Real Estate Bust in China?

[HenryTo]

As discussed before, real estate in China will be the first to go as the Chinese government continues to clamp down on the economy, which is what the central government intends anyway:

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/17/AR2007101702217.html?hpid=sec-business

[HenryTo]

Chinese housing prices keep on rising:

http://www.thestandard.com.hk/news_detail.asp?we_cat=2&art_id=94503&sid=27045253&con_type=1&d_str=20100212&fc=8

[rffrydr]

It's working: though, lacking a "crash," we may be settling into the Hong Kong cyclical model of boomette and bustette. In theory there's alot more property in China but perhaps not in the right location location location.

[rffrydr]

Dr. No, Li Ka-shing, says stay the course....he, and Rogers et. al chime in on china property:

http://ftalphaville.ft.com/blog/2010/01/20/130051/china-property-bubble-real-or-imaginary/


_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Continuing a theme: most cars, most exports, most money...

http://ftalphaville.ft.com/blog/2010/01/11/123196/then-and-now-banks-and-their-book-value/

...most bull.
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

On Bubbles and China

By Helene Meisler
RealMoney.com Contributor
1/8/2010 1:01 PM EST


Every time I turn on CNBC and forget to hit the mute button, I hear about how China's a bubble and how you need to know how to play it. Now, some parts of the Chinese market seem a little frothy, but I've seen bubbles in Asia firsthand, and I just don't buy it here.




I lived in Shanghai for four years starting in 2001 and in Singapore for five years before that. While I lived there, I had the opportunity to see the growth and stumbles of these Asian markets and countries.

I moved to Singapore in February 1996, which meant I caught the tail end of the Southeast Asian boom that began in the early '90s. I remember being amazed at the price of real estate. While my husband's company paid for our rent (thankfully!), can you imagine our shock when we discovered our apartment rent was S$11,500 per month (at the time, about US$9,000)? In the following year and a half we watched as the rent on similar apartments in our building moved up to more than S$15,000 per month -- over 35% in less than 18 months. (And you thought we had a housing bubble here?!)

That was the summer of 1997, the beginning of the "Asian crisis." Thailand revalued the baht in early July 1997 and sent Asia into a tailspin. At the time, most of these currencies were pegged to the U.S. dollar, or at least were set to trade in a band. This revaluing sent most of the currencies outside their bands and caused their stock markets to plunge, and the economies followed suit.

By early August, Indonesia revalued its currency (the rupiah). Malaysia, not to be outdone, sometime around Labor Day decided it too would revalue, but it would "peg" the price of the revaluation; there would be no wild swings for them. This caused yet another round of dislocation in the markets. If you were involved in the U.S. markets back then, you might recall the severe plunge we had into late October 1997 -- the S&P lost about 12% in about two weeks, helped along by this Asian currency crisis. We made a low in October 1997; the Asian markets, however, continued to slide for about another year.

Here is a chart of the Singapore Straits Times Index from July 1997 through the end of 1998. With the exception of that oversold rally in early 1998, the index did not make a low until what folks in the U.S. refer to as the Long Term Capital Management crisis in the fall of 1998. I know most folks believe the Asian crisis was in 1998, but the root of the problems and the slide started in the summer of 1997 -- autumn 1998 was just the culmination.

[img]http://images.thestreet.com/rmoney/technicalanalysis/55817.bmp[/img]

In the fall of 1998, I traveled to Shanghai for the first time. We stood in amazement at the number of cranes dotted throughout the city, mostly because they were all idle. Remember, Asia had been in a financial crisis for over a year at this point, so idle cranes had become the norm. Nonetheless, we fell in love with the city, and when my husband was offered a transfer there in late 2000 we jumped at the chance.

To show you how different it was to arrive as expatriates early in a boom (as compared to our arrival in Singapore late in the boom), we rented an apartment which was about 1,000 square feet larger than what we had in Singapore for a "mere" $5,000 (U.S.) per month.

We arrived in Shanghai in February 2001 just as it was recovering from the Asian crisis. China was on its way toward becoming the factory floor of the world. It was quite early in the boom; just a few short months after our arrival, Beijing was picked for the 2008 Olympics and things really ramped up economically, but that burst wasn't necessarily reflected in the market. In fact, note on the chart below that the decision for China to host the Olympics coincided with a peak in the stock market (should Brazil worry?):

The country kept booming along, but the stock market was not so hot. The SSEC almost halved from the time we arrived in early 2001 until late winter 2003. In late winter 2003, SARS became an issue in China. People stopped going to restaurants, theaters, shopping, everywhere. For a city of 20 million, the place was eerily quiet.

The chart above shows that SARS was a problem for the Chinese market, but it wasn't terribly high to start with -- all the decline in late 2003 did was bring about a retest of the lows. Then in late December 2003 the SSEC took off and zoomed ahead. But a long-term chart of the Shanghai Composite suggests that all while China's economy was booming, the stock market was not. China's stock market did not take off and go on a tear until 2005; it then went straight up until 2007 -- up 500% in two years.

By the time the Olympics came around it had halved from the high.

I have noticed all these hot small-cap Chinese stocks jumping up lately, and I find it curious that the SSEC isn't higher now. In fact, the SSEC made its high last summer and has not been able to surpass that high.

Overnight into Thursday, the Shanghai Composite was down 2% on some "tightening" moves by the government there. My first observation is that if China is the new growth engine of the world (as I keep hearing and reading), then why hasn't the SSEC made a higher high since last summer? And why can't it beat out the high of a few months ago?

Perhaps a shakeout down to the 3100-ish area would give the SSEC a much needed shakeout toward support and may even provide it with the right shoulder of a head-and-shoulders bottom.

http://images.thestreet.com/rmoney/technicalanalysis/55816.bmp

I don't think we can call the Chinese market a bubble right now, although many believe it is. That chart doesn't say "bubble" to me. I hear stories about real estate prices there that suggest that space may be a bubble, but thus far it has not been reflected in the stock market over there. (I'd love to know what the rent is on the apartment we had is now! If I had to guess I'd say it's probably doubled!)
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

I'm there.....Build Your Dreams is in my sights. And as far as history goes I've traveled the half-finished British rails of broken investors from a century ago. But the bear is a near extinct species there and outsiders must take heed.

It's complicated. Firstly China's had it's own rolling bear going on since the late nineties. The vast emptiness of collapsing state enterprises, true "zombie" factories made of hard assets, ironically now so in vogue were treated like the plague. Early in the decade investment was very selective, mostly tech and consumer goods. PG has never found its "1billion armpits" for deodorant. On the otherhand Boeing as sold a high-margin high tech product handoverfist for a decade and has little to show for it other than the chinese making it for themselves now under the Boeing banner. RE and CRE has undergone several dramatic cycles already. Empty and half-finished office towers sit next to brand new and fully occupied space. Malls to nowhere have been built but at a Mall-a-day who cares? Copper has gone from industrial product posterboy to hoarded anti-western currency product featured on swiss watches of all things.

Secondly, you're late: we're mere months already out of a collapse few bears could have dreamed of. Maybe 25 million out of work in two months! Yet china stands tall. Today marked the first increase in exports in 14months. Did they even miss us?!

Thirdly, you're facing The Command economy. China possesses a density both of population and general will to achieve what few other powers have in history. And the audacity standing up before the world and it's contagions and surviving has only emboldened this trend. Forget that unsightly word, "democracy." Hong Kong is becoming a fiction. "Credit" does not rule this roost. And "FDI" has much to do with an alternative currency regime as fixed applications.

For all of china's agoraphobia it's diaspora makes it the world's original colonizer.

And where do you draw limits on the "world's factory"? This does seem to be the case. Maybe 150 crude started that turn? But it will be a slow one. The Volt battery proved GM couldn't build all-american product without them--even with a gun pointed to their heads.

FT year-end fantasized about a china that overgrows it's potable water supply, tipping the grand cycle in 2012. The paradox is exemplified in that article below: the condos sit empty, dark at night, fully sold--50% cash in most. Why? Because for every one there are five waiting to "move into" them.

For most of its trading history CAF traded at a huge premium to an already huge premium over its' HK dual constituents--it was to price you paid to be short what otherwise couldn't be shorted. But don't loose heart, china just this week approved short-selling in Shanghai. Bears are now "legal." Now all we need is something to eat.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Chanos now looking to short China:
-----------------------------------------------------------------------------------
Contrarian Investor Sees Economic Crash in China

by David Barboza
Friday, January 8, 2010

James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." He is planning a speech later this month at the University of Oxford to drive home his point.

As America's pre-eminent short-seller -- he bets big money that companies' strategies will fail -- Mr. Chanos's narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience -- in addition to predicting Enron's demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world's biggest banks -- his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

"I find it interesting that people who couldn't spell China 10 years ago are now experts on China," said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. "China is not in a bubble."

Colleagues acknowledge that Mr. Chanos began studying China's economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China's stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

"In China, he seems to see the excesses, to the third and fourth power, that he's been tilting against all these decades," said Jim Grant, a longtime friend and the editor of Grant's Interest Rate Observer, who is also bearish on China. "He homes in on the excesses of the markets and profits from them. That's been his stock and trade."

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

"The Chinese," he warned in an interview in November with Politico.com, "are in danger of producing huge quantities of goods and products that they will be unable to sell."

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation's huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of "speculative capital," has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 -- one that Mr. Chanos and others have called wasteful and overdone.

"It's going to be a bust," said Gordon G. Chang, whose book, "The Coming Collapse of China" (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd -- even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.

A contrarian by nature, Mr. Chanos researches companies, pores over public filings to sift out clues to fraud and deceptive accounting, and then decides whether a stock is overvalued and ready for a fall. He has a staff of 26 in the firm's offices in New York and London, searching for other China-related information.

"His record is impressive," said Byron R. Wien, vice chairman of Blackstone Advisory Services. "He's no fly-by-night charlatan. And I'm bullish on China."

Mr. Chanos grew up in Milwaukee, one of three sons born to the owners of a chain of dry cleaners. At Yale, he was a pre-med student before switching to economics because of what he described as a passionate interest in the way markets operate.

His guiding philosophy was discovered in a book called "The Contrarian Investor," according to an account of his life in "The Smartest Guys in the Room," a book that chronicled Enron's rise and downfall.

After college, he went to Wall Street, where he worked at a series of brokerage houses before starting his own firm in 1985, out of what he later said was frustration with the way Wall Street brokers promoted stocks.

At Kynikos Associates, he created a firm focused on betting on falling stock prices. His theories are summed up in testimony he gave to the House Committee on Energy and Commerce in 2002, after the Enron debacle. His firm, he said, looks for companies that appear to have overstated earnings, like Enron; were victims of a flawed business plan, like many Internet firms; or have been engaged in "outright fraud."

That short-sellers are held in low regard by some on Wall Street, as well as Main Street, has long troubled him.

Short-sellers were blamed for intensifying market sell-offs in the fall 2008, before the practice was temporarily banned. Regulators are now trying to decide whether to restrict the practice.

Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other "financial disasters" over the years.

"They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys," he has said.

[rffrydr]

Take the property challenge:

The soap opera of China’s housing boom

By Geoff Dyer

[rffrydr]

_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

The Bianary relationship with manufacturing: strong or weak, "investment" is still taken for granted.

http://www.chinaknowledge.com/Newswires/CA.aspx?cat=&ID=211

This "echo" bubble does have the best chance of driving domestic spending in the the shortrun and favoring public policy--there are already signs however of a spillover into SoCal RE. In terms of trade that'll work too.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Shanghai housing prices fell during November, but the data is a little bit skewed given the higher volumes in the suburbs versus the downtown properties:

http://www.chinadaily.com.cn/bizchina/2007-12/02/content_6292749.htm

[rffrydr]

So, the 30% down, if not a fiction, is not a factor?
_________________
Today is the Tomorrow you worried about Yesterday!

[chestnutstime]

From what I what heard, at least 40% home buyers have elected to pay cash when they purchased their second or third apartment so far in 2007. Some used their profits from the stock martket, while others simply use their idle cash to find a meaningful parking spot.

During the Octorber golden week holiday, many traveled to smaller cities to purchase apartments, and the wealthy traveled to Hong Kong purchasing their vacation homes. Even I encountered plane loads of people who flew in from Korea and Hong Kong buying in some inland cities, such as Chengdu.