【轉貼】China's Red Flags

written by PMO Edward Chancellor, 文末也有新唐人電視台的中文評論。

English Introduction:

CONGRESS HAS NO PEER IN LEGISLATING for the last cycle. All the more surprising, then, that our much-adored lawmakers have broken with a tradition that's almost as old as the republic itself and addressed themselves to China. More particularly, they've accused China with some justice of being a currency manipulator by striving to maintain the value of yuan artificially depressed so as to keep its exports booming. As we noted, Beijing, which long has contented itself with scolding us for our fiscal imprudence, is expected to trot out a trade deficit as proof that the charge is patently untrue.

But, as we've felt for some time now, China has more to worry about than the barking displeasure of our legislators. For although it has enjoyed an awesome record of growth stretching back over three decades, it also shows more than a few of the telltale evidences of an economy headed for trouble -- but real trouble.

As luck would have it, we've come across a recent piece by GMO's Edward Chancellor that provides eloquent chapter and verse for that less than cheerful view. Entitled "China's Red Flags," it contends "China today exhibits many of the characteristics of great speculative manias" over the past three centuries and then outlines those characteristics.

Such debacles usually start, Edward has found, with a compelling growth story. Another feature is a blind faith in the competence of the authorities. The ignominious list includes: excessive capital investment; a surge in corruption; easy money; fixed- currency regimes; rampant credit growth; moral hazard; precarious financial structures; and rapidly rising property prices powered by dodgy loans.

Of these, rapid credit growth is the most important leading indicator of financial instability, followed by an asset price bubble. Low interest rates and strong money growth play a significant part, too, in creating memorably bad outcomes. China, unhappily, has its share of these dubious qualities as well as being inflicted by a huge speculative mania.

Edward points out that "forecasts for urbanization and economic growth make for a compelling Wall Street pitch." But he cautions that like the extravagant expectations for Internet growth during the dot-com mania, investors seem to be swallowing whole China's growth forecasts. A good example is the reckoning that the urban population will increase some 350 million by 2025.

Edward suggests those numbers may not accurately reflect the present density of urban areas in China because a) many rural migrants to the cities tend not to be included in the official count as they lack residency status; and b) officials are rewarded on GDP growth per capita in their districts, so they have an obvious interest in understating how many people those districts contain.

He also notes that "Wall Street tends to downplay the darker aspects of the Chinese demographic story." China's population is set to decline in 2015 and the worker participation rate will peak this year. That will cause a sharp shrinkage in the number of people who migrate to the cities and supply China with its seemingly inexhaustible reservoir of cheap labor, key to its spectacular export success.

In recent years, no secret, Beijing has built up a vast treasury of foreign reserves of some $2.4 trillion. But Edward believes it's a mistake to think that China's gargantuan foreign-exchange reserves render its economy invincible. "These reserves," he acknowledges, "can be used to buy foreign assets, pay for imports or defend a currency under attack." But they aren't especially effective in wrestling with the problems that follow, say, the collapse of an asset-price bubble, such as a broken banking system or a legacy of bad investments.

And, on that score, he quotes approvingly the observation in a recent book on China that "the only two countries which have previously accumulated such large foreign-exchange reserves relative to global GDP were the U.S. in 1929 and Japan in 1989."

While surging credit has "revived the animal spirits of Chinese investors" and hugely whetted their appetites for all manner of stocks, including initial public offerings, quick trades and other classic signs of speculative euphoria, the real action has been in "China's overheating property market." And a goodly number of Edward's red flags are "fluttering around" over-stretched real-estate valuations, rampant speculation and frenzied new construction. Housing, he says, "has become a national obsession."

Pinpointing when the real-estate bubble will burst is a bit tricky, Edward concedes, in part because China is "not a pure market economy. State-owned enterprises can be called upon to prop up markets. Losses may be concealed or shuffled around like a shell game...Such measures, however, won't cure China's problems. They only delay the denouement."

And he cautions that "just because the timing of any future crisis is imponderable, doesn't mean the risk posed by the real- estate bubble should be ignored." All the more so because the property market looms so large in the Chinese economy and financial system. Real-estate investment accounts for roughly 12% of GDP. Construction is the main source of demand for much of China's heavy industry. Real-estate is gobbling up 20% of new bank loans.

China, Edward muses, "has become a field of dreams, a build-and-they-will-come economy." He predicts that were the economy to slow below Beijing's 8% growth target, "bad things are likely to happen." Much of the new infrastructure will turn out to be otiose; excess capacity would linger in many industries; real estate would take a bath, and the banking system would be swamped by a wave of nonperforming loans.

His morose conclusion: "Investors who are immersed in the China Dream ignore this scenario. When the China juggernaut eventually stalls, they face a rude awakening."


English Full Text:





中國現投機狂熱先兆 中國經濟泡沫是否會破裂

伍凡:各位觀眾好,現在是獨立評論時間。3月23 日,美國著名投資公司GMO發表了一篇名為《中國的紅色警報》的研究報告。文中指出,中國已經呈現出顯著的投機狂熱的特徵。以史為鑑,一旦這些泡沫破裂,中國的經濟將脆弱不堪。今天我們就談一談這些問題。





草庵:對於中國火熱的房地產業,《警報》指出,其已經顯示出典型的泡沫狀態,這個泡沫遲早破裂。由於中國的經濟體制,讓預測變得很難。但是,中國的體制無法解決問題,只能推遲問題的爆發。最後,文章指出,中國的整個經濟金融系統都基於一個信仰,即未來中國將以過去的速度繼續增長。這個假設讓更多的投資變得合理,從而刺激增長,也帶來了更多的投資。中國已經成為了一個“先建設,一切都會隨之而來”的經濟。而一旦中國的經濟增長速度低於8%,悲劇就會發生:大部分基礎設施將會毫無用處,過剩的產能將存在很多年;房地產泡沫會破裂,銀行系統將面臨大規模壞賬。 “當中國這部巨型機器最終停滯,這些沉浸在夢中的投資者將噩夢醒來。”


草庵:非常奇妙,在美國的華裔認為中國形式很好,但在中國,卻又很多學者和專家對李晶的觀點進行大量的反駁。而且很多學者和專家提出了許多非常實際的問題。其實中國的經濟是否出現了問題,有一些非常直接的現象就可以說明。首先就是人民幣對外升值,對內貶值的現象。人民幣的巨幅貶值,已經到了60年來最嚴重的地步。2009年M2增幅超過29.7%,為歷史新高,流動性瘋狂氾濫,對應實際GDP6.7%的增長和現在CPI 達到2.7%的增幅和一年房價25%的增長,人民幣實際縮水27%。而且,現在還在貶值。所有人民幣持幣人的財產都毫無例外地受到嚴重損失,而中國國內百姓是第一受害人。











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