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China Is On `Treadmill to Hell' as Property Prices Will Burst

Discussion in 'BBS Hangout: Debate & Discussion' started by Ubiquitin, Apr 8, 2010.

  1. Ubiquitin

    Ubiquitin Contributing Member
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    Please let this not be true.

    China on ‘Treadmill to Hell’ Amid Bubble, Chanos Says

    April 8 (Bloomberg) -- China’s property market is a bubble that may burst by as early as this year, according to hedge fund manager James Chanos.

    The world’s third-biggest economy may need to keep up the pace of property investment because up to 60 percent of its gross domestic product relies on construction, said Chanos. The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV.

    China is “on a treadmill to hell,” said Chanos, who said in January the nation is Dubai times a thousand. “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”

    Property prices in China rose at the fastest pace in almost two years in February even after officials this year re-imposed a tax on homes sold within five years of their purchase to curb speculation and ordered banks to set aside more funds as reserves to cool lending. The boom in China’s real estate has fueled concern that China may face a collapse seen in Dubai that has hurt the ability of some of its companies to repay debt.

    Since his January prediction, Chanos, the founder of Kynikos Associates Ltd, has been joined by Gloom, Doom & Boom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s property market.

    Chinese state and local governments are among the most leveraged to property-related borrowings and the nation will “ultimately” have to nationalize a lot of the bad loans that will arise from the end of the bubble, Chanos said.

    China’s Reserves

    China’s foreign currency reserves will be “one asset” that can be used to fund a cleanup of the banking system, he said. The country has accumulated a record $2.4 trillion of reserves, and $889 billion of U.S. government debt, partly a consequence of its exchange-rate policy.

    Chanos was one of the first investors to foresee the 2001 collapse of Houston-based energy company Enron Corp. The investor said he is short-selling Chinese developers as well as companies supplying building-related materials to the country, without identifying any stocks.

    In a short sale, investors bet on declines in securities by borrowing stock to sell on the expectation it can be purchased at a lower price before handing it back.

    To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

    http://www.bloomberg.com/apps/news?pid=20601109&sid=an0ehK2dtdXg&pos=11
     
  2. Major

    Major Member

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    The China real estate thing is definitely a concern, but the country has two things going for it:

    1. They are a country of savers instead of debtors, so they don't have as much of a concern about a huge foreclosure crisis (or at least, it would be slower and more controlled).

    2. They have a billion people in rural areas. As they industrialize, those people are moving to urban centers - so they actually have an eventual need for all this real estate. The big question there is how fast they are are urbanizing.
     
  3. pirc1

    pirc1 Contributing Member

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    I think China does have a big problem with real estate price going through the roof. However, this is not going to be the subprime bubble that hit the US part 2. I think 20% down payment is mandatory and now it might be up to 30%, there is talk of pushing that to 40% recently. The problem is that average Chinese are spending three generations of savings for a home (grand parents, parents helping the grand kids), this just cannot keep up. The price of home compare to wages and rent income have to come down at some point.
     
  4. Air Langhi

    Air Langhi Contributing Member

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    Is their a short etf?
     
  5. deepblue

    deepblue Member

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    There are a few, FXP being one of most popular. There are a few ppl on clutch claim to be actively invested in china short etfs.
     
  6. YallMean

    YallMean Member

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    Well this concern has been going on for several years now. Real Estate prices in major Chinese cities have gone up as much as by 5 times. Yeah, that was a missing opportunity if you didn't know to invest in China.
    The cry of wolf is not news. Everybody in China knows it, debates on how the regulations should control the market, property laws, etc are everywhere among scholars and common people.
    But the problem is more complicate than you thought, and many don't even think there is a bubble.
    One thing make the China Real Estate unique, compare to that of Hongkong or Tokyo is that even w/ the high real estate price, mortgage isn't high at all, and Chinese banks maintain more strict lending standards than most other countries, including the US.
    We can probably devote a whole board just talking about Chinese real estate market, what went wrong or not. The issue is not going to be cleared out w/ some quick responses, I fore-warn.
     
  7. deepblue

    deepblue Member

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    When parts of Shanghai is more expensive than New York or Boston, it will seem out of whack. Remember people will always find reasons to justify the bubble, no matter how big it is, just like what happened in US.
     
  8. YallMean

    YallMean Member

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    Yeah I know. But very major city in the pacific region has that problem, Moscow, Tokyo, Seoul, Hongkong, Taipei ...
    I am a little skeptical about bubble is the fact Chinese has a healthy debt ratio in real estate market. I think the statistics is like only 50% of the money is borrowed from bank to buy a house. While the 50% might be still high in absolute value to average Chinese, it is certainly not like lending/borrowing spreeing contributed to the bubble in the US.
    Also, there is a line of argument that Chinese are transforming from property-less to property in condos for the first time in a long time. Those accumulated savings during that time contribute to the price spike, but they are solid backings nontheless. Also there is the factor of one child policy and Chinese culture that parents sponsor the condo financially for kids.
    All those taken into account make it somewhat unique.
     
  9. michecon

    michecon Contributing Member

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    That's actually not a good example.
    It's a matter of demand and supply.
    Most expansive properties in SH are actually often bought by cash, insane amount of cash.
     
  10. pirc1

    pirc1 Contributing Member

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    What people in the US do not realize is that China now have a significant number of rich people, and they want to live in cities like Shanghai, or at least buy a home there.
     

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