Next Real Estate crash (China!)

http://www.csmonitor.com/World/Asia-Pacific/2008/1208/p07s03-woap.html

As dusk falls on Shanghai's futuristic skyline, spotlights blaze on its newest and tallest landmark. Fairy lights dance around the trapezoid opening at the top of the Shanghai World Financial Center (SWFC). Depending on where you stand, the Japanese-designed tower, the world's second tallest, looks like a giant bottle opener or a knife slicing the foggy skies.

But behind the glitter is an awkward truth: The lights are on, but almost nobody is home.

"Some developers will definitely go bankrupt. It happened before. The government will probably want bigger companies to take the [failing] companies over," says Vincent Gu, assistant general manager of property sales at K Wah Investment, a real-estate developer in Shanghai.

http://www.telegraph.co.uk/finance/personalfinance/7219178/China-Hugh-Hendry-warns-investors-infatution-is-misguided.html

Undoubtedly, China's state planners have favoured investment over consumption. High-speed rail networks, first-class infrastructure projects and the urban migration of 55 million people every year are common explanations for the ability of the nimble Chinese to overcome the frailties of this global economy. But can too much of a good thing be bad for you? The goal of economic policy, after all, is to maximise households' wellbeing and consumption. Unfortunately, unlike in most countries, China's share of consumption within its economy has fallen relentlessly, reaching 35pc of GDP in 2008. Something isn't right.

The ancient ethical system of Confucius is silent on the subject of modernisation. There is no proverb counselling that "wise men not invest in over-capacity". Perhaps there should be: in China, investment spending has tripled since 2001 and the consequences are staggering. A country that represents just 7pc of global GDP is now responsible for 30pc of global aluminum consumption, 47pc of global steel consumption and 40pc of global copper consumption. The overriding problem is that the Chinese model leads to a deflationary spiral that is perpetual in nature. Domestic consumption never grows fast enough to absorb the supply, prompting the planners to commit to ever-higher levels of investment. Over-capacity inevitably plagues many sectors of the economy and Chinese profitability is already low.

Remember, it is one thing to create economic growth, but it is another thing to truly create wealth. If I commit to building a new commercial property in Shanghai I will undoubtedly contribute to GDP growth. However, if I have no tenants and the city already has a vacancy rate of 20pc, then I am probably destroying wealth.

Adam Smith taught us that real wealth comes not from piles of gold or their modern-day equivalent, the foreign exchange reserves amassed from a profitless succession of current account surpluses.

Rather, Smith suggests that real wealth is founded on the skills and productivity of a country's citizens. This is the central concern regarding the sustainability of the Asian economic model. Power without profit can prove ephemeral. This is an axiom the Japanese are all too familiar with. We cannot say we have not been warned.

http://www.finance-commerce.com/article.cfm/2010/02/13/Empty-buildings-are-sprouting-across-China-Beijings-commercialspace-vacancies-soar-as-analyst-predic

Chanos, founder of New York-based Kynikos Associates Ltd., predicted that China could be “Dubai times 100 or 1,000.” Real estate prices there have fallen almost 50 percent from their 2008 peak as the emirate struggles under at least $80 billion of debt. The economy may shrink 0.4 percent this year, Shuaa Capital, the biggest U.A.E. investment bank, says.

The commercial property space under construction in China at the end of November was the equivalent of 6,800 Burj Khalifas — the 160-story Dubai skyscraper that’s the world’s tallest.

The risks are so great that a decade of little or no growth, as Japan experienced in the 1990s, can’t be dismissed, said Patrick Chovanec, an associate professor in the School of Economics and Management at Beijing’s Tsinghua University, ranked China’s top university by the Times newspaper in London.

chanos has been pounding the table on this for a while. He's right too. cds spreads just went back to the wides on dubai as well..so right now we have dubai and greece blowing up and china falling down. gettin ugly again.

http://www.ft.com/cms/s/0/a75ade98-dd14-11de-ad60-00144feabdc0.html

The world has changed; but China has not. China has responded to the world financial crisis with what seems to be great success. But this is an illusion. China%u2019s solution %u2013 a surge in spending on investment %u2013 will create greater excess capacity. China%u2019s high-savings, high-investment economy is costly for its people and destabilising for the world. The time for a radical reform is long past.

In a disturbing new report, the European Chamber of Commerce in China lays out the challenge in six sectors: aluminium, where the capacity utilisation rate is forecast to be 67 per cent in 2009; wind power, on 70 per cent; steel, on 72 per cent; cement, on 78 per cent; chemicals, on 80 per cent; and refining, on 85 per cent. Yet vast additional capacity is on the way.

Chinese values growth, size and market share above profit. This can only have the worst ramifications if this continues.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a6i2PSZD.Jr4&pos=12

Beijing’s office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc., a real estate broker. Those figures don’t include many buildings about to open, such as the city’s tallest, the 6.6-billion yuan ($966 million) 74- story China World Tower 3.

Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country’s property market is in a bubble.

Here we go...

"Foreign demand for Teasury securities falls
Foreign demand for US Treasury securities falls by record amount as China reduces holdings "

http://finance.yahoo.com/news/Foreign-demand-for-Teasury-apf-1402391707.html?x=0&sec=topStories&pos=1&asset=&ccode=

I'm not sure what to make of this yet. There's increasing speculation that China will allow a currency realignment with the Renminbi going up 5-10%. They could buy more treasuries or take a less of a hit to current holdings if they delay purchase.