China's Trade Deficit is a Sign of Things to Come

[ephone]

One thing China can do is to stop importing stuff from s.k.. Let's see who is the one that is going to cry.

China's $4.2 billion trade deficit marks a changing economic structure


China's $32 billion trade deficit for February 2012 won't be the last, with more to come.

Just as Chinese import for oil, food, raw material, and luxury goods are growing, China's export is slowing down as foreign exporters are leaving China in search of a lower wage.

 

[Abhishek_]

30 decades of suplus and two months of deficit and you are calling it is the begining of crashing? lol``my word

30 decades of surplus...chinese math??

On topic: a more balanced chinese economy is good for all. we cant forever depend on american/european consumption. It's good that chinese are beginning to increase their domestic consumption

 

[FairAndUnbiased]

30 decades of surplus...chinese math??

On topic: a more balanced chinese economy is good for all. we cant forever depend on american/european consumption. It's good that chinese are beginning to increase their domestic consumption

that's an outright lie. the US and Europe are terrified of China increasing consumption of "their" oil, natural gas, coal, iron ore, wood, etc. they only want China to buy McDonalds and KFC (using ingredients from China of course). that is because they want a colonial relationship with the rest of the world including India.

They don't actually want a mass consumer market to develop anywhere because that means they'll compete with them in oil, gas and coal. They want a small elite market.

 

[Abhishek_]

that's an outright lie. the US and Europe are terrified of China increasing consumption of "their" oil, natural gas, coal, iron ore, wood, etc. they only want China to buy McDonalds and KFC (using ingredients from China of course). that is because they want a colonial relationship with the rest of the world including India.

They don't actually want a mass consumer market to develop anywhere because that means they'll compete with them in oil, gas and coal. They want a small elite market.

calm down son, I wasn't speaking for "them".
just my own opinion, that a consuming china is a welcome occurrence.

 

[gambit]

30 decades of surplus...chinese math??

On topic: a more balanced chinese economy is good for all. we cant forever depend on american/european consumption. It's good that chinese are beginning to increase their domestic consumption

May be not 'forever', but for all practical purposes, might as well..

===
By Gwynne Dyer, March 12, 2012

Building a skyscraper is the ultimate expression of economic confidence, and more than half of the 124 skyscrapers currently under construction in the world are being built in China. But confidence is often based on nothing more than faith, hope, and cheap credit, and a frenzy of skyscraper-building is also the most reliable historical indicator of an impending financial crash.

The Empire State Building and the Chrysler Building, the twin symbols of New York’s emergence as the world’s financial capital, were started at the end of the “Roaring Twenties” but completed in the depths of the Great Depression. The Petronas Towers in Malaysia were built just before the Asian financial crash of 1998. Burj al-Khalifa in Dubai, now the world’s tallest building, was just starting construction when the Great Recession hit in 2008.

China avoided that recession by flooding its economy with cheap credit—but that credit has mainly gone into financing the biggest property and infrastructure-building boom of all time. Such booms always end in a crash, but this time, we are told, will be different.

“This time will be different” is the traditional formula used to reassure nervous investors in the last years before a great economic bubble collapses. It was a constant refrain in the run-up to the Western financial crash of 2008-09, and now it is being heard daily about the Chinese property boom.

People in the West want to believe that China’s economy will go on growing fast because the fragile recovery in Western economies depends on it. Twenty years of 10 percent-plus annual growth have made China the engine of the world economy, even though most Chinese remain poor. But the engine is fueled by cheap credit, and most of that cheap money, as usual, has gone into real estate.

Take the city of Wuhan, southwest of Shanghai and about 500 kilometres in from the coast. It is only China’s ninth-largest city, but in addition to a skyscraper half again as high as the Empire State Building it is currently building a subway system that will cost $45 billion, two new airports, a whole new financial district, and hundreds of thousands of new housing units. It is paying for all this with cheap loans from state-run banks.

Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city’s books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances.

Land in Wuhan has tripled in price during the property boom, and could quickly fall back to the old price or below if confidence in the city’s future were to falter. That is quite likely to happen, since Wuhan’s housing stock is already so overbuilt that it would take eight years to clear even the existing overhang of unsold apartments at the current rate of purchase, and never mind all the new stuff.

Multiply the Wuhan example by hundreds of other municipal authorities that are also borrowing billions to finance a similar “dash for growth,” and you have a financial situation as volatile as the “sub-prime mortgage” scam that brought the U.S. economy to its knees. Except that when the Chinese property boom implodes, it may bring the whole world economy to its knees.

It would be nice to think that the worst of the recession is over in the developed countries, and that the emerging economies will continue to avoid a recession at all. But sometimes the cure can be worse than the disease. China’s strategy for avoiding the economic crisis that has gripped the developed countries since 2008 has laid the foundations for an even worse home-grown recession in the near future.

“If you have had a good crisis, success can become a curse,” wrote Albert Edwards, chief economist at the French bank Societe Generale, in late 2010. At that point, Chinese bank lending had almost doubled in three years; it has now almost tripled in four. The government knows that the property bubble is dangerous and is trying to switch spending to consumption, but that is a delicate operation that has to be done slowly, and there just isn’t enough time.

When a housing and credit bubble goes out of control, Edwards warned, “You tap your foot on the brakes and whole thing starts crashing and you can’t control it.” China is heading for a classic “hard landing”, and when it comes, it will slow the whole global economy to stall speed. The next global recession is not far off, it will be at least as bad as the last one, and this time few of the emerging economies (except perhaps India’s) will be exempt.

Nobody knows what will happen in China itself when growth stops and unemployment soars, but the Communist regime is clearly frightened of the answer. Maybe it can ride the crisis out until growth resumes at a slower pace in a few years, but with its Communist ideals long abandoned, its only remaining claim on people’s loyalty has been its ability to deliver constantly rising prosperity.

===

 

[shuttler]

The above article is cr@p which is partially true.

One thing China can do is to stop importing stuff from s.k.. Let's see who is the one that is going to cry.

Or we stop exporting this:

Cabbage Crisis: South Korea Runs Out of Kimchi | NewsFeed | TIME.com

 

[FairAndUnbiased]

May be not 'forever', but for all practical purposes, might as well..

===
By Gwynne Dyer, March 12, 2012

Building a skyscraper is the ultimate expression of economic confidence, and more than half of the 124 skyscrapers currently under construction in the world are being built in China. But confidence is often based on nothing more than faith, hope, and cheap credit, and a frenzy of skyscraper-building is also the most reliable historical indicator of an impending financial crash.

The Empire State Building and the Chrysler Building, the twin symbols of New York’s emergence as the world’s financial capital, were started at the end of the “Roaring Twenties” but completed in the depths of the Great Depression. The Petronas Towers in Malaysia were built just before the Asian financial crash of 1998. Burj al-Khalifa in Dubai, now the world’s tallest building, was just starting construction when the Great Recession hit in 2008.

China avoided that recession by flooding its economy with cheap credit—but that credit has mainly gone into financing the biggest property and infrastructure-building boom of all time. Such booms always end in a crash, but this time, we are told, will be different.

“This time will be different” is the traditional formula used to reassure nervous investors in the last years before a great economic bubble collapses. It was a constant refrain in the run-up to the Western financial crash of 2008-09, and now it is being heard daily about the Chinese property boom.

People in the West want to believe that China’s economy will go on growing fast because the fragile recovery in Western economies depends on it. Twenty years of 10 percent-plus annual growth have made China the engine of the world economy, even though most Chinese remain poor. But the engine is fueled by cheap credit, and most of that cheap money, as usual, has gone into real estate.

Take the city of Wuhan, southwest of Shanghai and about 500 kilometres in from the coast. It is only China’s ninth-largest city, but in addition to a skyscraper half again as high as the Empire State Building it is currently building a subway system that will cost $45 billion, two new airports, a whole new financial district, and hundreds of thousands of new housing units. It is paying for all this with cheap loans from state-run banks.

Last year Wuhan municipality spent $22 billion on infrastructure and housing projects although its tax revenues were only one-fifth of that amount. The bank loans were made to special investment corporations and do not appear on the city’s books. The only collateral the banks have is city-owned land, and that is not a reliable asset in current circumstances.

Land in Wuhan has tripled in price during the property boom, and could quickly fall back to the old price or below if confidence in the city’s future were to falter. That is quite likely to happen, since Wuhan’s housing stock is already so overbuilt that it would take eight years to clear even the existing overhang of unsold apartments at the current rate of purchase, and never mind all the new stuff.

Multiply the Wuhan example by hundreds of other municipal authorities that are also borrowing billions to finance a similar “dash for growth,” and you have a financial situation as volatile as the “sub-prime mortgage” scam that brought the U.S. economy to its knees. Except that when the Chinese property boom implodes, it may bring the whole world economy to its knees.

It would be nice to think that the worst of the recession is over in the developed countries, and that the emerging economies will continue to avoid a recession at all. But sometimes the cure can be worse than the disease. China’s strategy for avoiding the economic crisis that has gripped the developed countries since 2008 has laid the foundations for an even worse home-grown recession in the near future.

“If you have had a good crisis, success can become a curse,” wrote Albert Edwards, chief economist at the French bank Societe Generale, in late 2010. At that point, Chinese bank lending had almost doubled in three years; it has now almost tripled in four. The government knows that the property bubble is dangerous and is trying to switch spending to consumption, but that is a delicate operation that has to be done slowly, and there just isn’t enough time.

When a housing and credit bubble goes out of control, Edwards warned, “You tap your foot on the brakes and whole thing starts crashing and you can’t control it.” China is heading for a classic “hard landing”, and when it comes, it will slow the whole global economy to stall speed. The next global recession is not far off, it will be at least as bad as the last one, and this time few of the emerging economies (except perhaps India’s) will be exempt.

Nobody knows what will happen in China itself when growth stops and unemployment soars, but the Communist regime is clearly frightened of the answer. Maybe it can ride the crisis out until growth resumes at a slower pace in a few years, but with its Communist ideals long abandoned, its only remaining claim on people’s loyalty has been its ability to deliver constantly rising prosperity.

===

why do you not dare give the link? there's no bubble because there are very high down payments. if prices decrease 50%, the banks still won't be scratched, but private buyers would lose half their savings. the very high down payments scheme effectively transferred risk from the banks to the buyers, unlike the US where the risk was transferred from the buyers to the banks and the banks transferred it to the government, which paid it off with tax money and future inflation.

the so called overstock is due to high prices; if prices fell, the overstock would disappear overnight, prices would rise, and result in a stable equilibrium.

Also, Wuhan is bigger than Chicago, Boston and San Diego combined crowded into the space of San Diego alone. There's no comparison, Wuhan is in need of a giant skyscraper, financial center and subway. A city larger than Chicago, Boston and San Diego combined housing one of the world's largest steel companies and at the crossroads of several major high speed railways should not look like a giant slum the way Premier Zhu Rongji said it looked like in the 90's.

Indeed, the biggest bubble in the world is the 50:1 leveraged whose unfunded liabilities go up to 50 trillion on yearly revenues of 1 trillion.