities. The real question is: Is the problem that people don't want or need these houses, or that people can't afford them? Nobody knows the answer to this question - the Chinese Govt has their view on it, others like you, feel differently. There are enough reasons, such as the avg. chinese person's propensity to take on debt, the wide disposable income disparities, the lack of infrastructure, the lack of a free market, the lack of social stability, to throw out the basic supply/demand assumption that since no one is buying them, no one wants them.Everyone debating "is there a housing bubble" is completely missing the point. If 60% of GDP is construction-related, and massive cities are sitting completely empty (in particular, check out the pics of the city that has been empty for a decade, or the university with 11,000 students vs. an expected 2.1 million students), then this is without a doubt unsustainable. It is a giant house of cards. A govt-run ponzi scheme.You can't misallocate that much money - on that massive of a scale - for such a long time without suffering serious consequences. Look at Japan. It's a great indicator of what can happen.How so? I didn't say there wasn't a housing bubble in China. But I've heard plenty of arguments for for and against this point that go much deeper than just construction as a % of GDP and pictures of ghost cities. One pretty convincing metric I've often heard about is the GDP/capita threshold where house ownership has historically started to accelerate rapidly for developing countries...which is somewhere near US$5,000 on an inflation adjusted basis. I think China is still below that level but getting quite close to it now.
Also, like I said before, the LTV's on mortgages on China are nothing like we saw in the US - usually around 50%, and household debt is far lower. These two factors will undoubtedly mean that a large drop off in housing prices won't have the same proportional impact on the economy, despite the % of GDP stats. This thought is enhanced by the fact that the government is driving that number and not the private sector and, also like I said before - they want to see cheaper houses so that lower income citizens such as the rural migrants and new college grads can afford a home.
So, when I said that Chanos might be underestimating the sheer will of the Chinese govt, what I meant was that the scenario is possible where home prices in China drop by 20%, or even 40%, but we could still see spending as a % of GDP remain stable, if not go up, because of the govt's urbanization plans.
On the flip side, I do think that we would see the stock market crash even harder than housing prices if housing prices fall, and I think the gamma of both the Chinese housing and stock market are even higher than the US. This is because the avg. Chinese investor, at the risk of over generalizing them, really only knows how to invest in 2 markets - stocks and real estate. So as their real estate values decline, they will likely start selling their stocks out of fear, which will trigger further selling of real estate and so on. So I think Chanos could be both right and wrong on this issue - right in that there could be a big drop in China asset prices, wrong in paralleling the impact on the Chinese economy with that of the U.S. in 2008.
Finally, my point about timing is really related to flows, asset allocations, and Chinese policy activities over the last year to cool down the housing market. This post is getting long...but to put it simply there were plenty of things that should have caused the bubble to start to crack over the past year if this bubble were so egregious. Now flows are starting to move in ways that are supportive of the Chinese economy and, to a lesser extent, their housing market. This doesn't mean that there isn't a bubble and that it won't burst at some point. But it does mean that the perception of the probability of that scenario is declining.
Does this mean there will be a China housing crash? My answer is it doesn't matter. The potential for a housing crash isn't the issue - the issue is that there will be a major economic crash....because the govt is building things that people don't want or need.
Anyway, appreciate your thoughtful response above. Apologies if I was an ###. Was just typing too quickly and should have written more (rather than less) without snarkiness.
I know heavy equipment, we are currently trying to place our orders for 2011 to be delivered at the height of our business season in April-May. We attempted to order to order our workhorse excavator, an SK210 from Kobelco. We were told there is close to a two year lead time on them now because China & India have bought up virtually all of the excavator production for the coming year and a good portion of 2012. They are building on a MASSIVE scale in China right now and will be for the next 10-20 years.I have no idea if they can sustain it but they are building something and lots of it. TIME has done a number of articles recently that were really well done on China's economy and the direction the government is taking it. This article.El Floppo said:
Can you share more about why you enjoyed the article above? I generally like Fareed Zakaria, but didn't really take much of substance from the article.I did enjoy the "expert" though who said China's GDP would be $123 trillion by 2040. Priceless.
People thought that housing bears in the US were "oversimplifying the situation" in the mid-2000s when they suggested a housing bubble. People who are contrarian are almost always accused of "oversimplification." There is an emerging view -- one that I wholeheartedly agree with --- that "not all GDP is worth the same amount." Check out a guy named John Mauldin, he is far more articulate than I am. And he writes about this topic a bunch. Basically, the idea is that you can prop up GDP in the short-to-medium term through govt spending. But $1 of govt spending (GDP) isn't the same as $1 of private spending. This is a really intuitive concept -- one supported by the photos of ghost cities -- so I'm not going to bother supporting the concept. You either believe it or you don't.You're right, I'm making a bit of a logic leap by assuming that "ghost cities" vacant for over a decade won't suddenly generate massive consumer demand. Call me crazy.hxperson said:
Sure, primarily the stuff below. China intrigues me in that they very literally move mountains with will. I have no doubt that they have positioned themselves to accomplish the below bolded highlights. They are buying tangible assets with hard currency and investing in their infrastructure AND people at a phenomenal rate. Whether you buy into GDP number or not does not hide the fact that China is doing the things we ought to be doing to be competitive in today's world.The New China
I find it somewhat insulting that, after all that I've said, you would assume I don't know who John Mauldin is or understand the differences in the multiplier effects of govt spending and private spending. You last sentence shows to me that you really didn't understand my point at all regarding the trajectory of GDP/capital in China and the impact that will have on housing demand (which, btw, isn't my original thought, but one shared by many out there). But whatever.
Huh? How is it insulting to think you might not know who John Mauldin is? Most people have never heard of him, so I didn't want to assume that you're an avid reader. Ditto for the concept that govt & private money should be considered differently for purposes of comparing GDP across countries. Honestly, if you take something like that personally, you need to lighten up. My last sentence was intentionally silly. I get your point, we just disagree on the conclusion one should draw.
I see your "The Chinese economy is more complex than just the housing market"And I raise you a "China isn't special, it's not going to be different this time"
what percentage of the Chinese GDP is wasted by government boondoggles?What percentage of the US GDP is wasted on government boondoggles?
I don't think John Mauldin is as big an unknown as you think he is. Just saying....
Many people in the finance/econ world know him. Almost nobody else in the US does. It would be silly for me to assume that everyone on this board is intimately familiar with what Mauldin writes.
Many investors know him or get his newsletter. And we know that all FBGs are savvy accredited investors, right?
Problem is when you educate people they actually start thinking for themselves on occasion.
Very true but I think China has shown in the past that they are more than prepared to deal with these bumps in the road. Ask the current Nobel peace prize award winner how that "thinking for yourself" thing is working out.
I don;t know, but I'm willing to bet it aint 45%.
Australia is more dependent on exports to China than Brazil is. HTH. Copper and iron ore imports will suffer, oil imports may not.
If you believe the 45% number then I would advise against investing in real estate in Florida.
Economic Crisis is always cool.And to think this thread was cool a couple of days ago.
It is not easy to tame the super powerful Yangtze River. The Three Gorges Dam may be disaster in the making. Big ecological problems aside, who's the genius who thought it's a good idea to build a mega dam on a seismic fault?
BTW, the empty houses and apartments in the ghost cities are actually owned by investors. The housing bubble is different there because citizens who give out private loans hoping to earn 30% interest often lose their life savings when people don't pay their mortgages.
