Short China: Its commodities bubble is set to pop

I don't always like the commentaries of Farrell as he is sometimes dramatic and sensationist with his views, but with this, I do agree. I agree in so much that China is fast approaching its end point before its own bubble pops, and when it does, it will have disastrous impacts on the global economy, Australia being one that will be very adversely affected. China "is guaranteed to trigger a global collapse" as he puts it. I think the author points to some very poignant developments in the country of China that does give the argument at least some credibility. I cite only in part, as per forum rules, with emphasis on some of the interesting comments.

Commentary: Marketwatch

Yes, China’s hot economy will crash and burn in the coming years. It is the “World’s Greatest Market” today. But they are also the “World’s Greatest Egomaniacs.” They will self-destruct. Why? Simple math, psychology, history: Bubbles always pop.

In “Zero-Sum Future,” Gideon Rachman sees a global paradigm shift, says the New York Times. A “win-win” optimism that dominated the world from 1991 to 2008, where “everyone benefited from growing wealth,” has been “replaced by a zero-sum game in which one nation’s benefit comes at another’s expense.”

Get it? China wins. America loses. Except this new game is rigged. Both are linked as “Chinamerica.” But in a delicate balance with all nations: One collapses, all collapse.

Still, gambling with Jim Rogers on China (and against America) is a bad bet. Here’s why: Both history and psychology warn of a global collapse coming, not just in China, although they are leading the way with raging growth.

Remember: “one of the disturbing facts of history is that so many civilizations collapse,” warns environmental anthropologist, Jared Diamond, author of “Collapse: How Societies Choose to Fail or Succeed.” “Civilizations share a sharp curve of decline. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth and power.”

So China can’t wait. America can’t wait. The world cannot wait that long to start planning for a civilization-ending catastrophe. But sadly, they will wait, till it’s too late. An ancient historical pattern is repeating. Rome collapsed fast. Why? Throughout history, tone-deaf politicians believe their own press releases, ignore obvious warning signs, fail to plan.

Which bring us back to China and a Time magazine warning: “Be Very Afraid of The China. Its economy grew on real estate mania and easy money — does this sound familiar.”

China is obsessed, blindly planning ahead to feed, clothe and house 300 million more people, fast. Imagine the social disruption of building 100 new cities the size of Chicago … in one generation. With no plans to slow down their exploding population and economy, China is guaranteed to trigger a global collapse.

Hedge manager Jim Chanos has been reading the tea leaves for a long time and sees too heavy a government footprint in their economy: crony capitalism, state-owned companies favorites, massive municipal debt, overbuilding of luxury condos, stadiums, poor construction, environmental pollution, lax regulations, subsidized prices, bad accounting, currency manipulation, and more.

Chanos has been warning investors to ignore the hype. He tells BusinessWeek investors to “Short China,” this bubble is collapsing.

Diamond says we need leaders with “the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions.”

Unfortunately, history warns us that leaders are too often self-interested, short-term thinkers, lacking courage and interest in the future. They rarely plan far enough ahead. Eventually they’re caught off-guard, and their worlds collapse, often fast. They respond best during crises, but invariably with too little, too late, as another civilization dies.

Niall Ferguson put it this way: What if history is “at times almost stationary but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?”

But does it matter if China collapses before America? No. Either one will take down the other, igniting a global collapse. But our bets are China’s first, those obsessed power-hungry ego-maniacs have convinced us they’re the loudest ticking time-bomb.

This sounds like a real possibility.
However when the last sentence gets read it sounds suspiciously like propaganda to make us feel good its China who will be at fault for destroying the worlds economy.

Originally posted by stirling
This sounds like a real possibility.
However when the last sentence gets read it sounds suspiciously like propaganda to make us feel good its China who will be at fault for destroying the worlds economy.

I agree.

As an Australian I do fear China messing up. I have read about their 'ghost cities' and the potentail for a property collapse ther amongst other things but I hardly think China is "the loudest ticking bomb"

At least this guy acknowledges that The US is a ticking bomb.

When the US implodes it will be supernova.

They still hold the Reserve Currency for some reason. Its their world and we are just living in it if you ask me. China included.

But I think China is purely preparing for war.I dont think they see the immediate economic concerns as geniune problems. I think they are planning for war and beyond.

I just wonder what all of these countries are willing to do to stablize there ecconomy
will they ever be as despreate as the germans were in 1939 to start a conflict of
stave of ecconomic collaps. if the world ecconomy goes down will we see the start of
a new kind of impreialism. empires to give countries large quanties of resources
to hold there ecconomies in balance. hitler had planned 1942 as the start of his
war, but ecconomics got in the way...... well i guess we'll all just have to weight and
see.

Market economies can not function properly on slave labor, and this is the current problem with the world economy. The workers in China are essentially slaves, who work ridiculously long hours for little pay.

Henry Ford understood capitalism.

corporate.ford.com...

Henry Ford had reasoned that since it was now possible to build inexpensive cars in volume, more of them could be sold if employees could afford to buy them. The $5 day helped better the lot of all American workers and contributed to the emergence of the American middle class. In the process, Henry Ford had changed manufacturing forever.

Now that is market economics. China needs to learn this reality, reduce their workers work day, and push higher wages, so that China's economy can become self sustaining. If this does not happen then the world economy will collapse, because this type of one way trade is unsustainable.

Originally posted by stirling
This sounds like a real possibility.
However when the last sentence gets read it sounds suspiciously like propaganda to make us feel good its China who will be at fault for destroying the worlds economy.

"Fault" has nothing to do with it. When it comes to "who will collapse first" it will come down to who has the resources to deal with the catastrophe. Between the major economic powers interlinked with one another there are three candidates: USA, EU, China.

The USA has the power of a Reserve Currency and the largest economy in the World. As far low as we have been brought and as fast as it's happened, we are still positioned better than anyone else in the World.

EU: Huge dysfunction .. but ultimately the concentrated wealth along with new monetizing powers of the ECB will set the EU up for a while.. their levels of spending as compared to the power of their economies still place it far worse than the USA (yay socialism....)

China. Ah China. China could suffer the Worlds worst depression and still post GDP gains. The way they structure their Provinces is much in the way the EU is formulated, except imagine Brussels was the final line, and if a country like Greece posts economic losses the PM is executed. China's Provinces are huge storage houses of debts.. it's absolutely astonishing how they built their economy, absolutely mind boggling .. their collapse will come only because they simply are not built to handle such a fiasco. They do have one leg up: they can absolutely decimate their currency in efforts to clear their house .. they control inflation anyways .. but it will scare the pants off of investors who may flee the country.

reply to post by poet1b


China has one of the fastest average wage growth per capita in the World and soon the largest middle class in the World. Inflation there is very high. The problem is entirely with how their government works and how their nation is organized.

Originally posted by Rockpuck
reply to post by poet1b

 

China has one of the fastest average wage growth per capita in the World and soon the largest middle class in the World. Inflation there is very high. The problem is entirely with how their government works and how their nation is organized.

Then the flood gates of cheap foreign made products will come rushing in to satisfy that "World's Largest" consumer market and the flow of imports will reverse. Alleviating much of the West's stagnation as workers go back to production in an attempt to satisfy the needs and wishes of that giant market.

You're right.
Things are slowing here (I've been living in South China for the past 5 years). Provincial gov's are recklessly spending on anything they can putting a strain on the central gov. The problem here is that people think 'now' and 'fast money', get rich fast' NEVER NEVER about any long term future progressive plannings, When these people are out of office it's no longer their issue so they don't care. Chinese individualism at it's best.
Apparently apartment prices have dropped say so the official news agency but in reality it's gone up, Shanghai a city which I really hate here I think is the indicator of things to come to the rest of the major Chinese cities Shanghai is litterd with massive social problems the price of living is even more than back home and the average office worker makes about 800 to 1000 USD a month. With the apartment prices being a dream except for the rich (people who usually take absolutely every advantage legal or not they don't care)
Now I am seeing a manufacturing shift away from China in many area's including
Garments - Now people are outsourcing to Bangladesh one major city in China has suffered in this Dongguan

Shoes, Toys - Vietnam is the new word in town, hell even the Ikea here sells alot of "Made in Vietnam" products. My son's New Balance shoes are even made in Vietnam and I live in the factory floor province of China !!!

There has been articles in the past year talking about how American companies are starting to move out of China and set back up in America due to costs and quality.

Which brings another point - Imports: Yes now the market is flooding in with imports and it will bite in the next two to three years I think as cheaper countries next to China take advantage of their cheap labor. But fear not China has already setup a special "economic zone" in Vietnam and are building more logistical means in order for this to happen.
Chinese are suckers for imports, if it's imported wow it must be good, the more money I pay the better it must be.
Factories are now starting to receded into the mainland more seeking cheaper labor causing the coastal cities to suffer but yet the big cities still build more office buildings and residential blocks.

To conclude my little rant. China has gone far over the past 10 years, but she's starting to crack under the stress and moving markets. Measures have been taken to ensure economic safety such as buying up most of the precious metal mines, farm lands in other countries, debt, infrastructure (Pakistan mobile networks) and other things, This has been initialed by the central gov who I believe are doing the right thing and can see it coming, trying to put their life rafts in position.

Then there is this:

Why Are the Chinese Buying Record Quantities of Gold?

www.forbes.com...
1/29/2012 @ 4:46PM
(snippet)

Chinese asset values have not yet crashed across the board, but the buying of gold—a leading indicator of panic—is an especially troubling sign that they will.

reply to post by SLAYER69


Like the USA was for many years, China will be self sufficient. They go to walmart and buy cheap Chinese crap made in China. Soon though they will probably export to other countries.. already other SE Asian countries are filling in, as well as India and, assuming the whole house of cards doesn't come crumbling down, I think China has an interest in trying to tame Africa. Again, it's not their population or wealth spread that's the issue.. it's the hilariously absurd way they built their government and the unusual expectations of perpetual growth. Keynesians on steroids.

reply to post by Rockpuck


When inflation exceeds increases in wages, then there is no wage growth.

China should have the highest wage growth in the world.

The only answer for China is to put checks and balances in place.

Communist China has quickly embrace free market economics, naturally!

This system has failed in the U.S., Iceland, Ireland, and it is doomed to fail in China as well.

Movement of capital isn't going to solve the problem, never has and never will.

reply to post by SLAYER69


Yepper Slayer, that is the only way forward for China.

They need to do what the WW II generation did in the U.S., raise taxes on the rich, and put in place an evenly enforced fair set of rules, to establish a properly working competitive market system.

Without an evenly enforced fair set of rules, it is just cuttlefish.

reply to post by crackerjack


Thanks for the update, great to hear from someone there actually on the ground.

It sounds alot like what I hear.

It sounds like corruption flourishes in modern China, and I would think the communist control of the country lends itself quite handily to such activity.

I think Vietnam is getting maxed out as far as production capability. They will have to go through what China has done. Hopefully they learn lessons from what China has experienced, but doubtful. I would imagine most of the competition in China will come from labor sources more in the interior of the country.

In the end, the song remains the same, establishing an efficient market system through an evenly enforced fair set of rules is the only way forward. Major changes are coming to humanity over the next decade, and our nations and cultures are going to have to learn to fish or cut bait.

reply to post by poet1b


Wage growth. Now there's a funny word here. Ask most local workers about their 'wage growth' and they will tell you the same story 4 years ago, meanwhile suppliers have dramatically increased their prices, but it all goes into only afew pockets.
In the past two years alot of factory workers have woken up to this, migrating back to their own provinces for local jobs they pay abit less, but the living is cheaper and they are close to their families.
Mostly everytime I goto a factory I hear bosses sook about "workers are not loyal" bla bla bla. while looking at their 7 series BMW.
I had a heated discussion with a Taiwanese woman who was managing a factory in Shenzhen, saying that Chinese workers are unloyal, money grabbing, ect.
I counted this by the extravagant high living prices in Shenzhen, the working conditions of the factory, the overall treatment of their workers, pay, ect. So I said they don't get paid as much as you, they need to look after themselves, take care of their families do what's best for them since your conditions are not satisfactory to them.
To which me being a foreigner speaking to her from my perspective she kind of understood the other side.

Firms such as Foxconn (Taiwanese owned) and Huawei have started to make plans to setup more inland just because of the cheaper operational costs from Shenzhen.

My main point is workers are starting to wake up and realize they don't have to put up with substandard conditions and move back inland for better living conditions and happiness.
This Chinese new year has just ended, and I'l bet alot of workers didn't return (happened in the previous years)

reply to post by crackerjack


Good to hear. From what I have read working conditions in china are inhumane, and more akin to slavery.

This is not market economics, not when workers do not have any bargaining power.

Unless China starts standing up for the rights of the workers, their current boom will collapse, and the opportunity might never return. They have a small window to make this happen.

What you are describing is something that has happened over and over again.

reply to post by poet1b


Naturally the local and provincial gov's will always support the businessman because of tax's and 'other' investments.
As you probably know the social class gap is massive, if you're a manager, then you don't talk to the floor workers, that's just a given. I even get warned not to talk to the line workers, because it "makes you look bad" this is the whole 'face' thing here in China.
For people who work for me I pay them higher than the standard rates, look after them, always side with them if there's issues, a management curve they have not seen before, while my wife want's to pay the LOWEST and get the most out of them, which I spose is a Ying Yang balance.
My company website is actually blocked in China because I have shown images that are apparently 'not true' in factories, I just showed the lines, factories operating, loading containers, which my company does consulting for.
Anyway it does not really effect me that much since it's blocked here so it's stopped all the other small time companies from copying my site here.