Saturday, June 13, 2009

What Would Greenspan Do?


There is a silent contract between the Chinese government and its population:

"We, the Government, will feed you and you, proletarians, work for a few dollars per month and keep your mouth shut".

The American financial crisis changed all this, demand from the US dried up, exports came to a standstill and Chinese factories closed. With so many hungry unemployed roaming the streets, the last thing the Chinese government wants are riots.

What to do? They have the money to sit it out. After all, they have US$ nominated saving invested in US$. But if they take the money out it will be worth nothing and their own currency will skyrocket.

And how to keep everybody busy and the stomachs full?

Well, here Mr Greenspan comes in: just create a new bubble and everybody will be soon running around like a madman.

After all, the Chinese government controls money creation and can force banks to lend! They can also force government-lead companies to employ people. Like the Kolchozes and Sovchozes in the USSR of the 60's. And on top of this, being the sole owner of state TV/radion and newspapers, they can more or less decide what consumers should buy. They control the mind of their people! They are actually in full control. Ben would be jealous.

And if TV doesn't work you can always try the gunpoint

And so it happened, they blew a new bubble of cheap money resulting in record lending, record car sales and record everything.

We all now what the result is of cheap money. Why are they doing this?

We now wait for the Chinese to decide what to do with their savings invested in US government bonds. Make it snappy as the US government is printing Dollars like hell, and I hope for them that, when they made up their mind, it is still worth something.

In the meantime, the Chinese are quietly buying gold and agricultural land and other commodities.

Chinese Property Market Rebounds, Helping to Drive Recovery

Bloomberg News;

June 11 (Bloomberg) -- China’s property market is rebounding, allaying concern that a potential collapse could undermine the nation’s economic recovery.

Sales rose 45.3 percent in the first five months to 1 trillion yuan ($146 billion) from a year earlier, the statistics bureau said yesterday. That compares with a 19.5 percent decline for all of 2008.

Falling house prices, record new loans of 5.17 trillion yuan in the first four months of the year and lower interest rates helped spur the comeback. As recently as December, Macquarie Securities forecast that construction may contract this year by 30 percent and Credit Suisse Group AG warned that a collapsing property market could drag economic growth to zero.

“Our confidence in a second-half economic recovery is based on the strength of property transactions,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong. He now forecasts a 10 percent to 15 percent increase in construction.

“Ample liquidity” may drive transaction volumes higher in the second half of the year, said Tao Dong, Credit Suisse’s chief Asia economist in Hong Kong.

Developers China Vanke Co., Guangzhou R&F Properties Co., and Shimao Property Holdings Ltd. said they resumed land acquisitions in May and June.

Export Slump

China’s economy may expand 7.5 percent this year, according to a Bloomberg News survey of economists last month, as government stimulus measures counter a slump in exports. Gross domestic product grew 6.1 percent in the first quarter, the slowest pace in almost a decade.

Increased construction will create jobs and boost industries from steel to home appliances and furniture.

“Retail sales of construction and decoration materials and furniture -- both of which are closely related to purchases of new houses -- have registered a strong rebound since the beginning of the year,” said Wang Qing, an economist with Morgan Stanley in Hong Kong.

Construction accounts for about half of the steel used in China, according to Wang Tao, an economist with UBS AG in Beijing.

The China Se Shang Property Index of 24 real estate companies has more than doubled in 2009, outpacing a 55 percent increase by the Shanghai Composite Index. Beijing Capital Development Co. Ltd. led gains with a surge of 215 percent and Shenzhen-based Gemdale Corp. climbed 185 percent.

Beijing Sales Soar

In Beijing, property sales by value doubled in the first five months of 2009 from a year earlier, the statistics bureau said yesterday. Sales surged 68.5 percent in eastern Zhejiang province and climbed 61.9 percent in Shanghai. Nationwide, sales by floor area increased 25.5 percent.

Besides cutting interest rates five times in the final four months of last year, the government has slashed mortgage down payments, lowered mortgage rates, and cut transaction costs. It also last month lowered a capital requirement for real estate projects to encourage investment.

China’s property market slowed after October 2007, when policy makers clamped down on real-estate lending to prevent a price bubble. Prices and sales fell for the first time in a decade last year, according to property agency DTZ Holdings Plc.

The property recovery comes with its own risks.

China’s banking regulator warned this month that lenders face a growing threat of bad loans in real estate. Bank of America Merrill Lynch’s China strategist David Cui said last month that loose monetary policy will create another bubble.

Morgan Stanley’s Wang says such worries are overblown. “The recovery in the property sector is for real and is sustainable,” he said. “It has been by far the most encouraging development in the Chinese economy.”

No comments:

Post a Comment