Welcome Guest [Log In] [Register]


Reply
A crisis made in China - implications for Australia are all too predictable; China was largely unaffected by the GFC thanks to a massive government-ordered domestic stimulus package
Topic Started: 11 Sep 2014, 04:46 PM (550 Views)
CrossPost
Member Avatar


Quote:
 
http://theconversation.com/a-crisis-made-in-china-31479

A crisis made in China?

The strength of a nation derives from the integrity of the home -- Confucius

Wise words indeed, and ones that are especially apt at present. Australia is not the only country that finds itself having to come to terms with a rapidly changing economic landscape. More importantly – for the world, at least – so does China. One of the key indicators for both countries is the performance of their respective real estate sectors. Like so much these days, they are intertwined and sending out ominous signals.

China’s problems have been a long-time in the making and are of a different order to Australia’s. In some ways China’s problems are far from unique and are simply replicating a long-running story that is as old as human civilisation: over time people move off the land and into cities. This is still the case in China but, like everything else in that remarkable country, it is happening on an epic and unprecedented scale.

To the central government’s credit, it has tried to manage this process and in many ways it has been remarkably successful. However, there are limits to what even the most authoritarian and interventionist of states can do in managing economies, much less the people that make them up. Bad decisions can have monumental consequences. The collective response to the misnamed global financial crisis now looks like a quintessential case in point.

China was largely unaffected by the GFC thanks to a massive government-ordered domestic stimulus package. Unfortunately, much of the subsequent investment ended up in the hands of property developers and speculators. A nexus of local governments keen to sell land for development, so-called “shadow banks” keen to lend, and a growing class of wealthy investors looking for high returns on investment, fuelled a surge in apartment-building across China.

China’s notorious “ghost cities” are the most graphic illustration of massive, unconstrained construction that is surplus to the needs of the population – or that part of the population with lots of money, at least. By some estimates there are something like 50 million empty properties in China, or a vacancy rate of nearly 25%. Unsurprisingly prices are steadily declining despite the efforts of state and provincial governments to prop them up. Prices fell by an average of 10% in the first half of this year, and new construction starts have fallen by something like 25%.

While this may look like a necessary and overdue return to economic reality, the consequences for China’s numerous, increasingly exposed and over-reliant trade partners are potentially grim. For example, China has the capacity to produce 1 billion tonnes of steel each year; now however, a third of this capacity is unused. The implications for Australia are all too predictable and manifest primarily in the plunging price of iron ore.

Yet it’s important to recognise that Australia – or more accurately, the mainly foreign-owned resource companies that dominate production in this country – has contributed mightily to this problem. The massive increase in investment over the last few years has had its intended consequence: an equally massive expansion in production. It’s hard to believe that the lavishly rewarded captains of industry who run these companies can have been entirely surprised that an increase in supply would have an impact on prices, with or without China’s domestic problems.

Apparently they are. Unfortunately the resource sector may not be alone in succumbing to short-term and wishful thinking. Real estate in Melbourne and Sydney looks wildly over-valued in historical and comparative perspectives, and yet the property bubble continues to inflate. We might do well to remember another timeless piece of wisdom: things that look like they cannot go on forever usually don’t.

There may be further to go before real estate in Australia takes a similar hit, however, and China is playing a part in this, too. A lot of the smart money is fleeing China as investment yields decline, the local environment deteriorates, and the political situation remains unpredictable. Rising real estate prices in Australia look like a good bet and also have the additional benefit of providing a potential bolt hole if things go wrong in the People’s Republic.

Rather worryingly, Australian officials have little understanding of the impact of Chinese money on real estate prices here, or little capacity (or desire?) to do much about it. The rules designed to regulate the foreign purchase of domestic real estate are notoriously easy to get around and the Foreign Investment Review Board seems to have little capacity to enforce them or detailed understanding of what is happening on the ground. According to a recent report in the AFR, though

foreign investment in real estate surged to $24.8 billion in the first nine months of 2013-14, an increase of 93% on the previous year

There are few subjects about which people get more excited than real estate. It would be unfortunate if the idea took hold that foreigners were pricing the locals out of the market, especially as the forces driving house price rises are complex and still largely domestic, it is argued. Nevertheless, the possible export and influence of China’s property problems could add an unwelcome and possibly avoidable additional complication to what is an especially important, but occasionally fraught, relationship between Australia and China.
Profile "REPLY WITH QUOTE" Go to top
 
miw
Member Avatar


Quote:
 
China was largely unaffected by the GFC thanks to a massive government-ordered domestic stimulus package.


You only have to read to here to realise that the author is miraculously untouched by the ravages of knowledge of the topic about which he writes. Factories closing right and left, massive unemployment, a 30% drop in house prices in Beijing, yet "largely unaffected" by the GFC?

Posted Image

You get further clues when he starts quoting construction starts. Anyone with a passing acquaintance with construction statistics takes no notice of construction starts. It is self-reported and builders routinely do not report it for their own reasons. The fact that a construction start is reported by no means means that construction will ever start and even if construction starts, when it will be finished. I guess the author looked at the construction starts number and the completions number for the current month and decided to use the number everyone knows is bullshit because it fitted the preconceived bias more closely. (and yes. It's down in July, but not by 25%.)
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
Profile "REPLY WITH QUOTE" Go to top
 
newjez
Member Avatar


miw
11 Sep 2014, 07:50 PM


You only have to read to here to realise that the author is miraculously untouched by the ravages of knowledge of the topic about which he writes. Factories closing right and left, massive unemployment, a 30% drop in house prices in Beijing, yet "largely unaffected" by the GFC?

Posted Image

You get further clues when he starts quoting construction starts. Anyone with a passing acquaintance with construction statistics takes no notice of construction starts. It is self-reported and builders routinely do not report it for their own reasons. The fact that a construction start is reported by no means means that construction will ever start and even if construction starts, when it will be finished. I guess the author looked at the construction starts number and the completions number for the current month and decided to use the number everyone knows is bullshit because it fitted the preconceived bias more closely. (and yes. It's down in July, but not by 25%.)
It was a pretty quick recovery.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Profile "REPLY WITH QUOTE" Go to top
 
ThePauk
Member Avatar
Diamond Member
newjez
11 Sep 2014, 08:07 PM
It was a pretty quick recovery.
Sure, if you believe communist data....
Profile "REPLY WITH QUOTE" Go to top
 
miw
Member Avatar


ThePauk
11 Sep 2014, 08:12 PM
Sure, if you believe communist data....
Communist data? That's the HSBC PMI which has nothing to do with the Chinese government's own PMI. It's biassed away from SOEs so it probably tends to move further and faster than the China PMI.

Whatever. 40.x is incredibly bad.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
Profile "REPLY WITH QUOTE" Go to top
 
Massive
Default APF Avatar


miw
11 Sep 2014, 07:50 PM


You only have to read to here to realise that the author is miraculously untouched by the ravages of knowledge of the topic about which he writes. Factories closing right and left, massive unemployment, a 30% drop in house prices in Beijing, yet "largely unaffected" by the GFC?
not forgetting the horrid stories of showdowns between security forces and debt collectors at closing factories and i heard a few more extreme tales of machete gangs visiting development offices etc ..

it was a bit mental .... our offices downsized immediately as about 80% of contracts went on hold and everyone else took a paycut. everything came back online quite quickly but foreigner salary packages and conditions have never been the same since then.... my own package was reduced and it was stimulus for me getting out into my own thing as could see the winds changing back then ..
Edited by Massive, 11 Sep 2014, 08:54 PM.
Profile "REPLY WITH QUOTE" Go to top
 
FrenchDonut
Unregistered

Foreign investors are driving up the price of property, especially in Melbourne and Sydney. First home buyers are getting priced out of the market whilst our politicians look after their self interests on the side-lines.

Lets track and see if people believe foreign investors are good or bad for the property market. Check out the results!!

http://www.pollytopic.com/index.php/topics/property/85-foreign-investors-good-or-bad-for-the-property-market
"REPLY WITH QUOTE" Go to top
 
busted
Unregistered

One of China's largest real estate agent firm collapsed last week with $millions buyer deposit disappeared.
It's the omen.

http://www.china.org.cn/business/2014-09/11/content_33483536.htm
"REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
« Previous Topic · Australian Property Forum · Next Topic »
Reply



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy