PREPARE FOR A “SIGNIFICANT” CHINA SLOW-DOWN
22 March 2011 by Cullen Roche
9 Comments
There have been minor signs that one of my biggest risks for 2011 could be coming to fruition. John Tang, China strategist at UBS, discussed why he believes China is set for a “significant” slow-down. Tang cites 3 primary reasons why China is set to slow:
1) It is becoming increasingly difficult to obtain a loa.
2) Interest rates are surging.
3) Property development is slowing.
China remains the one very strong leg of the recovery and a slow-down in the region would certainly pose a substantial risk to the global economy. The commodity bubble would be particularly vulnerable in such an environment. The full interview is attached:
Source: CNBC
Looks like UBS won’t be book-running any China-related IPOs or lead financing any property development projects on the mainland anytime soon courtesy of Tang’s bearish outlook…
3 is the intended consequence of 1 and 2.
1 and 2 are set by the government, therefore
1, 2 and 3 are not real concerns.
Not saying that China cannot slow down, but not for these reasons.
“China remains the one very strong leg of the recovery and a slow-down in the region would certainly pose a substantial risk to the global economy.”
Not so sure anymore. If the third (and only just barely) largest economy losing massive power output, resorting to rolling blackouts, and shutting down production lines, along with much of the second largest collective economy having high and rising interest rates, rising cds rates, and increasing austerity measures, along with the largest economy having steadily falling housing values and increased talks of austerity itself, along with the primary oil producing region of the world wallowing into chaos, not to mention increasing input & commodity costs globally, can’t bring markets down … I’m not sure what effect the second largest standalone economy slowing down is going to have at this point.
Using the logic of the day, a radioactive asteroid hitting the earth would make for a fantastic rebuilding opportunity for humankind. Imagine all the iodine tablets and lead suits we could sell. Stocks would rocket to the mooooooooon!
And people wonder why gold is going up. (Disclosure: not a gold bug)
http://merrillovermatter.blogspot.com/2011/03/more-on-chinas-empty-cities.html
More photos and video of empty apartment complexes
The more I review the global economic landscape, the more apparent it becomes that we are on the cusp on potentially significant earnings estimate reductions for the coming 1-3 quarters, at minimum.
At home, we are seeing higher rates, higher food/energy costs and a likely housing double-dip.
You might counter that the rest of the world will pick up the slack, but…
- China and several of the emerging growth economies are tightening, inflation concerns
- Japan will have lower demand for discretionary goods in the near future; supply chains
- Developed Europe is under austerity plans and likely tightening have been disrupted.
- MENA is a disaster
How does an international company navigate in this environment when revenues are likely to slow and margins cannot be further expanded due to higher input costs and most efficiencies already tapped?
I would say that one should review that 5 year plan again. What will not change is the goverment subsidized housing will go forward full speed. That is a massive infrastructure build out.
The Chinese will not destroy their housing, unlike our Section 8s. This by itself will drive a lot.
Pop goes the fortune cookie…
Now, which way will that drive PMs?
I agree with the commodity bubble, of course I would I’m Australian. However, with the (inter)national disasters of late it’s hard to see the commodity bubble dying for a couple of years and Japan should considerably fill the gap in China’s place
Well Its time to go short on china real estate.It simply does not add up.
Do you know about the new and empty cities? This is starting to look like Dubaï time 1000.
In-occupancy is at 15% of GDP, at the top of the US housing bubble it was 6% and japan was 9% before there collapse, Its 1928 in china.