June 17, 2014

Swathes Of Empty Houses

A report from the South China Morning Post. “Half-built roads, high-rises under construction and plastic garbage shining under the sun: those were the images that frequently flashed by on a two-hour drive between the Shenzhen Bay-Hong Kong border and the third-tier city of Huizhou. Huizhou is now at the centre of a storm that is hanging over the mainland’s slowing economy. And a developer, Guang Group, is having cash-flow problems. ‘We are just here for a look,’ said a middle-aged woman accompanying a young couple as they got out of a car. Five minutes later, they were gone, refusing to leave her their number when asked for it. They were the only group to set foot in the showroom in about half an hour.”

“Another developer is selling its project at a discount at 6,000 yuan (HK$7,490) per square metre and helping homebuyers dodge down payment restrictions. Many other small cities and towns across the mainland are finding themselves confronted with the same challenge: a cooling property and land market is drying up local government coffers. ‘Like many third and fourth-tier cities, Huizhou’s population and industrial growth are two or three years behind its property development, causing an oversupply of homes at the current stage,’ said Zhou Xiaren, a deputy head of property services firm Worldunion’s Huizhou branch.”

From Xinhua. “The Chinese cities of Ordos, Yulin and Shuozhou have been hurt economically over recent years due to plunging coal prices. According to government data, Ordos’ YoY GDP growth dropped by 7.5% during the Q1 of 2014, while Shuozhou’s slipped by 5.4% and that of Yulin fell by 1.4%. Excessive investment in real estate has also resulted in a serious imbalance in supply and demand, and since coal prices began falling, real estate in these cities has become unmarketable. The mayor of Ordos stated in March that there were 40,000 units of housing available for sale and that the city will not build any new housing over the next three years.”

“According to the data, a mere 600 square meters of housing was sold during the first two months of this year, plunging 97.5% from a year ago.”

Want China Times. “Amid the sluggish realty market, land sales in major Chinese cities have plunged, leading to sharp declines in their realty-related income. Sharp declines in land transactions have caused major financial problems for some cities with a heavy reliance on realty sales, such as Hangzhou, Foshan, Nanjing, and Changsha, with the financial reliance on realty transactions all surpassing 100%.”

“The realty-related income of Ordos, in Inner Mongolia, for instance, has topped only some 1 billion yuan (US$160 million) so far this year, a far cry from some 10 billion yuan (US$1.6 billion) annually in previous years. ‘Stagnant land sales are a major financial problem for Ordos, which has to repay some 30 billion yuan (US$4.8 billion) in debt this year,’ remarked a financial official from the city.”

From Shanghai Daily. “New home sales in Shanghai remained below the 150,000-square-meter threshold for the fourth straight week despite a week-on-week increase. The purchases of new homes, excluding government-funded affordable housing, rose 26.4 percent week on week to 140,700 square meters during the seven-day period ended on Sunday, Shanghai Uwin Real Estate Information Services Co said in a report. The gains were mainly due to sales at a mid- to low-end project in outlying Jiading District, said Huang Zhijian, chief analyst at Uwin. ‘The overall volume for June may remain very low if real estate developers continue to maintain their prices without offering any big discounts,’ Huang said.”

“More than 210 units at the Jiading development were sold last week for an average price of 16,715 yuan (US$2,692) per square meter, Uwin data showed. This brought the average cost of a new home down 12.5 percent week on week to 25,916 yuan per square meter citywide. Lu Qilin, a researcher at Shanghai Deovolente Realty Co, said: ‘The average price recorded last week was down 18.7 percent from the average price registered at the same project during the second half of last year.’”

From City AM. “There is nothing like a stark statistic to put this into context: according to Bill Gates’s article in Quartz, China has used more concrete in the last three years than the US did in the 20th century. There are just 7,758,818 tonnes of concrete in the Hoover Dam, meaning that in three years China has built the equivalent of 838 Hoover Dams at the rate of about 23.25 a month.”

“Except China hasn’t been investing this concrete in intergalactic infrastructure or hydro-electric power. Instead, in part, the concrete usage has gone towards swathes of empty houses. According to an article in the Wall Street Journal, around one in five houses in Chinese cities was empty in 2013 (22.4 per cent) - which works out as 49m homes in urban areas alone. This is almost twice the number of homes there are in the UK, which is around 25m.”

“Some of that concrete went into building a version of Paris, complete with Eiffel Tower and a Versailles fountain. The town was supposed to hold 10,000 people but instead is home to around 1,000. There is also a deserted mall, one of the biggest on earth, where toy shops wait days to sell a single toy. And Kangbashi: a ghost city meant to house a million people but home to a mere 70,000. Despite the empty metropolises, China is still building.”

From Quartz. “Back in 2009, China’s 8,500 listed companies were in much better shape than their global peers. No longer. The average Chinese company now has worse cash flows and more debt than other similar firms elsewhere in the world, says Standard & Poor’s. So great has China’s borrowing binge been that its companies racked up $14.2 trillion in debt at the end of 2013, blowing past the US’s $13.1 trillion to become the world’s biggest corporate borrower. This, says S&P, is worrying since a ‘higher risk for China’s borrowers means higher risk for the world.’”

“In late 2008, China’s leaders opened the lending taps, pumping huge sums of credit into the system via state-owned banks. Much of that went into growth-juicing sectors like real estate, shipbuilding, and steelmaking. The timing was bad; China’s economic growth had already peaked in 2007, and was starting to slow. As Chinese companies expanded their ability to produce—building new factories, buying more land, and the like—they created a excess of supply that began to drive down prices. Then the slowing economy hurt cash flows even more.”

‘But instead of letting companies default, leaders kept pumping more money into the system. Though these problems became too big to ignore last year, they keep getting worse. That could hurt the global economy, says S&P. ‘As the world’s second largest national economy, any significant reverse for China’s corporate sector could quickly spread to other countries,’ it notes in a report.”

“Unfortunately, Chinese corporate borrowing isn’t really slowing down. S&P says that, by 2018, Middle Kingdom companies will have issued between $21.9 trillion and $23.9 trillion in debt—equal to one-third of global corporate debt, including refinancing and new issues. That implies an average annual increase of between 7.5% and 9%—much faster than China’s economy is able to grow.”




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63 Comments »

Comment by Blue Skye
2014-06-17 04:28:53

“Ordos, which has to repay some 30 billion yuan (US$4.8 billion) in debt this year…”

This is the famous “ghost city” isn’t it?

Comment by taxpayers
2014-06-17 06:12:55

surfs up! for skateboaders
it will be like chernobl w freak moves etc

 
Comment by Whac-A-Bubble™
2014-06-17 06:21:20

Yep. Though apparently only one of many.

 
 
Comment by Beer and Cigar Guy
2014-06-17 05:11:57

“…The mayor of Ordos stated in March that there were 40,000 units of housing available for sale and that the city will not build any new housing over the next three years.”

“According to the data, a mere 600 square meters of housing was sold during the first two months of this year, plunging 97.5% from a year ago.”

Not to worry. Hordes of filthy-rich Brazilians, resplendent in their solid gold, diamond encrusted G-strings, will swoop in to snap up these prime RE investments with all-cash, 50% over-asking offers during this brief lull in the peak buying season because RE only goes up. And after all, they’re not making any more Ordos, you know…

There. Did I miss any overused, bullshit realtwhore propaganda sound bites?

Comment by snake charmer
2014-06-17 07:53:43

If Brazilians actually did that, it would mean a lot fewer vacations to Orlando.

 
 
Comment by azdude
2014-06-17 05:22:20

are they trying to enslave the people with home loans?

 
Comment by Albuquerquedan
2014-06-17 05:54:40

Xinhua)
Updated: 2014-06-05 09:53
Counter:14

China’s building materials sector recorded slower growth in the first four months of this year as a cooling housing market has dashed hopes for lasting rapid expansion, according to the latest statistics from the country’s top economic planner.

Cement output grew a mere 4.3 percent from a year ago to 672 million tonnes in the January-April period, slowing 4.2 percentage points from last year’s growth, according to industrial reports by the National Development and Reform Commission (NDRC) on its website.

While China’s housing market, a major consumer of the country’s cement, flat glass and aluminum, showed more signs of cooling, the cement industry managed to lock in a 269-percent upsurge in profits totaling 9.9 billion yuan (1.6 billion US dollars) in the first four months.

Investment in the cement sector followed a weakening real estate market with a year-on-year decline of 2.4 percent to 24.73 billion yuan in the January-April period.

The output of flat glass, another sector closely linked with the property market and fraught with overcapacity problems, also rose 4.3 percent year on year to 268 million weight boxes from January to April, according to the NDRC data.

Flat glass producers increased their profits by 54 percent to 1.33 billion yuan even though they cut investment by 6 percent year on year to 6.64 billion yuan.

Aluminum smelting factories, which rely heavily on the real estate sector for growth, saw their losses widen to 5.26 billion yuan in the January-April period, with a combined output of 7.69 million tonnes.

Of a statistical pool of 70 major Chinese cities, eight cities reported month-on-month declines in new home prices in April while fewer cities reported price gains, according to the National Bureau of Statistics.

Comment by Whac-A-Bubble™
2014-06-17 06:24:01

The steady drumbeat of your posts seems to be, ‘Yes, China is slowing, but even so, look how frigging high their growth rate is compared to anywhere else on the planet.’

What if it turns out they are cooking their books?

Comment by Albuquerquedan
2014-06-17 06:43:33

Who isn’t cooking the books and why should China implode before the others that have any worse real numbers? Sorry billions are being invested in China by people that have a lot more inside information than either one of us has, they know that China have decades before it become a FB like this country is now. (Thanks Obama)

Comment by Whac-A-Bubble™
2014-06-17 06:48:24

Oh right, I’m sorry — I forgot that everyone is cooking the books. So it isn’t any different there in China.

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Comment by AmazingRuss
2014-06-17 07:14:58

Oh quit crying out your Obama trauma… He’s just the latest in a long line of country f@@kers.

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Comment by Ben Jones
2014-06-17 07:25:11

‘China have decades before it become a FB like this country is now’

‘The average Chinese company now has worse cash flows and more debt than other similar firms elsewhere in the world, says Standard & Poor’s. So great has China’s borrowing binge been that its companies racked up $14.2 trillion in debt at the end of 2013, blowing past the US’s $13.1 trillion to become the world’s biggest corporate borrower.’

I’m sure you’re right Dan. But this problem of ensuring that my donkey meat is authentic suggests a less than perfect regulatory regime.

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Comment by Prime_Is_Contained
2014-06-17 07:32:16

So great has China’s borrowing binge been that its companies racked up $14.2 trillion in debt at the end of 2013, blowing past the US’s $13.1 trillion to become the world’s biggest corporate borrower.’

Wow! No _wonder_ they have had such stellar growth rates for so many years!

Borrowing binges are always associated with overheated growth.

It will be really interesting to see what China’s “organic” growth rate is when the borrowing binge draws to an end—as they always seem to do.

 
Comment by Dguy
2014-06-17 08:00:14

“Sorry billions are being invested in China by people that have a lot more inside information than either one of us has, they know that China have decades before it become a FB like this country is now.”

I think the insiders who know what is really going on are fleeing like rats on a sinking ship. Why do you think crooked communist party members are trying to buy houses in other countries, or sneak their money out of the country? Only saps are still investing in China. In a very short time, the whole China “miracle” will fall apart faster than a soggy egg roll.

 
Comment by In Colorado
2014-06-17 08:11:12

I think the insiders who know what is really going on are fleeing like rats on a sinking ship. Why do you think crooked communist party members are trying to buy houses in other countries, or sneak their money out of the country?

Yup. I saw this happen in Mexico before the big crash in the early 80’s. EVERYONE was expatriating their money into the US, even though on the surface it was “good times”.

 
Comment by Albuquerquedan
2014-06-17 09:58:27

Why do you think crooked communist party members are trying to buy houses in other countries, or sneak their money out of the country? Only saps are still investing in China

I think they are fleeing because if you get caught in China for corruption you often get shot. I do not think they are concerned with the economic prospects of China.

 
Comment by Albuquerquedan
2014-06-17 10:03:39

we spend on SNAP and paying people not to work, China spends on this, guess who should be worried about a collapse?

SHANGHAI - China’s Ministry of Industry and Information Technology (MIIT) will step up support for research into next-generation mobile telecom networks, or 5G, an official said on Wednesday.

Liu Lihua, vice minister of the MIIT, made the announcement at a global forum on mobile telecommunications in Shanghai.

The ministry will work to create a good environment for firms to invest in, develop and innovate with mobile telecom technologies and support their efforts to boost technological research and increase capital injection, especially in 5G, he added, without giving more details.

Faster and more stable networks brought along by 4G technologies have sped up mobile telecom networks’ integration with the sectors of transport, logistics, education and medical services.

There is great demand for mobile telecom technologies in China and the world, pointing to enormous market potential for innovations in mobile telecom technologies, according to Liu.

More than 80 percent of China’s netizens surf the Internet through mobile phones, the official added.

 
Comment by In Colorado
2014-06-17 10:29:04

we spend on SNAP and paying people not to work, China spends on this, guess who should be worried about a collapse?

My company has a campus in Beijing, and one thing we have learned is that the Chinese government encourages make work, like all the ghost cities, but even at smaller levels. All kinds of tasks that are automated

 
Comment by Ben Jones
2014-06-17 12:22:16

When I was a kid, I was in Costa Rica with my dad. We saw a crew of men cutting the grass by the highway with machete’s. I asked him, why don’t they use a mower? He replied that if they did those men wouldn’t have a job. Not exactly a sign of a strong economy.

 
Comment by Whac-A-Bubble™
2014-06-17 22:20:10

“Borrowing binges are always associated with overheated growth.”

And the end of borrowing binges are always associated with economic crashes.

 
 
 
Comment by In Colorado
2014-06-17 08:07:55

What if it turns out they are cooking their books?

This! And I am fairly certain they are cooking their books. If their economy is growing at the rates they claim, real estate prices would still be climbing.

Comment by Albuquerquedan
2014-06-17 10:17:15

If their economy is growing at the rates they claim, real estate prices would still be climbing

Actually, based on the article I posted above in most cities they are still going up. However, I disagree with your statement even in places with sound fundamentals, higher real wages and demand for housing, housing prices can get ahead of themselves and a correction is called for. That is China. Many people when they retire, and in China that occurs in their 50’s, will move to many of these “ghost towns”. However, developers have built early and in excess and they will pay the price. This does not change the fact that productivity and wages are soaring in China and they are increasing able to produce and consume high tech goods.

http://marketrealist.com/2014/04/must-know-update-baidu-benefits-chinas-wage-inflation/

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Comment by pazuzu
2014-06-17 17:24:18

I wonder what aspect of his livelihood or investments make him such a shrill defender of China. Be interesting to know.

 
Comment by Whac-A-Bubble™
2014-06-17 22:23:44

Yes, it would be interesting.

Kind of like it would be interesting to know why he was so overconfident about a Romney win based on the Rasmussen poll numbers back in 2012.

 
 
 
 
 
Comment by Ben Jones
2014-06-17 06:11:38

‘Property firms have quickened the pace of their offshore expansion to meet the appetite of Chinese consumers and to find new opportunities beyond the tepid domestic property market.’

‘In the first quarter of 2014, institutional investors’ offshore property investments rose 25% year-on-year to US$2.1 billion, while the sum going to residential property grew by 80%, according to Jones Lang LaSalle, a global real estate services and investment management company.’

‘The overseas residential property investment by China’s institutional investors in the quarter exceeded US$1.1 billion, smashing last year’s record of US$600 million. The real estate projects in the UK, Australia and the United States were most favored by Chinese investors.’

“The industry is teeming with risks that are easily ignored due to the high profits. The property market scale, tax and interest rate fluctuation, political frictions, any of these factors could lead to failure,” said industry insider Zhang Yong.’

‘Zhu Fei cited Malaysia as an example, where the market is cooling down as investors sit on the fence after the MH370 flight tragedy, in which 239 people are suspected dead, after the plane disappeared without a trace, and likely crashed into the southern Indian Ocean.’

“They should have investigated the risks thoroughly and avoided blind investment,” said Zhu Fei.’

Comment by Whac-A-Bubble™
2014-06-17 06:28:05

‘Zhu Fei cited Malaysia as an example, where the market is cooling down as investors sit on the fence after the MH370 flight tragedy, in which 239 people are suspected dead, after the plane disappeared without a trace, and likely crashed into the southern Indian Ocean.’

What a bizarre explanation for a property market slowdown. The loss of 239 people in an airplane crash is tragic, but why should it have any impact whatsoever on real estate investment activity in Malaysia? (Brings to mind the weather-related slowdown of the U.S. economy earlier this year.)

 
 
Comment by Ben Jones
2014-06-17 06:15:53

‘The growing number of industrial parks in China is a result of ineffective urban planning, and local governments have to assume the responsibility of implementing efficient energy use, reports Shanghai’s China Business News, citing Wang Ke, director of the Urban-Rural Planning Department at the Ministry of Housing and Urban-Rural Development.’

‘Over the recent years, many Chinese cities, regardless of their size, have blindly built industrial parks that were not included in urban planning.’

‘MHURD figures indicated that the scale of domestic industrial parks has grown from 8,000 square kilometers a few years ago to the current 20,000 to 30,000 square kilometers. Some of these industrial parks have been left idle, placing significant pressure on the local government due to the considerable capital used, the paper said.’

‘Meanwhile, a survey showed that some places did not even hold an edge in terms of a mature industrial supply chain. However, in order to attract investment, some cities tended to attract investment by offering land for free.’

‘The majority of these parks also carried out construction before recruiting business and so many are facing difficulty in attracting businesses because of a lack of resource integration and the formation of supply chain.’

Comment by Whac-A-Bubble™
2014-06-17 06:29:27

‘The majority of these parks also carried out construction before recruiting business and so many are facing difficulty in attracting businesses because of a lack of resource integration and the formation of supply chain.’

If you build it, they will come.

 
 
Comment by Ben Jones
2014-06-17 06:19:39

‘Spot iron ore fell below $90 a tonne to its lowest since September 2012 on Monday, reflecting plentiful supply and tighter credit that has slowed purchases by Chinese mills despite a more than 30 percent plunge in prices this year.’

“Liquidity is a big issue at the moment because many banks are not willing to open letters of credit,” an iron ore trader in Shanghai said.’

‘Traders said a probe into metal financing deals in China’s Qingdao port has spurred caution among lenders, many of which have already been trimming their exposure to sectors plagued by overcapacity such as steel.’

‘Iron ore at Chinese ports stood at 113.2 million tonnes as of June 6, not far below a record high of 113.6 million tonnes reached the prior week, according to Steelhome, which tracks the data.’

“Mills are buying in small lots and they keep on pushing prices down sharply,” said an iron ore trader in Tianjin, adding a softer real estate market in China was also hurting demand for steel.’

 
Comment by Ben Jones
2014-06-17 06:24:48

‘The liquidity strain that swept China’s banking sector in June 2013 is not yet over and may have spread to the real economy, with businesses feeling the heat, the Beijing-based Economic Observer reports. A report published by the Southwestern University of Finance and Economics in Chengdu on May 29 stated that the average borrowing rates at banks stood at 7%, while the average rates offered by private lenders were around 23.5%.’

‘Even state-owned enterprises have begun feeling the pinch, with an executive at one of them saying that the cost for issuing bonds has been rising this year, and the favorable interest rates they enjoyed earlier have been withdrawn.’

‘Banks are also facing an increasingly challenging time, the newspaper said, given that outstanding non-performing loans grew. The property sector is expected to bear the brunt under the government’s financial reform plans, according to UBS chief China economist Wang Tao, since the current market downturn, unlike those in the past, is caused by oversupply, the government’s anti-corruption campaign and the growing number of investment options.’

‘Efforts to address the liquidity strain issue will be a long-term battle, since the United States’ planned exit of its quantitative easing measures is set to change the direction of liquidity in the market, the newspaper added.’

Comment by Ben Jones
2014-06-17 06:29:48

‘Chinese municipal governments are facing the unprecedented financial pressure of having to repay 2.4 trillion yuan (US$385.4 billion) of debt this year, 22.9% of their total outstanding debt, reports Shanghai’s China Business News.’

‘The pressure is especially heavy at a time when municipal governments are suffering lower growth in financial income amid the country’s economic slowdown, China’s deputy finance minister Wang Bao’an told the paper.’

‘National Audit Office figures showed that the total outstanding debt of municipal governments stood at 11 trillion yuan (US$1.8 trillion) as of the end of June 2013, of which 2.4 trillion yuan (US$385.4 billion), or 22.9%, will have be repaid this year.’

‘The plight has been aggravated by slowing economic growth, notably sluggish realty demand, due to the heavy reliance of municipal governments on realty-related financial income such as sales of public land.’

‘In addition to the debt-repayment pressure, municipal governments are burdened with heavy interest payments, including that for bonds issued via funding platform companies which call for annualized interest of 8%.’

‘Overcapacity and hefty municipal debts are two major issues drawing the attention of the central government as they may trigger a financial crisis, Wang said.’

Just print the money Wang. That’s what we do.

Comment by Whac-A-Bubble™
2014-06-17 06:34:59

“Just print the money Wang. That’s what we do.”

Serious question:

What is stopping China or Argentina from taking this approach?

Comment by Albuquerquedan
2014-06-17 06:46:55

Argentina does, hence its inflation rate, the only thing stopping the Chinese is that they do not want the inflation and are not desperate enough to do it. However, they still have the option to lower interest rates to keep their economy going which is another reason I do not see an imminent collapse in China.

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Comment by Whac-A-Bubble™
2014-06-17 06:49:38

“I do not see an imminent collapse in China.”

Huh. Did you even bother reading through today’s thread?

 
Comment by Albuquerquedan
2014-06-17 09:50:17

Yes I did read this thread. Did you even bother to read my post from a few days ago that the public debt of China is less than 18% of its GDP actually down from around 35% from a few years ago and much less than the 113% debt that the United States has. So how long can China run large fiscal deficits and print money when it has not even began the “trick” used by Obama to keep the economy going?

 
Comment by Whac-A-Bubble™
2014-06-17 22:24:43

Cooked…books.

 
 
Comment by Ben Jones
2014-06-17 06:51:19

‘What is stopping China or Argentina from taking this approach?’

I don’t know. Just get a photocopier and stimulate the economy Wang. (Don’t worry about those little strips and such. Just copy an older version of the currency. Did you know the US is the only major currency that issues new versions of their money without withdrawing the old? Because 80% of the money is outside the US borders.)

So I can do QE of my own! I can purchase assets in Flagstaff to support my monetary goals. I can even coordinate my monetary policy with Janet Yellen. I may or may not contemplate a tapering of my asset purchases. Oh, and I refuse to be audited as that will compromise my independence.

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Comment by Whac-A-Bubble™
2014-06-17 07:03:55

“So I can do QE of my own! I can purchase assets in Flagstaff to support my monetary goals. I can even coordinate my monetary policy with Janet Yellen.”

For anyone interested in this approach, I recommend creating your own electronic currency, thereby arousing the academic curiosity of FOMC members.

Simply printing your own paper money is not likely to catch on.

5:37 pm ET
May 19, 2014
Forex
BitBeat: The Fed’s Surprisingly Warm Take on Bitcoin
By Paul Vigna and Michael J. Casey

Welcome to BitBeat, your daily dose of crypto-current events, written by Paul Vigna and Michael J. Casey.

Bitcoin Latest Price: $445.55, up 0.2% (via CoinDesk)
Crossing Our Desk:

- Bitcoin could be a “boon” to economic activity. Says who? The Federal Advisory Council, a Federal Reserve-commissioned committee of bankers that regularly advises the Fed’s board of governors.

Bitcoin’s “global transmissibility opens new markets to merchants and service providers,” said the report of the May 9 meeting, which was recently posted on the Fed’s website and first reported Sunday by Bitcoin Magazine.

The group said that illicit uses for bitcoin are “rampant” but suggested they are no greater for the digital currency than for sovereign-issued currencies. It also said that problems associated with bitcoin’s anonymity are overstated, given the transparency of the sytsem’s public blockchain ledger.

Nonetheless, the Council advocated regulation to protect consumers and curtail illicit use. It argued that rules needs to be coordinated across different regions to avoid “balkanization” and discourage “regulatory arbitrage,” where bitcoin businesses would simply move operations to places with the softest-touch regulation.

The group did not see bitcoin posing much of a threat to the banking system, at least for now, in part because of bitcoin’s current security risks and volatility, which hinder mainstream adoption.

 
Comment by snake charmer
2014-06-17 08:03:30

There have been a few articles lately suggesting that we totally abandon paper money in favor of a digital alternative. Why anyone would favor that, given the security breaches and surveillance issues extant at the moment, is a mystery. Unless that person stood to benefit, of course.

We also seem to be assuming that electricity or the cell phone grid never will fail for any sustained period of time. I’m not sure what receives more blind faith, technology or the Fed.

 
Comment by Ben Jones
2014-06-17 08:12:35

‘The Federal Reserve has unfinished business on the agenda from its April policy meeting related to the mechanics of how it will one day unwind its easy money policies and start raising short-term interest rates. It looks like those issues will be under discussion again Tuesday when officials gather for this week’s two-day policy meeting.’

‘The Fed issued a notice on its website Monday stating Fed governors would meet Tuesday at 10 a.m. eastern time to discuss “medium-term monetary policy issues.”

‘A similar notice was placed on its website before its April meeting, when the logistics of the Fed’s exit strategy–what the Fed calls “policy normalization”– were an important topic. April’s discussion ended without closure.’

‘Fed officials have many complicated decisions to make about how they will tighten credit conditions in the future. They need to decide whether and how long to maintain a large portfolio of bond holdings. At some point, they expect to let some bonds mature without reinvesting the proceeds, thus shrinking the central bank’s holdings. But the timing is uncertain. Moreover, they need to decide what tools to use to raise short-term interest rates. The Fed’s traditional tool – the federal funds rate – has become difficult to manage with trillions of dollars of reserves in the banking system.’

It’s a puzzler. I myself will likely keep copying money and buying assets until the unemployment rate gets to 5%. At which point I’ll have to decide what to do with all these houses I’ve been buying. And my policy includes filling the garages with new Maserati’s and pallets of donkey meat. The Maserati dealership offered me $250,000 to give a speech, but I told them to donate it to charity. See, I’m just concerned about all the people in Flagstaff. If I cut back on my asset purchases too soon, their recovery might stall.

Nope, I can’t do it. I will, I must, keep copying dollars and buying fancy houses, expensive cars and donkey meat for an indefinite period of time.

 
 
 
 
Comment by Whac-A-Bubble™
2014-06-17 06:33:16

‘A report published by the Southwestern University of Finance and Economics in Chengdu on May 29 stated that the average borrowing rates at banks stood at 7%, while the average rates offered by private lenders were around 23.5%.’

I’m thinking those private lenders are pricing in a massive default risk premium.

But why can the banks get away with lending at only 7%? Do they have some kind of bailout guaranty against mass defaults?

 
 
Comment by Ben Jones
2014-06-17 06:26:10

‘‘We are just here for a look,’ said a middle-aged woman accompanying a young couple as they got out of a car. Five minutes later, they were gone, refusing to leave her their number when asked for it. They were the only group to set foot in the showroom in about half an hour’

Chicoms solution to this woman not buying a condo;

“Tell her she can legally buy three!”

 
Comment by Ben Jones
2014-06-17 06:35:23

‘SINGAPORE - The sale is on for private residential projects in the prime central region, following price cuts for city fringe and suburban projects which helped developers move more unsold units. Palms @ Sixth Avenue, a strata landed semi-detached project, is offering to absorb the 7 per cent additional buyer’s stamp duty which existing Singaporean home owners have to pay for a second residential property.’

‘With this, prices will go from $5.3 million to $4.9 million for a 4,510-sq-ft unit, and from $7 million to $6.5 million for a 5,834-sq-ft one. The discounted prices translate to a per square foot range of $1,086 to $1,114.’

‘Meanwhile, Hallmark Residences along Ewe Boon Road in Bukit Timah is offering a discount of more than 10 per cent for several of its units. R’ST Research director Ong Kah Seng said “it was only a matter of time” before core central region (CCR) projects started to cut prices. “They have been left substantially unsold for quite a long time, and generally buyers’ interest for CCR projects has been very weak. Well-located projects like these have hefty price tags, and previously, there wasn’t the total debt servicing ratio (TDSR) framework limiting large loans. Some buyers like to overstretch their loan limits by buying costly homes with high leasing demand and hence, investment potential. But they can no longer do so after the TDSR.”

‘The TDSR, which requires financial institutions (FIs) to take into consideration borrowers’ other debt obligations when granting property loans, is aimed at strengthening credit underwriting practices by FIs and encouraging financial prudence among borrowers.’

‘Developers of CCR projects feel compelled to cut prices as the TOP dates of their developments loom closer, because empty units paint a discouraging picture of the projects and buyers may turn sceptical about their investment potential, Mr Ong said.’

‘One Eighties Residences is giving a 13 per cent discount on its two-bedroom units and penthouses, which will now start at $890,000 and at $1.4 million respectively. Derrick Poh, marketing and communications manager at Santa United, the developer, told BT of the Joo Chiat development: “We’ve received enquiries, but those didn’t turn into sales. Buyers are keeping a lookout and shopping around, expecting developers to reduce prices based on the current market outlook.”

Comment by Blue Skye
2014-06-17 17:03:06

When “buyers” expect the market to go down, it’s not so appealing an investment.

 
 
Comment by Whac-A-Bubble™
2014-06-17 06:38:02

“Sharp declines in land transactions have caused major financial problems for some cities with a heavy reliance on realty sales, such as Hangzhou, Foshan, Nanjing, and Changsha, with the financial reliance on realty transactions all surpassing 100%.”

What does that mean? I was always under the impression that 100% was a hard upper bound, but apparently this is not always the case.

 
Comment by Whac-A-Bubble™
2014-06-17 06:43:19

“Except China hasn’t been investing this concrete in intergalactic infrastructure or hydro-electric power. Instead, in part, the concrete usage has gone towards swathes of empty houses. According to an article in the Wall Street Journal, around one in five houses in Chinese cities was empty in 2013 (22.4 per cent) - which works out as 49m homes in urban areas alone. This is almost twice the number of homes there are in the UK, which is around 25m.”

How amazing! The entire UK could fill empty housing units in China with plenty more empty units to go around.

Wow!

Comment by Blue Skye
2014-06-17 17:04:36

There is +double the population of China housing in China.

Comment by Whac-A-Bubble™
2014-06-17 22:27:21

Second houses for everyone!

 
 
 
Comment by Whac-A-Bubble™
2014-06-17 06:45:29

“Some of that concrete went into building a version of Paris, complete with Eiffel Tower and a Versailles fountain. The town was supposed to hold 10,000 people but instead is home to around 1,000. There is also a deserted mall, one of the biggest on earth, where toy shops wait days to sell a single toy. And Kangbashi: a ghost city meant to house a million people but home to a mere 70,000. Despite the empty metropolises, China is still building.”

How prudent will these investments in construction of empty cities seem ten years from now? Twenty?

Comment by Whac-A-Bubble™
2014-06-17 06:47:24

I met a traveller from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away”.

Ozymandias
– Percy Bysshe Shelley

Comment by Whac-A-Bubble™
2014-06-17 07:22:07

I believe that future generations will view the current episode in international finance as a period of massive wastage if unrenewable resources on unneeded construction projects whose true purpose was Keynesian stimulus of the labor force.

Just a hunch…

 
 
Comment by snake charmer
2014-06-17 08:15:09

The problem with building a Versailles replica is that almost no one remembers that occupants of the real Versailles were executed. Or maybe the people who built this one DO know that, and have evacuated to Vancouver or Sydney with their wealth.

Comment by Blue Skye
2014-06-17 17:08:25

My guess about what people will remember in 10 or 20 years will very much be about bloodshed. All the building has employed people. The credit crash will leave 100s of millions hungry. What do 100 million hungry Chinese do? They’ve a nasty bloody history, the survivors of some of it are still alive.

Comment by Whac-A-Bubble™
2014-06-17 22:28:52

“What do 100 million hungry Chinese do?”

Hunger Games? May the odds be ever in your favor.

(Comments wont nest below this level)
 
 
 
 
Comment by Ben Jones
2014-06-17 06:54:41

‘Eight years ago, Du Sha cashed out his chain of home-improvement centers — the first superstores of their kind in China — with a sale to Home Depot for $100 million.

Today, with a net worth of more than $600 million, the former economics professor has taken up the conventional pastime for those with money and time: golf.

Du has bigger plans than reducing his handicap. Teaming with a Canadian golf executive, he has bankrolled Pacific Links International, which now owns 10 high-end U.S. courses, including the $20-million Dove Canyon Golf Club, in a private community abutting the Cleveland National Forest in south Orange County.’

‘Du and other wealthy Chinese investors are quickly adding golf courses to their growing portfolios of U.S. holdings. In the last year, Chinese investors have bought prime properties including the 2,000-acre Sea Trail Golf Resort, built around three Sunset Beach, N.C., courses, along with smaller ones, such as Rancho Duarte Golf Club, a nine-hole, par-31 course built on a former dump in the San Gabriel Valley.’

“We’re seeing a lot of tires getting kicked by the Chinese,” said broker Jeffrey Woolson in Carlsbad, managing director for golf and resorts at real estate services giant CBRE Group Inc. “They only recently came forward and started buying. They do love golf, so it makes sense.”

 
Comment by Ben Jones
2014-06-17 07:01:44

‘Wal-Mart plans to triple spending on food safety in China, where fox meat was found in packages labelled as “Five Spice” donkey meat in January. The masquerading meat came from a local supplier. After the discovery, the company said it would increase checks on vendors to ensure they have the necessary permits and do DNA testing of meat sold in China.’

‘The donkey disaster followed other Wal-Mart scandals including the mislabeling of regular pork as organic in 2011 and the discovery of hazardous chemicals in sesame oil and squid in 2012.’

‘Food fraud is a problem around the world, but violations in China seem especially frequent and egregious. Last year, Chinese authorities arrested 900 for passing off fox, mink and rat as mutton. In 2008, 54,000 infants got sick and six died after drinking baby formula tainted with industrial chemicals. Another recent scandal involved rice tainted with cadmium, a cancer-causing heavy metal. Other scary signs include rivers full of dead pigs and reports that one-fifth of China’s farmland is polluted.’

Note to self; Donkey Disaster - possible blog post title.

Comment by Whac-A-Bubble™
2014-06-17 07:05:57

‘…where fox meat was found in packages labelled as “Five Spice” donkey meat in January.’

Chinese debt donkey sausage, anyone?

Comment by Whac-A-Bubble™
2014-06-17 07:06:57

Thanks for this thread, Ben. I’m starting the day with a chuckle because of it.

 
 
Comment by Dguy
2014-06-17 08:20:51

So Wal-Mart is now selling meat from China? I’m sure they will use the money they save selling Chinese mystery meat to pay their workers a better wage.

Comment by Whac-A-Bubble™
2014-06-17 22:30:17

It sounds like they are selling fox meat marketed as donkey meat — with five spices for good measure!

 
 
 
Comment by Ben Jones
2014-06-17 07:08:24

‘Colombo’s real estate market still mainly focuses on residential properties in the upper-income and premium sectors, due to investments being more speculative in nature, with 50 per cent “pure profits” on off plan, or under construction, disposals being common, according to Sri Lanka-based Vox and Co. (Vox), a strategy consultancy operating in multiple sectors locally.’

‘Commenting in its recently-issued March 2014 report, titled “Growing Up: Unlocking Colombo’s Revolutionary New Skyline”, the consultancy also signalled that there was “(large) and growing untapped demand in the middle income market”.

‘Elaborating further, the document also stated that “still unaddressed is the opportunity to tap into the growing cash assets of middle class income earners, hitting the peak of their earning strides over the next 5–10 years. Vox and Co. believes that while upper tier residential supply will soon plateau the market space for US$55 – US$ 80 per sq.ft. residential is on the verge of a suburban explosion”.

‘The consultancy also went on to opine; “Even during the peak periods of wartime, Colombo real estate was the ultimate asset investment, prone to dramatic price appreciation. Despite trying economic times, the eccentricities of Colombo’s real estate market have reliably superseded economic trends… Real estate price appreciation is at the core of what makes Colombo a rewarding investment, premium real estate has appreciated consistently between 10-15 per cent annually, since the close of the civil war… Land for international projects such as Krrish Square and Shangri-La Colombo have been picked up at top dollar— between $200–300 per square foot”.

Comment by In Colorado
2014-06-17 08:18:01

This is in an impoverished country that was in a civil war just a few years ago and that could slide back into one at any time.

If you can have bubbles in places like this, is anywhere safe?

Comment by Blue Skye
2014-06-17 17:11:12

Even Cuba has a housing bubble.

 
 
 
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