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CHINA : The Old Dragon with new growing pains

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CHINA : The Old Dragon with new growing pains

/old title/:

CHINA is Going Backwards- Gordon Chang

How can the Global Economy & commodities grow?

========================================

 

HK:2823 / China etf, traded in HK ... update-Daily : update-Weekly

Daily

hk2823.png

Weekly

hk2823wk.png

 

GOING BACKWARDS in Politics, but the China stock market has been weak too.

Is there really a risk of political upheaval? Maybe.

 

Gordon: Revolutions occur under many conditions, but especially when political institutions do not keep up with the social forces unleashed by economic change. Tocqueville noted that peasants in pre-revolutionary France detested feudalism more than their counterparts in other portions of Europe where conditions were worse. Discontent was highest in those parts of France that had seen the most improvement, and the French Revolution followed an economic advance.

 

Chinese leaders shouldn't say, "Well, Tocqueville was 18th-century France – another continent, another century," because we saw all these same trends play out in late 20th-century Thailand. More important, we saw it in the Confucian societies of South Korea a mere two decades ago, and in the Chinese-dominated society of Taiwan a little bit later. Indonesia saw economic advance and then when there was a slight slowdown, Suharto was gone.

 

So really, the problem is that Chinese society now is very dynamic. It's changing faster than any society on earth and what's essentially going on right now is that most Chinese people believe that a one-party system is no longer appropriate for a modernizing society. That's very dangerous for the Communist Party, because although people are intimidated, it also means that when fear is gone for whatever reason, then the regime can't last.

 

Stefan: It's also struck me that after liberalization of the economy, you get a multiplicity of choice in Chinese society, which does not match the one-party political system.

 

Gordon: You have no choice about the political system and that really is a problem. Nicholas Kristof – the New York Times columnist – said he went to some backwater city in Manchuria and he saw 15 different types of coffee people could buy, but only one Communist Party. People say that places like North Korea have to be unstable – and in a certain sense they are, but people there are too poor to resist. They don't have the means because they're spending all their time just trying to survive. I think North Korea, as bad as it looks, is probably more stable than China. And China is obviously so much more dynamic and prosperous than poor North Korea, but I think that China is less stable because people are starting to get it into their minds that they have choice.

 

/from Conversations with Cayce

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VIDEO

 

Gordon: Well, China is going backwards right now.

Hu Jintao, the current leader, has presided over an era which is, on balance, marked by the reversal of reform. What we saw beginning in 2006 was Hu going back on Deng Xiaoping's policy of reform and opening up, which is the way we see China. What Hu Jintao has been doing is really trying to close the country down.

 

For instance, in the middle of last decade we saw them trying to prevent acquisitions by foreign companies. Renationalization started to pick up steam when we saw the National Social Security Fund and China Investment Corp., which is the sovereign wealth fund, actually going into the Chinese stock market and buy up shares that once were held by private parties. Then at the end of 2008 with the stimulus program, all of the state money, whether directly or indirectly through the state banks, went into state enterprises and the state-sponsored infrastructure. The private sector has really, really been hurt.

 

So what we have is a renationalization of the Chinese economy. I believe that that will continue, because there's really nothing to stop it. The political system has become almost frozen because they have a political transition at the end of next year. I don't think they'll actually make it till 2012 in October when they're supposed to have their 18th Party Congress. No one is going to be there arguing for liberalization. Liberalization has been off the table now for about three or four years. It's really hard to see them going back to it unless they think they're going to lose power, but by that time it's going to be too late. They will not be able to liberalize fast enough to create the economic growth which has been underpinning the Communist Party. These guys are gone.

 

Stefan: I would argue though that the key to change in the future is the general population's perception of what is causing the problem. Here in America you get enormous amounts of propaganda that the economic collapse was caused by the free market, by deregulation. In China, is the general population's view going to be that it was the government that caused it or is it going to be seen as the result of playing around in the free market?

 

Gordon: We really don’t know what the Chinese people think, because the Chinese government doesn't allow us to know.

 

Stefan: Oh, right.

 

Gordon: We can sort of show though what the Communist Party is trying to do, which is blame everybody else. They've done that already, talking about what's going on around the rest of the world, the global downturn.

 

My view of the global downturn is that regulation failed in the United States, but we have to ask why it failed. It failed because there was too much money, which overwhelmed regulators – and that has always occurred. If you go back through history, regulation has always failed when there's been too much liquidity in the international system.

 

You know, in 2007 you could see Wall Street and others – they were creating funds for Zimbabwe. You know there was too much money in financial assets, and I think it overwhelmed regulation everywhere, but especially the United States. Part of it was because China had to recycle its trade surpluses, and the reason why they had trade surpluses was because they were manipulating the value of their currency. The Chinese are not the only culprit for too much liquidity three to four years ago, but they certainly were the new factor.

 

Stefan: So if people want to find out more – and you have got great thoughts about China, an underexplored area – where can people go to find out more about your writings and your thoughts?

 

Gordon: I archive my columns and my writings at www.gordonchang.com. I write a column for Forbes.com weekly, usually on Sundays, and I write for The Daily, which is the iPad publication of News Corp., and other places as well.

 

Stefan: Thank you so much for your time. It's been really fascinating. We appreciate it.

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...What we saw beginning in 2006 was Hu going back on Deng Xiaoping's policy of reform and opening up, which is the way we see China. What Hu Jintao has been doing is really trying to close the country down.

Hmm.

How can the leaders "close the country down",

 

...when the whole world is pushing China to open its markets, stop relying so much on exports,

and get its consumers to spend more ?

 

More Consumer spending usually comes with more consumer choice, and those who are spending their own money,

do not like to be told what to buy (and what to think)

 

Advertising (influencing consumers) usually replaces political control

== ==

 

GC's tale about how Chinese are using the gaming tables of Macau to launder money fist with what I am hearing and seeing in HK.

 

Some of that laundered money winds up in HK properties.

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Finally, the property boom seems to be coming to an end. There's going to be a lot of paper being printed over this. Nice fresh Yuan paper...

 

China property raises concerns as prices continue to slide

...

"The turning point of China's home prices has come," Shen Jian-guang, an economist at Mizuho Securities, told Bloomberg. "Prices not only fell for new homes and in major cities, but also in secondary cities and in the existing home market."

...

The Government stopped publishing nationwide data in January.

Hmmm... :rolleyes:

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Finally, the property boom seems to be coming to an end.

It seems so.

 

Here are some stats from Caixin Weekly, China Economics & Finance

 

Real Estate's Blind Corner (in China)

 

(It talks about Property Price discounting in China, such as the case in Shanghai where: 400 homeowners were protesting 30 percent price cuts; developer China Overseas Land & Investment cut prices on new properties from 22,000 yuan psm to 16,000 yuan. Meantime, Longfor properties cut their prices from 18,500 yuan to 14,000 yuan)

 

Why?

The goal (of several developers) was to sell 1,000 properties:

 

+ In Shanghai, 204,000 SM of new properties were sold in the first half of October, down 72% from the prior year

+ Beijing's Unsold inventory reached 117,700 units, the highest since June 2009, with 22 months needed to absorb 2011 inventory

+ Combined housing inventory had climbed 140 percent between June and September 2011, and homes worth 531 billion were still awaiting buyers.

+ The big prices cuts allowed developers to sell 90 percent of discounted homes within just five days (!) to bargain hunters

 

Independent economist Andy Xia (who tends to be bearish) wrote in Friday's SCMP, predicting:

 

+ A possible price fall of 25 percent into the end of 2012, and then another 25 percent after that

 

Chinese government price controls are in place, and are expected to remain in place for months to come

 

In a Q3.2011 poll, 36 percent of respondents still expected price rises. So price discounting continues to be described as "selective", rather than across-the-board. So prices in secondary cities are not expected to fall much, since they never rose to such high levels

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from CHRIS MARTENSON'S BLOG

 

Gordon Chang: The Reasons For China's Imminent Bust

Friday, November 18, 2011, 10:42 am, by Adam

 

The global dominant narrative about China is wrong, claims Gordon Chang. Don't expect it to be the 'pocketbook of last resort' that will rescue world markets from their current malaise.

 

And don't expect its remarkable economic growth to continue. In fact, expect a "hard landing" for China - and soon.

 

Forbes.com columnist and international lawyer Gordon Chang has spent much of his time since the early 1980s working and living in China. His primary knowledge of the country and his relationships there give him a superior understanding to how its economy is actually faring than many analysts based in the West. And what he sees today doesn't inspire confidence.

 

We are seeing the first real signs of slowdown in China's economic growth looking at the year-over-year numbers for the past several months. Car sales have decreased nearly 5% since last year, and property values are beginning to plummet in key markets (30% in October alone in Shanghai).

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from CHRIS MARTENSON'S BLOG

Gordon Chang: The Reasons For China's Imminent Bust

... property values are beginning to plummet in key markets (30% in October alone in Shanghai).

On The Popping of China's Real-Esate Bubble

 

There was just too much money in the economy and so people then poured money into apartments. And China has gone on a tear building ghost cities and all the rest of it. And now the progression that you talked about -- skyrocketing prices and then stable prices, selling volume, and then property price declines -- is what we are seeing in China.

 

In October, last month, prices in places like Shanghai declined 30%, as we saw developers start to offer these enormous discounts. And by the way, these discounts were so big that people who bought at earlier stages in these same developments, where these discounts were being offered have now taken to the streets complaining if you are giving 30% discounts to these other guys, then give it to me as well. And so we have not got a little bit of social unrest because of falling property prices.

 

In Wenzhou, which is in prosperous Zhejiang Province, which was perhaps the most prosperous province up to about a year ago, developers are, one developer is now offering BMWs to the first 150 buyers of apartments. And this is just a sign that property prices have not only softened, but they are starting to fall quickly.

 

You know, every market has to go to equilibrium. There are too many apartments in China and not enough buyers and occupiers. And it was going to go to equilibrium in some fashion. What is really surprising observers is that the rapidity at which we see this move to equilibrium. Last year there were, in about I guess it was April or May, the state grid in China reported there were 64.5 million apartments that showed no electricity usage for six consecutive months. That is enough housing for 200 million people, but yet Beijing was decreeing the building of 30 to 50 million more apartment units....

 

But at the end of the day, there has got to be a correction. And what goes up fast comes down fast. And what we are seeing is the down phase. The only issue is whether Beijing can stop the down phase by administrative measures. But so far the Chinese leaders, Premier Wen Jiabao, last Sunday said "nope, we are going to stay with these tightening measures." And that has really created great pessimism in the Chinese property market...

 

And so really what we have is a government now that is really trying to bring the property market down. And of course it wants to do so gradually, you know, orderly. But as you say, it is a bubble, there is a pin and the problem is that Chinese leaders cannot manage the process of bringing the property market down to equilibrium....

 

When China's elite analysts start talking about prices being 50% of where they are this year that means that they are probably privately thinking that no, prices will not halve: they might go down even further than that. And that is really a problem because that mentality, once it gets embedded in people's minds in China really means that, Chinese leaders then have very few tools in which to prop up the property market.

 

Click the play button below to listen to Chris' interview with Gordon Chang

(runtime 40m:55s): http://www.chrismartenson.com/blog/gordon-chang-reasons-chinas-imminent-bust/65040?utm_source=newsletter_2011-11-20&utm_medium=email_newsletter&utm_content=node_title_65040&utm_campaign=weekly_newsletter_45

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They'll do something to counter-act adverse economic effects, I would think. Maybe they're going to plaster Gobi with solar panels and wind mills to make up for it. They have the cash, and if they lacked any, they could print it. They might just let one group dig holes, and another filling them up. :) Better this than getting hung from your neck in a democratic revolution.

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They'll do something to counter-act adverse economic effects, I would think...

The plan is:

+ As luxury homebuilding grinds to a halt,

+ The government will "encourage", and maybe even subsidize the building of "affordable" housing

 

This will leave those who bought "extra" luxury homes (beyond their immediate needs), lumbered with losses for a long time

 

The "good" thing is LEVERAGE IS LOW, and so:

+ Banks will not necessarily be stuck with big losses, but individuals find they are underwater on their homes for a long time, maybe years

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The plan is:

I really think they'll just hyper-inflate out of this. If you're a peasant, it must certainly feel like it already if the food inflation Chang quotes is correct (11% official, +20% Chang's estimate).

 

Interesting to hear his opinion on gold. Imagine you're a wealthy Chinese: property is crashing, the stock market is a dog, and the government will prevent you to inflate any sensitive part of the economy. What's not essential for the economy and has the same function no matter how expensive it is? Gold, of course. It's the perfect inflation and speculation outlet. No one will be hurt by gold inflation (in the beginning of course, later it will all spill over due to psychology).

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I listened to the interview (Martenson-Chang) again. Essential stuff for anyone interested in China. China is having (on of its?) 1929 moments.

 

I guess he has been a China bear for a long time. But I do think he is spot on about the problems China's economy and system is facing. I have predicted a communist revolution (tongue in cheek) in China for a long time, but the tension is rising.

 

Given how they have reacted in the past, the way the commies will go is printing and keeping people employed (and fed). The property market will still crash immensely IMHO. Gazillions of flats standing empty - there's no way out now that the commies want it too.

 

What will the outfall be? Not so clear, but even people in China will still drive and heat and use their iPhones. They have the reserves and will to continue huge infrastructure projects.

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Global economic outlook grim, China tells U.S. trade

 

(Reuters) - Chinese Vice-Premier Wang Qishan warned on Monday the global economy is in a grim state and the visiting U.S. commerce secretary said China would spend $1.7 trillion on strategic sectors as Beijing seeks to bolster waning growth.

 

Wang said an "unbalanced recovery" may be the best option to deal with what he had described on Saturday as a certain chronic global recession, suggesting Beijing would bolster its own economy before it worries about global imbalances at the heart of trade tensions with Washington.

 

"An unbalanced recovery would be better than a balanced recession," he said at the annual U.S.-China Joint Commission on Commerce and Trade, or JCCT, in the southwest Chinese city of Chengdu.

 

The comments, echoed by Vice Finance Minister Zhu Guangyao, stopped short of suggesting China would try to boost exports as it had done during the 2008-2009 global financial crisis when it pegged the yuan to the dollar.

 

Instead, U.S. Commerce Secretary John Bryson told reporters that China had confirmed to U.S. officials that it planned to spend $1.7 trillion on strategic sectors in the next five years.

. . .

On Saturday, Wang gave the most dire assessment on the world economy from a senior Chinese policymaker to date.

 

"The one thing that we can be certain of, among all the uncertainties, is that the global economic recession caused by the international financial crisis will be chronic," he was quoted as saying by the official Xinhua news agency.

 

The remarks weighed on Chinese and Hong Kong stocks, while world markets were also weak as investors fretted over the euro zone debt crisis.

 

China's growth slowed to 9.1 percent in the third quarter from 9.5 percent in the second-quarter and 9.7 percent in the first quarter, but the rate remains in Beijing's comfort zone.

 

After tightening monetary policy to fight the threat of inflation, the central bank has since loosened its grip on bank credit in a bid to support cash-starved small firms and pledged to fine-tune policy if needed as economic growth slowed down.

 

"It's clear now that Beijing is ready for policy fine-tuning (to support growth) at a time when the overall domestic and foreign economic situation is not optimistic," said Hua Zhongwei, an economist with Huachuang Securities in Beijing.

 

/more: http://www.reuters.com/article/2011/11/21/us-china-usa-economy-idUSTRE7AK0BD20111121

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This could be big...

 

FEARS CAPITAL IS FLEEING MAINLAND ... says SCMP

 

Mainland foreign exchange purchases entered negative territory last month for the first time in four years, raising fears capital is exiting the world's second-largest economy amid global turbulence.

 

Bank yuan positions outstanding for foreign exchange fell 24.9 billion to 25.5 trillion (that's not much of a change, but may be a change of trend.)

 

"The decline related to negative views of international capital towards China's economic growth and anticipations of yuan depreciation..."

 

(another article has more data) :

 

"Household savings deposits in mainland banks fell by 727 billion yuan... indicate that money is now flowing out of the economy despite Beijing's capital controls."

 

(727bn yuan starts to look like a big number!)

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Hmm, maybe this is Chang's "first sign of trouble". With the second sign, the corrupt elites will take the next flight to NYC (where they own nice paid off houses in the hinterland).

 

I guess everyone would agree that it would make most sense to see China going properly hyper first.

 

This could be big...

 

FEARS CAPITAL IS FLEEING MAINLAND ... says SCMP

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A BIGGER BEAR than Gordon...

 

(There's an interesting tidbit on the back page of today's SCMP -

The most bearish story that I have seen on China yet - can it be true?

In fact, the story relates to a speech given by:

 

larry-hsien-ping-lang-thumb.jpg

 

Larry Lang Hsien Ping, a professor of finance at Chinese Univ. of HK

 

The talk was given in Shenyang last month, and was covered by Epoch Times.

No recording was allowed, and he has been relunctant to discuss it.)

 

His view: China's economy has already crashed, but the damage has not yet been recognised.

 

"Every province in China is Greece"

 

Five points support his gloomy assessment:

 

1) China's debts have reached almost 36 trillion yuan, including local govt, and SOE's.

And that carries annual interest payments of 2 trillion yuan

 

2) The accurate figure for inflation is 16 percent

 

3) Private consumption is only 30 percent, and there is serious overcapacity in the other parts of the economy. The July figure for PMI of 50.7 indicates a recession has already begun

 

4) The official figure of 9 percent GDP growth is wrong. China's GDP shrank by 10 percent (I assume that would be the case for Real GDP when using Lang's higher inflation number.) The official GDP figures are bloated by dramatic increases in infrastructure, construction, and property spending - and these areas represent 70 percent of the economy, but are already showing excessive supply (ie there has been massive mal-investments which will take years to absorb.)

 

5) China's taxes are too high, with companies paying 70 percent tax and individuals up to 81 percent tax.

 

If that wasn't bad enough, according to Epoch Times Lang warned:

"Once China's economic tsunami hits, the regime will lose credibility, and China will become the poorest country in the world."

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[Video]

Hedgie Jim Chanos Returns from Asia, Even More Bearish on China

- Says Banking System 'Extremely Fragile'

 

Fundmymutualfund.com - 10 hours 39 min ago

 

Noted hedge fund manager Jim Chanos has been bearish on China vocally since at least 2009. Below we have a video of Chanos appearing on Bloomberg today, after a recent trip to the region (but he still has yet to visit the mainland itself - and might at this point purposefully not choosing to just so those who say you can't know anything about a country unless you visit it), appears ever more bearish. A lot of comments directly on the financial system of China, although he still delves into the real estate situation as well.

 

/more: http://www.fundmymutualfund.com/2011/11/video-hedgie-jim-chanos-returns-from.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FundMyMutualFund+%28Fund+my+Mutual+Fund%29

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A BIGGER BEAR than Gordon...

...

"Every province in China is Greece"

I believe every bit of this, BUT the commies can execute much extremer policies than any Western government could. So, maybe they will find another way to paper this over. But I have stated many times before, China has the role of the U.S. here in 1929, so it won't be pretty, and I don't think they will go for deflation. I see hyper-inflation, but possibly along with free bowls of rice for everyone to make it more bearable. And the speculators and newly rich, hmmm, how sympathetic will the hard core commies be towards them?

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...the speculators and newly rich, hmmm, how sympathetic will the hard core commies be towards them?

Many are ready to move out, if they need to.

Something like 60% of the wealthy Chinese would like to live outside the country.

 

FAMOUS ARTIST, Ai Wei Wei

Seems to be planning to leave the country:

 

Will Ai Weiwei rebuild Shanghai studio in Ghent?

 

ai-weiwei-beijing-home1.jpg

Ai Weiwei in his studio in Beijing on 1 March 2010. Image credit: Reuters.

 

Flemish artist Wim Delvoye has offered Ai Weiwei the chance to rebuild his demolished Shanghai studio as part of Delvoye’s plans to install contemporary art in his proposed sculpture park in the grounds of his house in Ghent.

 

Delvoye told The Art Newspaper, in an article published on the art news website on 3 November 2011, that Ai “has kept all the pieces” of his studio and that “he was planning to do an installation with them”. The artist suggested to Ai Weiwei’s family that the rebuilding of the studio “would be a very mythological work and also a very autobiographical one.”

 

Shanghai studio rebuild not so straightforward

 

On top of the tax evasion charges that have been levelled on Ai by the Chinese government, AFP reported on 18 November 2011 that the artist is now facing a “new investigation over porn” conducted by the Chinese police. Ai has been banned from leaving China by the Chinese government and Delvoye’s invitation to rebuild the Shanghai studio in Ghent may not be a straightforward one. According to Delvoye, Ai’s assistants have warned him of potential consequences. “They say that if I built it, I will have trouble in China… they are advising me not to do it,” he is quoted as saying. According to The Art Newspaper, Ai’s studio has officially declined to comment on the offer

 

/more: http://artradarjournal.com/2011/11/10/will-ai-weiwei-rebuild-shanghai-studio-in-ghent/

 

(the article was written by an old friend of mine,

and she is now living in HK)

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A BIGGER BEAR than Gordon...

 

(There's an interesting tidbit on the back page of today's SCMP -

The most bearish story that I have seen on China yet - can it be true?

In fact, the story relates to a speech given by:

 

larry-hsien-ping-lang-thumb.jpg

 

Larry Lang Hsien Ping, a professor of finance at Chinese Univ. of HK

 

The talk was given in Shenyang last month, and was covered by Epoch Times.

No recording was allowed, and he has been relunctant to discuss it.)

 

His view: China's economy has already crashed, but the damage has not yet been recognised.

 

"Every province in China is Greece"

 

Five points support his gloomy assessment:

 

1) China's debts have reached almost 36 trillion yuan, including local govt, and SOE's.

And that carries annual interest payments of 2 trillion yuan

 

2) The accurate figure for inflation is 16 percent

 

3) Private consumption is only 30 percent, and there is serious overcapacity in the other parts of the economy. The July figure for PMI of 50.7 indicates a recession has already begun

 

4) The official figure of 9 percent GDP growth is wrong. China's GDP shrank by 10 percent (I assume that would be the case for Real GDP when using Lang's higher inflation number.) The official GDP figures are bloated by dramatic increases in infrastructure, construction, and property spending - and these areas represent 70 percent of the economy, but are already showing excessive supply (ie there has been massive mal-investments which will take years to absorb.)

 

5) China's taxes are too high, with companies paying 70 percent tax and individuals up to 81 percent tax.

 

If that wasn't bad enough, according to Epoch Times Lang warned:

"Once China's economic tsunami hits, the regime will lose credibility, and China will become the poorest country in the world."

 

 

There is a recording. It's in Chinese but I'm sure you can find someone to translate it for you

http://www.theepochtimes.com/n2/china-news/chinese-tv-host-says-regime-nearly-bankrupt-141214.html

http://www.youtube.com/watch?v=comHcv7qSBg

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This is from many months ago - but still accurate, I think:

 

 

"China counts GDP differently from the rest of the world...

They count it when they decide to spend it - No matter where it goes."

 

"Hedge Funds will pull their money out of China at some point."

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Latest newsletter:

 

Sovereign Man

Date: December 9, 2011

 

[Editor's note: Sovereign Man's Chief Investment Strategist Tim Staermose is filling in today while Simon spends a few days with designers and engineers at the farm in Chile. More on those developments soon.]

 

For a few decades now, the Communist Party in China has had an implicit social and political contract with the Chinese populous for decades, which goes something like:

 

"We will deliver economic growth and improvements in your material living standards. You will meekly do as you are told, refrain from dissent, work hard, save a huge percentage of your money, and ignore obvious corruption."

 

While nearly everyone in China has benefited to some degree under this current "system," the wheels are definitely starting to come off. Official GDP numbers are now slowing, real estate prices are falling, and inflation is quickening.

 

Now, I've made no secret that I'm decidedly bearish on China's medium-term prospects. After my trip there back in June to conduct some good old-fashioned "boots on the ground" research, I wrote extensively about the massive overbuilding of apartments, office blocks, and all manner of infrastructure on an almost unimaginable scale.

 

Put simply, every year since 2005, more than 50% of China's GDP has consisted of construction-related spending. The law of diminishing marginal returns says this simply cannot continue.

 

It represents a misallocation of the household sector's hard-earned savings on a colossal scale, and I believe it will end badly. Not a day goes by that there aren't riots and protests somewhere in China (including cyberspace) as the downtrodden man in the street reaches his froggy boiling point.

 

Increasingly in China, though, those who see the writing on the wall can see that the days of system stability are numbered. And they're not hanging around.

 

For a number of years, mainland Chinese buyers have accounted for nearly all new apartment sales in Melbourne and Sydney. On numbers I've seen, they have been investing between A$2 billion and $3 billion a year.

 

An increasing number of mainland Chinese are establishing permanent residency and sending their child(ren) to school and university in Australia. And Simon recently reported that from an offshore strategies conference in Shanghai that the room was packed full of Chinese people learning how to diversify abroad.

 

They all want to have their options open when China's economy and political system hits turbulence.

 

Judging by the poor economic numbers coming out of China, this day of reckoning is drawing ever closer. One alarming indicator is that the Chinese renminbi has traded down to the lower limit of its strictly controlled trading band for SEVEN TRADING SESSIONS IN A ROW.

 

This suggests that there is more money leaving China than being earned from overseas trade or invested there. The exchange rate may be only one simple indicator, but it's a great barometer for what is going on: China is not going to be the savior of the global economy, but rather another casualty.

 

If you have stashed some money in a Yuan-denominated bank account for the long haul, you'll probably still be fine relative to other paper currencies. But, I would caution against expecting it to be a smooth, one-way ride to the top.

 

Personally, I'd rather have the bulk of my savings in real wealth: things like gold and silver bullion, productive real estate, and strong cash-generative businesses.

 

And for the cash that I do hold, it's virtually all employed trading my 4th Pillar investment system earning superior risk-adjusted returns with minimal volatility.

 

Until next time,

 

Tim Staermose

Chief Investment Strategist, SovereignMan.com

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China’s CIC Has About 60% of Assets in U.S.

By Joshua Fellman and Sylvia Wier - Dec 9, 2011 9:42 PM PT

 

China Investment Corp., the nation’s sovereign wealth fund, has about 60 percent of its assets in the U.S., which has many investment opportunities and a good legal system, Jin Liqun told CNBC in an interview yesterday.

Jin, chairman of CIC’s supervisory board, said that much of the rest of the fund’s assets are in Europe, other nations in Asia and Canada, with investments in resources, real estate and “open-market transactions.”

 

The fund needs to take a “serious look” at the financial industry in the U.S. and Europe to see if it’s ready for “serious discussions” about investment, Jin told the financial news channel.

China Investment managed $409.6 billion at the end of 2010, making it the world’s fifth-largest national fund, according to Sovereign Wealth Fund Institute. CIC’s international investments returned 12 percent last year, compared with the MSCI World Index’s 9.6 percent gain, according to the fund’s annual report.

 

“The European debt crisis can hardly get solved in the near term and banks there are likely to suffer further losses” from potential write-downs in debt holdings, said Lu Zhiming, a Shanghai-based analyst at Bank of Communications Co. “The timing doesn’t look right yet for investments.”

China’s central bank plans to create a new investment vehicle to manage $300 billion in foreign reserves, Reuters reported yesterday, citing two unidentified people familiar with the matter. The vehicle will run two funds that pursue “more aggressive” investments in the U.S. and Europe markets to generate higher returns, the report said.

. . .

Jin also said that China can maintain an economic growth rate of about 8 percent for “a decade or two” and that some investors’ concerns that the banking system is fragile are unwarranted.

 

China’s banks have loaned about 6 trillion yuan ($947 billion) of assets to homeowners and roughly the same amount to developers, Jin said. With requirements for mortgages including minimum 60 percent down payments, stress tests show that banks can deal with the bursting of any bubbles, he said.

 

The U.S. passing a yuan-manipulation bill would be a “recipe for disaster,” and an artificially high yuan would boost exports from other nations, rather than push production back to the U.S., Jin said

 

/more http://www.bloomberg.com/news/2011-12-09/china-sovereign-fund-has-about-60-of-assets-invested-in-u-s-jin-says.html

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Yupp, makes sense to me. Those Chinese who will be left behind with no overseas assets may need to get into gold to not see all their `wealth' evaporate.

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