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Drawing the Parallels between China & Japan
Topic Started: 4 Sep 2015, 07:20 PM (2,665 Views)
Terry
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From the lovely Gillian Tett, one of the sharper minds on the circuit. If you really want to put your risk skills to work. Wonderful stuff.

----------------

If you want to see what can happen when a government tries to prop up stock and land prices, Tokyo’s story is sobering. It shows that not only do interventions carry a financial cost (since they rarely work for long), but that they can be a lasting drag on investor psychology.

Consider the parallels. In the past two decades China has delivered impressively high economic growth by investing heavily to build an industrial export machine. This was supported by a bank-centred, state-controlled financial system that channelled cheap funding to favoured industries at the expense of consumers. The price of money, in other words, was set by autocratic fiat.

This is roughly what Japan also did in the decades after world war two (although such state control was more subtle and indirect in Japan than in China).

But Japan’s model changed from the 1970s onwards. As the country’s economy matured, Japanese companies had less need for bank-supplied cheap credit, and, as it grew wealthy, investors started hunting for places to put their cash. The government slowly started to move away from a bank-dominated, tightly controlled financial system towards something that had the trappings of capital markets open to the outside world. However, Japan’s pace of liberalisation was belated and uneven (if not downright arbitrary) and asset price bubbles developed as capital swirled around.

Monetary policy and exchange rate swings made the problem worse. So, by the end of the 1980s, stock and land prices had soared — in much the same way that they have in China, as Beijing has also tiptoed towards patchy liberalisation and embraced some capital market structures.

http://www.ft.com/intl/cms/s/0/8d5eb8ae-5241-11e5-b029-b9d50a74fd14.html#axzz3kkw7RTCS
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createdby
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Terry
4 Sep 2015, 07:20 PM
From the lovely Gillian Tett, one of the sharper minds on the circuit. If you really want to put your risk skills to work. Wonderful stuff.

----------------

If you want to see what can happen when a government tries to prop up stock and land prices, Tokyo’s story is sobering. It shows that not only do interventions carry a financial cost (since they rarely work for long), but that they can be a lasting drag on investor psychology.

Consider the parallels. In the past two decades China has delivered impressively high economic growth by investing heavily to build an industrial export machine. This was supported by a bank-centred, state-controlled financial system that channelled cheap funding to favoured industries at the expense of consumers. The price of money, in other words, was set by autocratic fiat.

This is roughly what Japan also did in the decades after world war two (although such state control was more subtle and indirect in Japan than in China).

But Japan’s model changed from the 1970s onwards. As the country’s economy matured, Japanese companies had less need for bank-supplied cheap credit, and, as it grew wealthy, investors started hunting for places to put their cash. The government slowly started to move away from a bank-dominated, tightly controlled financial system towards something that had the trappings of capital markets open to the outside world. However, Japan’s pace of liberalisation was belated and uneven (if not downright arbitrary) and asset price bubbles developed as capital swirled around.

Monetary policy and exchange rate swings made the problem worse. So, by the end of the 1980s, stock and land prices had soared — in much the same way that they have in China, as Beijing has also tiptoed towards patchy liberalisation and embraced some capital market structures.

http://www.ft.com/intl/cms/s/0/8d5eb8ae-5241-11e5-b029-b9d50a74fd14.html#axzz3kkw7RTCS
China and Japan are both resource poor, Japan much more so, but Japan have many advantages to the middle kingdom:

Lower population
Technologically advanced
Companies with reputable brand recognition
First world infrastructure
US backing
Democracy
Healthy and honest population
Social safety nets
Government transparency

China is the opposite of all this and is powder keg which is one dynastic change away from descending into civil war.
Edited by createdby, 4 Sep 2015, 10:25 PM.
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ThePauk
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Japan was rich before it grew old.
China will grow old before it is rich.
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Rastus2
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createdby
4 Sep 2015, 10:23 PM
China and Japan are both resource poor, Japan much more so, but Japan have many advantages to the middle kingdom:

Lower population
Technologically advanced
Companies with reputable brand recognition
First world infrastructure
US backing
Democracy
Healthy and honest population
Social safety nets
Government transparency

China is the opposite of all this and is powder keg which is one dynastic change away from descending into civil war.
what on earth makes you conclude that China is resource poor ?

Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Terry
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Rastus2
4 Sep 2015, 10:58 PM
what on earth makes you conclude that China is resource poor ?
Yes, I was thinking the same. It is a myth. Also, Japan has some particular resources that China and Australia are lacking: an abundance of water and geothermal (which has barely been tapped).

The Korean economic model was based on the Japanese model, almost identically with cultural nuances aside. The Chinese have focused on the Japanese and Korean models at the operational level, but best practices in processes are sorely neglected. The Chinese financial system is in a worse state now that the Japanese financial system of the 80s. It's a powder keg waiting to explode.

Why nobody is exploring this, except for Gillian Tett, is quite odd. Nevertheless, nobody was paying attention to the fractures in the Japanese model in the 80s anyway so it makes its quite predictable.
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Rastus2
4 Sep 2015, 10:58 PM
what on earth makes you conclude that China is resource poor ?
Fucking oxygen is a limited resource in Chiners.

That's why barely millionaires Chiners are willing to lever up and buy an overpriced shitbox in Canada or Australia. What price to breathe fresh air for the rest of your life? A million? Two million?

Fuckin hell if I you told me I can has 10 million in Australia but had to breathe through a tail pipe, you bet your ass I'll pay 9 million to relocate to another country where I can breathe clean oxygenated air.
Terry
4 Sep 2015, 11:14 PM
Why nobody is exploring this, except for Gillian Tett, is quite odd.
Nah. I said quite as much 4 months ago. And if a forum poster like me has thought it, you bet your ass other professional writer already has. You just haven't found the articles.

http://australianpropertyforum.com/single/?p=8549226&t=10291063

http://australianpropertyforum.com/topic/10291063/3/

China rising? How about China inflating.

China's rise to power in the last 10 years is nothing more than money printing gone berserk.

This is not unprecedented. America did the same trick in the 1950's and 1960's. They printed dollars like crazy and bought up European companies. They were able to do this under the guise of gold to dollar parity and convertibility. Europeans were happy to accept dollar payments for their companies because of the perceived power of the USA (they did after all rebuild Europe after WW2), but it's just excess amounts of dollars printed by US banks.

Charles de Gaulle eventually called them on their bluff: https://www.youtube.com/watch?v=eYgnGAr3-kM&feature=youtu.be&t=14s

What happened next was the Germans, French, and Italians cashed in their gold at Fort Knox. Nixon had to suspend dollar to gold convertibility (the Nixon Shock: http://en.wikipedia.org/wiki/Nixon_Shock) because there was not enough gold for every dollar. The Bretton Woods system was dismantled. Our currencies have been floating ever since.

Japan did the same trick in the 1980's. They bought up Rockefeller Centre, Universal Pictures, Columbia Pictures, Pebble Beach Country Club with printed Japanese money.

The Chinese have been doing the same in the last 10 years, although they're only able to acquire businesses that the West don't want. These are unprofitable companies like the sale of Volvo by Ford to Geely, the sale of IBM's PC business to Lenovo as PC hardware sales are declining, the sale of Motorola by Google to Lenovo, etc.

Overall, there is a reticence to sell to China because of national security issues as the Chinese government has significant ownership of Chinese companies doing the acquisition.

What there is not reticence is in the area of real estate, particularly in the Singapore, HongKong, Canadian, and Australian markets, the last of the bubbles to pop. Canada and Australia in particular have significant investor visa programs that let this hot money buy up real estate, although both countries are starting to dismantle these programs.

But we don't have to wait for the Chinese to stop buying for the bubble to pop. Any country that prints like crazy eventually will have problems inside their countries before currency dealers get wiser. Currency dealers don't have perfect information. They don't have the information on how much money Central Banks are printing. But as I said, countries implode before currency dealers and bond traders get the wiser.

It happened to Japan when their stock market tanked. It happened to the USA in the 1970's with stagflation. It will happen to China soon. Their manufacturing is in decline. Steel output is in decline. Property market crashing. They've converted the bad loans in their bank's books to CDO's (the same ones that caused the 08 crisis). Now they are trying to inflate their stock market as a last ditch effort to appease their bankrupt middle class.

Anybody who believes that a low cost, low margin manufacturing country will rise to take on the world is a fool.

Real growth happens with real income, productivity, and technological gains. China doesn't have the preconditions. All they have is balance of payment surplus from slave labor low-cost manufacturing which they use to mask their money printing adventures.

The communist party has no legitimacy and is gasping for air. They hinged their legitimacy on growth and jobs, which are evaporating. They are in for interesting times.


Terry
4 Sep 2015, 11:14 PM
Nevertheless, nobody was paying attention to the fractures in the Japanese model in the 80s anyway so it makes its quite predictable.
Richard Werner would like a word with you:

https://www.youtube.com/watch?v=p5Ac7ap_MAY&t=21m43s

Edited by createdby, 5 Sep 2015, 12:18 AM.
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Loki
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No, I think I am going to have to disagree with Gillian Tett on this one.

The similarities between China and Japan are superficial. Saudi Arabia is also an export economy, and it is nothing like Japan.

The Japanese have their Zaibatsu and Keiretsu, the Koreans have their Chaebol, but the Chinese are still a warlord society. They haven't had a Joseon or a Tokugawa to homogenize and nationalize their culture.

The Japanese and Koreans exploited their cultural homogeneity to convince the corporations to co-operate and form cartels with complex cross holdings to defend against hostile takeovers from foreign firms, and their populations to bear down and limit their consumption for "the good of the country". Try convincing the Chinese to do that. Nope, they will be packing a suitcase with as much cash as they can stuff in it and fleeing to a long prepared bolt hole overseas, like they have been doing for 800 years now.

The Japanese tried to defend stock prices because they saw it in the national interest to defend their corporations against foreign takeovers. The Chinese are trying to defend stock prices so the corrupt can suck as much wealth out of the peasantry as possible before it all goes tits up.


“Talk sense to a fool and he calls you foolish.” - Euripides
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Loki
5 Sep 2015, 12:30 AM
No, I think I am going to have to disagree with Gillian Tett on this one.

The similarities between China and Japan are superficial. Saudi Arabia is also an export economy, and it is nothing like Japan.

The Japanese have their Zaibatsu and Keiretsu, the Koreans have their Chaebol, but the Chinese are still a warlord society. They haven't had a Joseon or a Tokugawa to homogenize and nationalize their culture.

The Japanese and Koreans exploited their cultural homogeneity to convince the corporations to co-operate and form cartels with complex cross holdings to defend against hostile takeovers from foreign firms, and their populations to bear down and limit their consumption for "the good of the country". Try convincing the Chinese to do that. Nope, they will be packing a suitcase with as much cash as they can stuff in it and fleeing to a long prepared bolt hole overseas, like they have been doing for 800 years now.

The Japanese tried to defend stock prices because they saw it in the national interest to defend their corporations against foreign takeovers. The Chinese are trying to defend stock prices so the corrupt can suck as much wealth out of the peasantry as possible before it all goes tits up.
The biggest mistake China made is building their military early in their stage of development.

South Korea, Japan, and Taiwan minimised military spending as a percentage of GDP and relied on the US for national defense, knowing military spending will drain their capital.

They spent their capital on R&D to move away from low wage labor. They didn't spend it on tanks and bombs and jets and ships.

As a result, they built up significant IP that the Europeans and Americans don't have.

China has to steal and hack their way to IP.

Stupid China just wasted their capital on condominiums and QE and military.

20 years of growth and they have nothing to show for it except jets and ship and roads and airports and condos.

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Loki
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createdby
5 Sep 2015, 12:40 AM
The biggest mistake China made is building their military early in their stage of development.
As I said, China is still a warlord society. Spending on the military was an internal power grab. More funds, more power. The PLA are the largest business owners in China.



“Talk sense to a fool and he calls you foolish.” - Euripides
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Rastus2
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createdby
5 Sep 2015, 12:00 AM
Fucking oxygen is a limited resource in Chiners.

That's why barely millionaires Chiners are willing to lever up and buy an overpriced shitbox in Canada or Australia. What price to breathe fresh air for the rest of your life? A million? Two million?

Fuckin hell if I you told me I can has 10 million in Australia but had to breathe through a tail pipe, you bet your ass I'll pay 9 million to relocate to another country where I can breathe clean oxygenated air.

Nah. I said quite as much 4 months ago. And if a forum poster like me has thought it, you bet your ass other professional writer already has. You just haven't found the articles.



Well, your claim was that China was resource poor.. I disagree with that claim.

Countries – leaders in their domestic mine production. Results expressed in mining points
Posted Image


http://factsanddetails.com/china/cat9/sub63/item341.html



Are they using their vast resources up rapidly, yup. Are they polluting their air, water and soil ? Yup.


The reason many millionaires are buying real estate in Australia and elsewhere is to divest, hide their assets from the government, and have a place to run away when things turn bad in China.

The less rich Chinese are buying elsewhere to get a foothold outside of China for themselves and/or their kids.
Edited by Rastus2, 5 Sep 2015, 12:46 AM.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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