World Bank describes trouble and bubbles in Asia - Trouble beyond?

First, the primary focus of the headline and story just out. (or to put it another way, the breaking headline that started my hunt)

The global lender, in its latest East Asia and Pacific Update, cut its gross domestic product (GDP) growth projection for China by 0.1 percentage point to 8.3 percent for 2013, citing Beijing's ongoing efforts to restructure its economy.

Now in some ways, I say 'Cry me a river, guys'. We'd kill and mortgage the Treasury for that growth rate ..then I realized that well, we literally ARE mortgaging the US Treasury to attempt precisely that. Hmm... A bit more reading and my smirk dropped pretty quick. This has more serious implications for what Reuters is reporting here.

The World Bank, however, tempered its more benign outlook about conditions in the West with a call for Asian governments to start reining in the supportive monetary and fiscal policies that had been adopted in the aftermath of the financial crisis, echoing concerns raised by the Asian Development Bank last week.

Now that doesn't sound good.....but, that isn't what dropped all pretense of a rather tongue in cheek approach I'd first thought to take on this. No, there is another item which froze my fingers and then made me select-all, delete and start over again.

The Bank of Japan on April 4 stunned markets by unveiling an unprecedented monetary expansion campaign with plans to inject about $1.4 trillion into the economy over two years to break a deflationary cycle and end two decades of stagnation. The unprecedented easing provided fresh momentum to yen bears, with the dollar tapping a four-year high of 99.95 yen on Thursday.

(Source: Reuters)

This is a thread where reading the linked stories is important to get the context of how it's linked and inter-related. Here is another source with a bit more on Japan's corner of the Asian picture as it's shaping up.

Japan's central bank has promised to unleash a massive programme of quantitative easing – worth $1.4tn (£923bn) that will double the country's money supply – in a drastic bid to restore the economy to health and banish the deflation that has dogged the country for more than a decade.

As part of a new set of policies known as Abenomics, formulated by Japan's new prime minister Shinzo Abe, the Bank of Japan will buy ¥7tn yen (£46bn) of government bonds each month using electronically created money, with the aim of rekindling demand and pushing up prices and wages.

(Source:The Guardian)

^^ That comes from 10 days ago and explains what the first one is talking about. People have been asking what, with all the crisis going on, might we have been missing? I'm going to say A LOT would be a fair answer. DOUBLING the money supply?!

That's still not all in looking for material for this story. How did all this get missed? Oh yeah... We're all looking at North Korea and maybe Syria in our free time.


While Japan is going into new pits of debt (much like us, and Japan was already #2 for World Debtor Nation), China is going the opposite direction with what could be equal end results. Actually, equal to Europe more than the U.S..

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

(Source: ZeroHedge) (Emphasis Mine)

Finally, to help tie this all together and give a complete picture? The last part I had really been missing.

The implosion of Suntech Power Holdings and China's decision to split the Ministry of Railways (MoR) and transfer all its debt to a state owned enterprise have once again raised questions about government debt.
We have previously reported on how local governments were underplaying the bad debt problem and actually making it worse by plying "zombie companies" with more cash.

(Source: Business Insider)

Ummm... HUH?! I dug one more step and I wish I hadn't now.

China’s unsustainable corporate debt to GDP ratio is the highest in the world, and experts conclude that all three signs portending financial crisis have already appeared.

China has the largest credit bubble in the world, in the form of corporate held bonds and short term loans, analysts say. Beijing-based magazine Caijing reports that China’s corporate debt to GDP ratio reached 151 percent, citing research by Zero Hedge analysts.

This figure is doubted by some, but other analysts present a similar conclusion. China’s total corporate debt amounted to 108 percent of the GDP in 2011, rising to 122 percent of the GDP in 2012, a 15-year high, says GK Dragonomics in a November 2012 economic analysis published in Bloomberg Business Week, titled “Corporate China’s Black Hole of Debt.”Even research by Chinese experts reaches comparable conclusions.

(Source: Epoch Times)

The link a bit above this showing Japan's Debtor nation status at the bottom of the linked page also shows China as being relatively healthy for debt. It shows them with solid reserves, unlike us, and generally doing alright with all things considered. So you can imagine my shock to find that something HUGE had been left out of that number. The Corp/Short term debt.

In China, it's not like the United States (As reading the articles explains and T&C for quoted material won't let me go much further with here). China owns part of every corporation and with that, links into it's problems as well. It's the part where Chinese Communism meshes with the new Chinese Capitalism and ...Oh goodness...they did get the worst of both worlds didn't they?

I've thought China was a stable nation, monetarily and facing no HUGE pending crisis like Europe and the United States. It would seem that we've all missed quite a bit, after all.

Thoughts? Additional information? I'm still digesting all this. It's quite a shock to realize THE WHOLE WORLD truly is in the same sinking boat. Russia looks comfy on numbers, but you know? Until this story? So did China. I wonder what lurks in Russia Financial Closet??

Welcome to the New World?

reply to post by Wrabbit2000

Leaders of the five BRICS nations plan to create a development bank in a direct challenge to the World Bank that they accuse of Western bias.

Source: www.defence.pk...

All the world bank and IMF have to counter this movement is propaganda.

asia, trouble.

us, collapse.

Originally posted by frazzle
reply to post by Wrabbit2000

 

Leaders of the five BRICS nations plan to create a development bank in a direct challenge to the World Bank that they accuse of Western bias.

Source: www.defence.pk...

All the world bank and IMF have to counter this movement is propaganda.

The fact that China is in serious trouble vis a vis debt, especially corporate and provincial governmental debt, not to mention their ridiculously massive real estate bubble, is not propaganda, it is a serious problem for the world economy.

reply to post by Wrabbit2000



China's economy grew 7 times as fast as America's over the past decade (316% growth vs. 43%)
China's GDP per capita is the 91st-lowest in the world, below Bosnia & Herzegovina
China has 64 million vacant homes, including entire cities that are empty
The world's biggest mall is in China... but it has been 99% empty since 2005
By 2025, China will build enough skyscrapers to fill TEN New York-sized cities
China executes three times as many people as the rest of the world COMBINED... and uses mobile execution vans for efficiency.
10 US States That Will Get Murdered If China Slows Its Imports listed in the below link:

Read more: www.businessinsider.com...
www.cia.gov... Our friends at CIA usually have some interesting numbers on any country and China is no exception.
hahaha simple Google pulls them up!
www.google.com... orld-factbook%2Fgeos%2Fch.html&ei=anZrUbOdDZip4AOxioDgDQ&usg=AFQjCNGP5Vq5g42_NNAlZVKVShey9uDmoQ&sig2=ytE5JIGYPr1xx3KBlCia_w&bvm=bv.45175338,d.dmg
The world is more interconnected that most know or believe.

I was told Japan was going to crater without the cash infusion even before the earth quake and China island dispute, so I can only imagine their printing money is to stave off the big fall.

Good news in all this stuff is before someone starts a real shooting war everything has to be weighed on the scale of profit and loss.

So yes I knew about Japan being on the international monetary rocks without a big infusion of cash...Will their efforts end up with inflation and consumer goods going sky high??.... Hyper inflation seems to be held back by some mysterious force here in the states so maybe Japan will follow suit....I think it is a house of cards both here and there..??

China, I had no idea and thank you for the post S&F China lovers who are envious of their system (especially their growth figures) may be in for a big surprise..unfortunately they will drag many down with them possibly including us..

reply to post by Antonio1


I've heard about the real estate bubble as I imagine most folks have over time here. I'd really missed the other though. I'd definitely missed it all going well over 100% of their GDP. I'd think the world would manage if just one or two powers crashed, but what DOES happen when multiple crash at once or are down and running along the gutter at the same time? This can't be pretty. It also adds one more nation who really may not have much to lose in the fortunes of war. If not now, then at some point in the future if things continue in a negative direction.

This isn't how warm and fuzzy feelings of confidence are built.

reply to post by Wrabbit2000


I only read about their debt problems a couple of times in the past six months, but I do know that one estimate put their total governmental debt at 250% of GDP. I don't know how true that is, but they might be in a serious world of hurt in a few years. I'm not a huge fan of the idea that China could become a second superpower, so from that perspective, maybe their collapse won't be that bad for the west. Besides, if it gets really bad, you know that U.S. companies will just move factories out of China and into SE Asia, Africa, India, etc., so I don't see China's economic troubles being that bad of us in the mid or long term, just in the short term. Just my two cents.

reply to post by Antonio1

I think the problem I see is that we're adding debt to our own pile after we've crossed 100% debt to GDP ratio ourselves awhile back, and Bernanke is apparently determined to see that the Fed maintain this $85 billion a month of monetizing our own debt load through at least the fourth quarter of this year.

So...We're in a downward spiral when compound interest is considered, which has no mathematical way out anymore. Paying off our own debt simply cannot happen within any reasonable scenario. Hundreds of billions in surplus per year for decades would be required.

China is/has been our #1 debt holder and Japan hovering around the #2 spot. These stories show both nations are in no position to do anything like that going forward and will be in need of their own help at some point. (Of course..some think doubling a money supply like Japan apparently just did from 'electronic generated funds' as the article said, is a good thing. I doubt you do..but plenty others seem to).

So when we start falling as inflation starts bringing interest off a near 0% ...causing that debt interest to really compound like a mad....who do we turn to? I guess, we're all falling together because the fundamental economics for the major powers are, shockingly, ALL rotten at the same point in time.

.......then again, maybe folks are right in saying this was set up to go down this way so the whole world is left with little to no choice but to fold into a united currency and economic model. Talk about an excruciatingly painful way of doing it, if by design tho.

No problem for a single party country like China. No beating around the bush, what's needs to be done will be carried out almost immediately. No time lost to shuffling policies like us in the west but pragmatic decisions all the way. We pinned medals on our corrupted ones while they shot theirs. That is the fundamental reason why they will swim ahead while we are sinking.


Those corporate debts aren't problematic to a highly centralised government like them. The buck has to stop somewhere and where else but onto the lap of the government ?

Japan is a slightly better position than most indebted nations in that Japanese Government debt is principally owed to Japan rather than to the International markets. So, whilst Japanese debt levels are enormous, they are more manageable and serviceable than those of most Western Nations.

I actually see the BRICS nations as being over played in terms of their success, to be honest. They have huge growth rates because they were so far behind. The standards of living within these nations also has to rise, which is the second part of such rapid expansion and this is the part that costs more and reduces growth rates. Therefore it is inevitable that these rates will drop off - and when that happens (and prices therefore rise) they won't be seen as such attractive options for investment, etc.

The above isn't to say that BRICS haven't been successful or won't continue to grow rapidly (in comparison to the West), more that their slowdown and associated financial problems are a natural part of the rise of living standards and competitiveness as they progress.

8% growth for a population of China is quite amazing and very unsustainable. I think people don't really understand the nature of exponential growth.

So of course any economy that is growing at 8% WILL slow down over time. It just has to.

I mean I understand the need for growth but it can be a double edged sword. Speaking of Doubling...

Here is a video (took me a bit to find) about Exponential Growth and Doubling which can be applied to anything with a percentage of growth, be it population, consumption, crime or a countries economic growth.



This mathematician is pretty interesting as he describes these processes. Very eye opening and will give you an idea of what is displayed in percentages. So the next time you see a percentage and growth you can quickly with simple math project the growth along time. It will raise your eyebrows.

For example he shows that even a modest 1.3% growth, in 740 years it will be a Stand on Zanzibar situation where there will be 1 person for 1 square meter of the surface of the Earth. In 2400 years the total mass of the people of earth would equal... well.. the mass of Earth.

Growth is good but it can lead to some pretty hefty consequences.

Just wanted to point out that for a nation the size of China, an 8% growth is INSANE. The whole world needs to slow down.

Originally posted by Antonio1

Originally posted by frazzle
reply to post by Wrabbit2000

 

Leaders of the five BRICS nations plan to create a development bank in a direct challenge to the World Bank that they accuse of Western bias.

Source: www.defence.pk...

All the world bank and IMF have to counter this movement is propaganda.

The fact that China is in serious trouble vis a vis debt, especially corporate and provincial governmental debt, not to mention their ridiculously massive real estate bubble, is not propaganda, it is a serious problem for the world economy.

The trouble with the world economy IS debt, pure and simple. Central banks that create debt but not enough money to PAY the debt is what feeds the bubble machine. We cannot lay the blame for that on China or on anyone else besides ourselves and I don't see us doing anything to resolve the problem. We should have shut them down long before now but we haven't and we won't so someone else must.

Besides a housing bubble and corporate debt, China's growth rate must sustain at 8% just to maintain an even keel. Anything less is negative numbers for their economy. China has and is in the process of injecting capital while cutting back on the construction. This in turn has raised the unemployment rate and further slowed actual growth.

Complicating matters further, people are not buying the newly constructed housing. You can see them advertised from 4500 CNY per square meter to over 12000 CNY per square meter. Unlike western housing, the housing in China is only 50% complete at best as the interiors are not even basically finished. This effectively doubles the cost of purchase.

The truth of the matter is that China is below 8% but is propped up by the governments financial injection. Like everywhere else it's all show. China knows that the bubble is going to pop and for the last few years has increased its gold holdings substantially. Last year alone they purchased 600 tonnes of gold to better back the CNY. They know it's going to crash but don't want it to be a major train wreck. Should the Euro and Dollar both go down shortly, it will go ugly early for China and the CNY.

reply to post by mypan

No problem for a single party country like China. No beating around the bush, what's needs to be done will be carried out almost immediately. No time lost to shuffling policies like us in the west but pragmatic decisions all the way.

That is what is scary about this, in my view. You're absolutely right about China and their level of control. Obama once remarked himself how he wished he had such authority and power. That's not said as any slight or suggestion of bad things, but an observation of how self evident their level of internal control really is. They could take whatever action, however extreme they see as required and anyone who doesn't like it can stand against a wall and play target dummy for a squad with Ak-47's. It's just about that brutally simple, eh?

...and yet, they had to have seen this building and coming for quite some time. They haven't actually done anything which, in their case?? Well, that's what is scary. It suggests nothing CAN be done or nothing will work without creating equally bad outcomes in other ways. If China can't fix their side with the level of absolute and total control their system of Government allows? Umm... I'm feeling like the kid on a roller coaster. This ride goes where it goes and those running it really don't have much to say about changing course, despite public appearances they work so hard to project.

reply to post by frazzle

We cannot lay the blame for that on China or on anyone else besides ourselves and I don't see us doing anything to resolve the problem.

I think you're 100% right in the first part of your post. The problem IS debt. Prior to this thread, I would have agreed with Central Banks being the main issue, world wide too. It absolutely HAS been in both the United States and Euro-Union. Of course, there are many other factors and thats almost absurdly over-simplifying it, but it's accurate to the underlying core of the problem, IMO. It goes back far longer than any of us have been around.

I do not agree with the quoted portion above. We are responsible for OUR version of this mess. Europe made their own version with it's own uniquely European aspects of the crash. Even several African nations like Zimbabwe as one example, have their own unique and self generated factors to have created their own collapse.

China is definitely China's problem. Central Banking isn't their failing. Central Government could be suggested and no doubt, IS part of it ...but even that isn't enough to explain how they look so healthy but the books are SO red with bad ink. Simply put? I think it's a big crap sandwich, world wide and every regional/national area has their very own flavor of their own making to take the bite of.

Very interesting information. I thought the Chinese were smarter than that. The contracts for loan repayment by the USA do have safeguards in them that raise repayment values if America increases money in circulation. I don't think China is aware of the other ways that the USA can create fake money yet. We have some excellent deceivers in our upper government.

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

reply to post by Wrabbit2000



CPC holds all the cards and when the crunch came they will be restructuring/recapitalising or even merging those losing companies into the profitable ones and their system of government is very advantageous to ours and no hassles from the union because there were none.


They still have a lot of developments to go in the western part of their country to keep on progressing and their urbanisation is ongoing to boost their domestic consumption per DGP which at around 40% is still very low compared to the western economies at around 70%.

Originally posted by Wrabbit2000
reply to post by frazzle

 

We cannot lay the blame for that on China or on anyone else besides ourselves and I don't see us doing anything to resolve the problem.

I think you're 100% right in the first part of your post. The problem IS debt. Prior to this thread, I would have agreed with Central Banks being the main issue, world wide too. It absolutely HAS been in both the United States and Euro-Union. Of course, there are many other factors and thats almost absurdly over-simplifying it, but it's accurate to the underlying core of the problem, IMO. It goes back far longer than any of us have been around.

I do not agree with the quoted portion above. We are responsible for OUR version of this mess. Europe made their own version with it's own uniquely European aspects of the crash. Even several African nations like Zimbabwe as one example, have their own unique and self generated factors to have created their own collapse.

China is definitely China's problem. Central Banking isn't their failing. Central Government could be suggested and no doubt, IS part of it ...but even that isn't enough to explain how they look so healthy but the books are SO red with bad ink. Simply put? I think it's a big crap sandwich, world wide and every regional/national area has their very own flavor of their own making to take the bite of.

Well obviously its more complicated than that, I was specifically speaking to the core problem.

I’m no economist, but in my opinion, China went both right and wrong when they bought into the idea of taking a slice out of the American pie by allowing American companies to move in and utilize their cheap labor. Who knows for sure whose idea that was, but it had to be tied directly to the relaxed banking rules here in the US and the elimination of Glass Steagall, so what I said about it being OUR problem still holds true, congress opened that door.

China IS actively working on fixing their side of it, which if they’re successful certainly won’t do anything positive for our side of it, at least in the short term. And I'll bet its causing a few people over here to lose sleep.

www.aljazeera.com...
China economic growth lower than forecast

Wendy Chen, a Shanghai-based economist at Nomura Securities, told AFP: "The (GDP) figure was lower than market expectations, indicating the recovery in the real economy was not on a solid foundation and remained weak."

www.aljazeera.com...

Li represents a new generation of pioneering 'red capitalists', many of them the children of Communist Party officials. Flamboyant, accustomed to success and able to spend more money in one luxury evening in Shanghai or Beijing than others can earn in a year, they are fast becoming the embodiment of the modern Chinese dream. Others, like the real estate developer Wang Dafu, were born into poverty, but have been equally able to build vast fortunes in a country with growth rates that other nations can only dream of.

NEW YORK (AP) - Worries about an economic slowdown in China fueled a steep drop in commodity prices Monday, spooking investors and giving the stock market its worst day of the year. The trigger for the sell-off came from China, where the world's second-largest economy expanded 7.7 percent in the first three months of the year, well below forecasts of 8 percent or better. That news pummeled copper, oil and other commodities. Shares of oil and mining companies fared the worst because China is a huge importer of their products.