Podcast

Gordon Chang: The Reasons for China's Imminent Bust

Friday, November 18, 2011, 11:42 AM

The global dominant narrative about China is wrong, claims Gordon Chang. Don't expect it to be the 'pocketbook of last resort' that will rescue world markets from their current malaise.

And don't expect its remarkable economic growth to continue. In fact, expect a "hard landing" for China and soon.

Forbes.com columnist and international lawyer Gordon Chang has spent much of his time since the early 1980s working and living in China. His primary knowledge of the country and his relationships there give him a superior understanding to how its economy is actually faring than many analysts based in the West. And what he sees today doesn't inspire confidence.

We are seeing the first real signs of slowdown in China's economic growth looking at the year-over-year numbers for the past several months. Car sales have decreased nearly 5% since last year, and property values are beginning to plummet in key markets (30% in October alone in Shanghai).

Gordon sees these as the inevitable harbingers of a coming collapse in China due to excessive stimulus policies the government undertook starting in 2009. The bubbles and malinvestment created by this stimulus have not been addressed, and increasing weakness and transitions inside the political system are making it less likely they will be before market forces intervene.

On the Repercussions of Excessive Stimulus

Inefficiency eventually catches up with every economy. They have a semi-closed system so that they are not necessarily subject to the principles of economics in the same way that we are, but they can only delay the inevitable. They cannot prevent it entirely, and that is really going to be their problem. Because they have done a lot which just does not make economic sense. I mean it might make sense in terms of rapid buildup of an economy, but they have to pay a price. And they have not paid their price yet.

The one thing that people say is "These Chinese leaders are so great at economic management because they got through 2008-2009 and they had enormous double-digit growth while the rest of us were suffering." Well yes, they did that but they did that at great cost.

And so for instance in 2009, the first full year of their stimulus plan, they dumped something like $1.1 trillion into a then $4.3 trillion economy. And so did they create growth? Yes, they did, but they also created a stock market bubble, a property market bubble, and inflation. And they have yet to deal with the property market and the inflation problems. Those are dislocations that they do not have the answers to. I would rather have our economic problems than theirs any day of the week.    

 On Growing Political & Social Instability

Starting at the end of next year, the Communist party is going to change the officers of their Politburo Standing Committee, the apex of political power in China. We are going to have a new General Party Secretary. And then in the early part of 2013, the government officers change. And sometime after that, the all-important Central Military Commission has a revamp of membership. And so at this time of political transition, the important economic decisions are not being made. But it is even worse than that, because corruption indeed is engulfing the political system. It is causing so much friction in society. The Communist Party is not able to mediate conflict and its only answer is to increase coercion.

And that is why you have survey after survey of the rich and the super-rich, they talk about leaving China. It is not the poor who are going, which we have seen in many waves throughout the last couple hundred years, now the rich are thinking of getting out. They are getting passports, they are putting their families offshore, and this is of concern because this is a leading indicator.

If you go about 25 miles south of where I live, and go to Princeton, New Jersey, you will see a lot of beautiful homes. I mean, they are all paid for, they have got a wife there, they have kids, and they have one or two Mercedes in the driveway. It is the perfect American family, except one thing is missing, and that is Dad. Dad is a senior official in Beijing and he is stealing as much money as he can. And at maybe not the first sign of trouble, but perhaps the second sign of trouble, he is on the United flight to New York, because he is not going to stay to defend a regime that is shaking. And that is one of the reasons why I think we have to be concerned about the way the Chinese economy is going, because the Chinese rich are starting to see the signs and are beginning to bail out.

We are talking about the people who have benefited the most from this system. And they can see the problems at the top of society. We have now a weak General Party Secretary, Hu Jintao, and he is going to be followed by probably by someone who is just as weak, especially in his beginning years, Xi Jinping. This is a political system that will not be able to make the decisions and to implement them that everyone knows have to be made. And that is why, for instance, we have not seen much in the way of reform over the last five years. In fact, we have seen a reversal of reform. And most of the conditions that have given rise to China's extraordinary growth either no longer exist or are disappearing fast. And so this is an economy in trouble.

On the Popping of China's Real-Esate Bubble

There was just too much money in the economy and so people then poured money into apartments. And China has gone on a tear building ghost cities and all the rest of it. And now the progression that you talked about -- skyrocketing prices and then stable prices, selling volume, and then property price declines -- is what we are seeing in China.

In October, last month, prices in places like Shanghai declined 30%, as we saw developers start to offer these enormous discounts. And by the way, these discounts were so big that people who bought at earlier stages in these same developments, where these discounts were being offered have now taken to the streets complaining if you are giving 30% discounts to these other guys, then give it to me as well. And so we have not got a little bit of social unrest because of falling property prices.

In Wenzhou, which is in prosperous Zhejiang Province, which was perhaps the most prosperous province up to about a year ago, developers are, one developer is now offering BMWs to the first 150 buyers of apartments. And this is just a sign that property prices have not only softened, but they are starting to fall quickly.

You know, every market has to go to equilibrium. There are too many apartments in China and not enough buyers and occupiers. And it was going to go to equilibrium in some fashion. What is really surprising observers is that the rapidity at which we see this move to equilibrium. Last year there were in about, I guess it was April or May, the state grid in China reported there were 64.5 million apartments that showed no electricity usage for six consecutive months. That is enough housing for 200 million people, but yet Beijing was decreeing the building of 30 to 50 million more apartment units....

But at the end of the day, there has got to be a correction. And what goes up fast comes down fast. And what we are seeing is the down phase. The only issue is whether Beijing can stop the down phase by administrative measures. But so far the Chinese leaders, Premier Wen Jiabao, last Sunday said "nope, we are going to stay with these tightening measures." And that has really created great pessimism in the Chinese property market...

And so really what we have is a government now that is really trying to bring the property market down. And of course it wants to do so gradually, you know, orderly. But as you say, it is a bubble, there is a pin and the problem is that Chinese leaders cannot manage the process of bringing the property market down to equilibrium....

When China's elite analysts start talking about prices being 50% of where they are this year that means that they are probably privately thinking that no, prices will not halve: they might go down even further than that. And that is really a problem because that mentality, once it gets embedded in people's minds in China really means that, Chinese leaders then have very few tools in which to prop up the property market.    

Click the play button below to listen to Chris' interview with Gordon Chang (runtime 40m:55s): 

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Gordon G. Chang is the author of Nuclear Showdown: North Korea Takes On the World, released by Random House in January 2006. Showdown focuses on nuclear proliferation in general and the North Korean crisis in particular. His first book is The Coming Collapse of China (Random House, August 2001). He is a columnist at Forbes.com and The Daily.

He lived and worked in China and Hong Kong for almost two decades, most recently in Shanghai, as Counsel to the American law firm Paul Weiss and earlier in Hong Kong as Partner in the international law firm Baker & McKenzie.


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37 Comments

KugsCheese's picture
KugsCheese
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Lies

Nothing is growing but cronyism.  The "Oh $uck Moment".  Why peg gold at inflated funny money levels?   What is real wealth and trading of value for value?

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I just finshed this at Zerohedge...

...great stuff Chris, and I study China so no surprises here. Chanos helped me put an exclamation point to the China deal. I liked this quote from your blog: 

In October, last month, prices in places like Shanghai declined 30%, as we saw developers start to offer these enormous discounts. And by the way, these discounts were so big that people who bought at earlier stages in these same developments, where these discounts were being offered have now taken to the streets complaining if you are giving 30% discounts to these other guys, then give it to me as well. And so we have not got a little bit of social unrest because of falling property prices.

What I immediately thought of was the Greek bailout and how EVERYONE will want the same deal. Thing is the Greeks will eventually write it ALL off (voluntarily of course...LOL) so where does Europe go now?! Time will tell and very soon is my guess. BOB

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Chinese TV Host [Professor] Says Regime Nearly Bankrupt

I think this is relevant, corresponding information:

Chinese TV Host [Chair Professor Of Finance] Says Regime Nearly Bankrupt (November 13/16, 2011)
"Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece."
http://www.theepochtimes.com/n2/china-news/chinese-tv-host-says-regime-n...

More points:

"Lang’s assessment that the regime is bankrupt was based on five conjectures.

"Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.

"Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

"Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

"Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).

"Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said."

Poet

Farmer Brown's picture
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Reality bites

Not at all shocked to see this.  It turns out the real Chinese economy is just like real Chinese products: look good on the outside; total junk on the inside.   Thanks for the interview.

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One Party Time.

Over here in australia we are a one trick pony. China and commodities.

Is anybody organising this party? I have friends who are convinced that there is a "plan". I consider that attitude to be infantile. There is no Daddy going to make it all right. I view the Chinese as the most domesticated (infantile) people on Earth. Accidental  Eugenetics works. Hence the kow towing to the Party, Emporer, or what-have-you.

The evidence to the contrary is that the Chinese individuals are using their own initiave and buying gold. So it can't be all bad.

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Re: Reality Bites

Farmer Brown wrote:

Not at all shocked to see this.  It turns out the real Chinese economy is just like real Chinese products: look good on the outside; total junk on the inside.   Thanks for the interview.

Hey Farmer Brown,

It's okay to strut a little; you earned it. I seem to recall that you've been sayin' for some time that this Emporer had no clothes either.

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earthwise wrote: Farmer

earthwise wrote:

Farmer Brown wrote:

Not at all shocked to see this.  It turns out the real Chinese economy is just like real Chinese products: look good on the outside; total junk on the inside.   Thanks for the interview.

Hey Farmer Brown,

It's okay to strut a little; you earned it. I seem to recall that you've been sayin' for some time that this Emporer had no clothes either.

Ha!  Yes I have. Thanks for noticing.  For my next trick, I predict... er nothing.  After China falls, are there any other "truisms" left to be shattered?  If there are, those will crumble too, but I can't think of any.  US, Europe, China, Middle East: all down for the count.  I will say this:  the first to recuperate will be the US.  May be a good time to go back in a few years.  I say that because it has the least cultural, ethnic and religious differences, and it can grow all its own food.  

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Chinese Goods Not Total Junk

Farmer Brown wrote:

Not at all shocked to see this.  It turns out the real Chinese economy is just like real Chinese products: look good on the outside; total junk on the inside.   Thanks for the interview.

The Chinese make cars, iApple products, airplanes, wind turbines, toys, laptops, machinery, etc. They followed the classic move-up-the-value chain model that Japan, Taiwan, and Korea did. (Some of you older folks may remember when Made in Japan or Taiwan was a sign of poor quality.)

Yes, it's a corrupt country. Yes, it's doomed. Yes, it's an ugly regime. (Sounds very familiar, doesn't it?) But Chinese manufactured goods actually span the spectrum and they do include high end.

Poet

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Poet wrote: Farmer Brown

Poet wrote:

Farmer Brown wrote:

Not at all shocked to see this.  It turns out the real Chinese economy is just like real Chinese products: look good on the outside; total junk on the inside.   Thanks for the interview.

The Chinese make cars, iApple products, airplanes, wind turbines, toys, laptops, machinery, etc. They followed the classic move-up-the-value chain model that Japan, Taiwan, and Korea did. (Some of you older folks may remember when Made in Japan or Taiwan was a sign of poor quality.)

Yes, it's a corrupt country. Yes, it's doomed. Yes, it's an ugly regime. (Sounds very familiar, doesn't it?) But Chinese manufactured goods actually span the spectrum and they do include high end.

Poet

If you really believe all that, you haven't been burned enough times by their junk.  Just give it some time, you'll come around.  Wasn't there something in the news recently about US military planes being in severe danger due to Chinese made parts?   I can't even tell you about all the Chinese made products I have bought that broke or were defecive.  And I'm not just talking about minor stuff - I mean major purchases.  I hate to sound like my grandfather, but they really do not make things like they used to, and when it comes to China, they only make things to sell - that means price and sometimes looks.  I don't think the word "quality" even exists there.  

Yes, there are international companies that have parts made there.  When they are in total contol of the process, I am sure they can produce whatever they want and at the quality they want.  I don't consider that "Chinese made" just "made in China by non Chinese".

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Chinese junk

Farmer Brown wrote:

If you really believe all that, you haven't been burned enough times by their junk.  Just give it some time, you'll come around.  Wasn't there something in the news recently about US military planes being in severe danger due to Chinese made parts?   I can't even tell you about all the Chinese made products I have bought that broke or were defecive.  And I'm not just talking about minor stuff - I mean major purchases.  I hate to sound like my grandfather, but they really do not make things like they used to, and when it comes to China, they only make things to sell - that means price and sometimes looks.  I don't think the word "quality" even exists there.  

Yes, there are international companies that have parts made there.  When they are in total contol of the process, I am sure they can produce whatever they want and at the quality they want.  I don't consider that "Chinese made" just "made in China by non Chinese".

I'm with you Farmer Brown....  my grid tied inverter, Chinese made, has died for the third time in a year..... and now I really worry about what happens to my warranty if/when the replacement coming next week dies too.

A friend of mine bought a 4WD tractor from China..... it needed 3 diffs under warranty, the hydraulics died, and the tail lights are MELTING IN THE SUN!  I mean to say, I know we have strong sun in Australia, but I've NEVER seen ANY plastic lems on ANY vehicle melt like this!

Another person I know bought a Chinese SUV.... he has taken it on the beach once or twice, but the door hinges are already rusting, and it's barely 6 months old!  The doors could simply fall off in a couple of years if it isn't fixed...

I'm sure never buying anything from those bastards ever again if it's something I want to last......

Mike

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Damnthematrix wrote: Farmer

Damnthematrix wrote:

Farmer Brown wrote:

If you really believe all that, you haven't been burned enough times by their junk.  Just give it some time, you'll come around.  Wasn't there something in the news recently about US military planes being in severe danger due to Chinese made parts?   I can't even tell you about all the Chinese made products I have bought that broke or were defecive.  And I'm not just talking about minor stuff - I mean major purchases.  I hate to sound like my grandfather, but they really do not make things like they used to, and when it comes to China, they only make things to sell - that means price and sometimes looks.  I don't think the word "quality" even exists there.  

Yes, there are international companies that have parts made there.  When they are in total contol of the process, I am sure they can produce whatever they want and at the quality they want.  I don't consider that "Chinese made" just "made in China by non Chinese".

I'm with you Farmer Brown....  my grid tied inverter, Chinese made, has died for the third time in a year..... and now I really worry about what happens to my warranty if/when the replacement coming next week dies too.

A friend of mine bought a 4WD tractor from China..... it needed 3 diffs under warranty, the hydraulics died, and the tail lights are MELTING IN THE SUN!  I mean to say, I know we have strong sun in Australia, but I've NEVER seen ANY plastic lems on ANY vehicle melt like this!

Another person I know bought a Chinese SUV.... he has taken it on the beach once or twice, but the door hinges are already rusting, and it's barely 6 months old!  The doors could simply fall off in a couple of years if it isn't fixed...

I'm sure never buying anything from those bastards ever again if it's something I want to last......

Mike

Caveat emptor.  I bought a $5,000 Chinese 830 nm laser 5 years ago (at a time when the American equivalent was $12,000 and it has operated flawlessly.  Some things they make are junk, some aren't, but overall, their quality has been gradually improving.

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Damnthematrix wrote: I'm

Damnthematrix wrote:

I'm sure never buying anything from those bastards ever again if it's something I want to last......

Mike

You, me and quite a few others I'm sure.  I too swore off ever buying anything MIC ever again.  However, I soon found that was quite a tall order, and so, in my naivete, I decided to tune my policy down to "nothing with moving parts made in China".  You'd think that would be safe, right?  Well, as it turned out, I bought some ice trays made in China.  Those don't have any moving parts in them, so I figured, how could they possibly screw them up?

Let me repeat this slowly to make sure everyone understands:

ICE 

TRAYS

You know, those plastic things you fill with water and put in the freezer to make ice?  How can they possibly screw those up, right?

Well, on FIRST use - that refers to the first time they were taken out of the freezer and twisted in order to make the ice fall out - they shattered, craked, and splintered - never to be able to hold water again!

Pretty funny - laugh all you want.  This was quite obviously a minor purchase, but it is actually quite major in my mind, if I were the Chinese.  In my mind, I learned that the Chinese cannot make something as simple, non-technological, basic and easy as a FREAKIN' ICE TRAY!!!!!!!!!!!!!!!

As a result, I would never DREAM of buying anything else from China, let alone something like a car, turbine, computer or anything else.

I only mention the ice tray story because it is the quintessential of my experiences relating to total and utter Chinese crap.  I actually have many more stories of perdition - from curtains, to fans, to air conditioners, to toys, to computers and just about everything else you can imagine.  In my own defense, some of these products I purchased in ignorance of their origin.  I do take responsibility for my own stupidity and do not expect anyone to feel sorry for me for repeating the same mistake over and over again.  However, in recent years, my "getting junkd" has been due to not being aware that what I was purchasing was made in Junk Factory Land.  More and more retailers are being more careful about hiding this, at least in places where they can get away with it, like in Costa Rica, where I live.

I feel sorry for the Chinese people that have to live with the consequences of their rulers.  That country will collapse 10X worse than the USSR ever did.  Millions will die, the government won't care and will cover it up, and Western governments will use it to increase its control by reinforcing its people's ignorant reliance on them.

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ao wrote: Damnthematrix

ao wrote:

Damnthematrix wrote:

Farmer Brown wrote:

If you really believe all that, you haven't been burned enough times by their junk.  Just give it some time, you'll come around.  Wasn't there something in the news recently about US military planes being in severe danger due to Chinese made parts?   I can't even tell you about all the Chinese made products I have bought that broke or were defecive.  And I'm not just talking about minor stuff - I mean major purchases.  I hate to sound like my grandfather, but they really do not make things like they used to, and when it comes to China, they only make things to sell - that means price and sometimes looks.  I don't think the word "quality" even exists there.  

Yes, there are international companies that have parts made there.  When they are in total contol of the process, I am sure they can produce whatever they want and at the quality they want.  I don't consider that "Chinese made" just "made in China by non Chinese".

I'm with you Farmer Brown....  my grid tied inverter, Chinese made, has died for the third time in a year..... and now I really worry about what happens to my warranty if/when the replacement coming next week dies too.

A friend of mine bought a 4WD tractor from China..... it needed 3 diffs under warranty, the hydraulics died, and the tail lights are MELTING IN THE SUN!  I mean to say, I know we have strong sun in Australia, but I've NEVER seen ANY plastic lems on ANY vehicle melt like this!

Another person I know bought a Chinese SUV.... he has taken it on the beach once or twice, but the door hinges are already rusting, and it's barely 6 months old!  The doors could simply fall off in a couple of years if it isn't fixed...

I'm sure never buying anything from those bastards ever again if it's something I want to last......

Mike

Caveat emptor.  I bought a $5,000 Chinese 830 nm laser 5 years ago (at a time when the American equivalent was $12,000 and it has operated flawlessly.  Some things they make are junk, some aren't, but overall, their quality has been gradually improving.

When stories like that become the norm, and not the unheard-of-except-every-ten-years-exception-and-even-then-only-on-the-internet-by-people-who-identify-themselve-with-just-two-letters, let me know.  And let them know that if/when I start to become a "customer" again, I'm starting with ice trays, so they better get those straight before they expect me to even dream of considering the remote possibility of maybe thinking about possibly purchasing anything else made in a place that has contributed more to my local landfill than any other. 

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Farmer Brown wrote: ao

Farmer Brown wrote:

ao wrote:

Damnthematrix wrote:

Farmer Brown wrote:

If you really believe all that, you haven't been burned enough times by their junk.  Just give it some time, you'll come around.  Wasn't there something in the news recently about US military planes being in severe danger due to Chinese made parts?   I can't even tell you about all the Chinese made products I have bought that broke or were defecive.  And I'm not just talking about minor stuff - I mean major purchases.  I hate to sound like my grandfather, but they really do not make things like they used to, and when it comes to China, they only make things to sell - that means price and sometimes looks.  I don't think the word "quality" even exists there.  

Yes, there are international companies that have parts made there.  When they are in total contol of the process, I am sure they can produce whatever they want and at the quality they want.  I don't consider that "Chinese made" just "made in China by non Chinese".

I'm with you Farmer Brown....  my grid tied inverter, Chinese made, has died for the third time in a year..... and now I really worry about what happens to my warranty if/when the replacement coming next week dies too.

A friend of mine bought a 4WD tractor from China..... it needed 3 diffs under warranty, the hydraulics died, and the tail lights are MELTING IN THE SUN!  I mean to say, I know we have strong sun in Australia, but I've NEVER seen ANY plastic lems on ANY vehicle melt like this!

Another person I know bought a Chinese SUV.... he has taken it on the beach once or twice, but the door hinges are already rusting, and it's barely 6 months old!  The doors could simply fall off in a couple of years if it isn't fixed...

I'm sure never buying anything from those bastards ever again if it's something I want to last......

Mike

Caveat emptor.  I bought a $5,000 Chinese 830 nm laser 5 years ago (at a time when the American equivalent was $12,000 and it has operated flawlessly.  Some things they make are junk, some aren't, but overall, their quality has been gradually improving.

When stories like that become the norm, and not the unheard-of-except-every-ten-years-exception-and-even-then-only-on-the-internet-by-people-who-identify-themselve-with-just-two-letters, let me know.  And let them know that if/when I start to become a "customer" again, I'm starting with ice trays, so they better get those straight before they expect me to even dream of considering the remote possibility of maybe thinking about possibly purchasing anything else made in a place that has contributed more to my local landfill than any other. 

Save the sarcastic slight for your friends.  It's wasted on me.  And FWIW, I also bought a Chinese drill press about 12 years ago.  Quality was good but not superb.  It gets the job done though at a much lower cost than an American model.  Just bought a Chinese wheelbarrow last year.  Bearing in wheel needed some good lubrication and break-in but again, it gets the job done at a lower cost than the American model.

Saw Chinese cars at the North American Auto Show 3 years ago.  Car had a Mitsubishi engine (decent quality) and all the amenities (radio, power windows, power brakes, power steeering, etc.) for $5,000.  Body panels did not line up perfectly but were about on par with a 1970s American car.  Person at the car show was calling it a piece of crap.  Other (wiser) Asian person and I were sitting in the car, trying everything out and looking at the car more closely and agreed that for $5.000 new, it wasn't a bad car. You get what you pay for. 

On the other hand, if I need something with absolute reliability like the portable gasoline generator I recently bought, I'd get a Yamaha or for a diesel, Kubota.  I'm also a big fan of German mechanical engineering.  Have had zero life time stoppages or failures with H&K handguns.  When the MR762s come out, I'll trade in my American equivalent for them.  Zeiss scope on deer rifle is perfect.  Meile vacuum cleaner is the best we've ever owned.  Again, you get what you pay for.

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ao wrote: slight for your

ao wrote:

slight for your friends.  It's wasted on me.  And FWIW, I also bought a Chinese drill press about 12 years ago.  Quality was good but not superb.  It gets the job done though at a much lower cost than an American model.  Just bought a Chinese wheelbarrow last year.  Bearing in wheel needed some good lubrication and break-in but again, it gets the job done at a lower cost than the American model.

Saw Chinese cars at the North American Auto Show 3 years ago.  Car had a Mitsubishi engine (decent quality) and all the amenities (radio, power windows, power brakes, power steeering, etc.) for $5,000.  Body panels did not line up perfectly but were about on par with a 1970s American car.  Person at the car show was calling it a piece of crap.  Other (wiser) Asian person and I were sitting in the car, trying everything out and looking at the car more closely and agreed that for $5.000 new, it wasn't a bad car. You get what you pay for. 

On the other hand, if I need something with absolute reliability like the portable gasoline generator I recently bought, I'd get a Yamaha or for a diesel, Kubota.  I'm also a big fan of German mechanical engineering.  Have had zero life time stoppages or failures with H&K handguns.  When the MR762s come out, I'll trade in my American equivalent for them.  Zeiss scope on deer rifle is perfect.  Meile vacuum cleaner is the best we've ever owned.  Again, you get what you pay for.

Like I said, when stories like this become the norm, I'll begin to think of maybe trying Chinese products again, but after all the crap I've been left holding the bag on, that's going to take a very long time, maybe never.  Trust is a funny thing, you don't earn it back as easilly as you lost it.  And as for my sarcasm, sorry you didn't like it.  At least I didn't charge you for it and offer a worthless money-back guarantee if you didn't like it, unlike just about everything I've ever bought from China, the Land of Junk.

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Farmer Brown wrote: ao

Farmer Brown wrote:

ao wrote:

slight for your friends.  It's wasted on me.  And FWIW, I also bought a Chinese drill press about 12 years ago.  Quality was good but not superb.  It gets the job done though at a much lower cost than an American model.  Just bought a Chinese wheelbarrow last year.  Bearing in wheel needed some good lubrication and break-in but again, it gets the job done at a lower cost than the American model.

Saw Chinese cars at the North American Auto Show 3 years ago.  Car had a Mitsubishi engine (decent quality) and all the amenities (radio, power windows, power brakes, power steeering, etc.) for $5,000.  Body panels did not line up perfectly but were about on par with a 1970s American car.  Person at the car show was calling it a piece of crap.  Other (wiser) Asian person and I were sitting in the car, trying everything out and looking at the car more closely and agreed that for $5.000 new, it wasn't a bad car. You get what you pay for. 

On the other hand, if I need something with absolute reliability like the portable gasoline generator I recently bought, I'd get a Yamaha or for a diesel, Kubota.  I'm also a big fan of German mechanical engineering.  Have had zero life time stoppages or failures with H&K handguns.  When the MR762s come out, I'll trade in my American equivalent for them.  Zeiss scope on deer rifle is perfect.  Meile vacuum cleaner is the best we've ever owned.  Again, you get what you pay for.

Like I said, when stories like this become the norm, I'll begin to think of maybe trying Chinese products again, but after all the crap I've been left holding the bag on, that's going to take a very long time, maybe never.  Trust is a funny thing, you don't earn it back as easilly as you lost it.  And as for my sarcasm, sorry you didn't like it.  At least I didn't charge you for it and offer a worthless money-back guarantee if you didn't like it, unlike just about everything I've ever bought from China, the Land of Junk.

Well no one can criticize you for not giving them a fair chance.  I can understand your reluctance to test the waters again.  But like Poet said, we've seen this same phenomenon with the Japanese and the Koreans and look where they've gone.  And China does have rocky times ahead but it's not going to disappear in a puff of smoke.  The trouble with the rocky times though is that the turmoil will more likely be turned outward than inward.

And you're right, it is the land of the junk (which BTW, was ahead of its time).;-)

http://en.wikipedia.org/wiki/Junk_(ship)

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Cheap made in China goods

Farmer Brown wrote:

As a result, I would never DREAM of buying anything else from China, let alone something like a car, turbine, computer or anything else.

I don't think it's necessarily that it's made in China, it's that the majority of cheap goods you can buy come from China.

If your not trying to cut costs and actually buy stuff that's high end, you will get high end stuff even if it's made in China (look at the iPads, etc ).  I have two Lenovo computers, both commercial grade high end and they are very well made, but if you buy from China because of lower price, well you get what you pay for.

Also, quality tends to go up quite a bit over time, look at cars, first it was the US, then Japan, and now Korea.  The Korean made cars are kicking Japans butt for quality just like Japan did to the US.  Countries often start out with cheap low price goods, and work up to high quality as they gain market share.

I also think another problem is that the world has chosen cheap over high quality for many items.  It's become the norm to buy something and toss it and buy new one when it wears out in a year instead of buying products that last.    I would gladly pay more for high quality, but in many areas you can't.   I think Gerald Celente is right, that people will begin to demand higher quality when they can no longer afford to buy new every couple of years.  Those companies that answer the call will get the business - no matter what country is making the goods.

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Better link

ao wrote:

And you're right, it is the land of the junk (which BTW, was ahead of its time).;-)

http://en.wikipedia.org/wiki/Junk_(ship

Try this link for better results.  It is interesting. http://en.wikipedia.org/wiki/Junk_%28ship%29

Travlin

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China quality

An interesting point I've seen here is that several people have mentioned buying Chinese products that worked well.   What I found notable is that all these purchases were made several years ago.

I think that 2-3 years ago (*before* the crash) Chinese products were of reasonable quality levels.   There was definitely some quality degradation -- even then we were hearing horror stories on quality control in China.   But it wasn't pervasive.

After 2008 however, I think price pressures -- and a dramatic increase in corruption within China -- have poisoned the well.   Now they are cost-cutting quality across the board.   With the results mentioned herein.

It will be interesting to see where this leads; I too have gotten wary of buying my quality products MIC.    I've found it is extremely hard to avoid.

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Imminent bust? Not so fast.

I was delighted to see the China topic appear in great length which I think has been underrepresented  on this site thus far. 

Gordon Chang has a wealth of knowledge and information on the Middle Kingdom and the functioning of its political system and I enjoyed the discussion. 

In parts of the conversation, though, some of his analysis of the situation leads me to different conclusions regarding especially the direction of China's economic development.  

Many times in media the difference between a slowing economy and an economy with a slowing growth is not appreciated. None of them positive, but we do differenciate  between stagnation and recession, so we need to be careful about slowing and slowing growth which I think Chris also noted in the discussion.

Officials stealing money and expatriating their wealth and family is not obvious to me to be a phenomena of chinese elite fleeing from home. 

If you are an official stealing money, obviously you want that money to disappear from China as fast as you can. Isn't this everywhere the case all around the world? In my view this has little to do with the growth prospects of China or the lack of it.


Others moving their wealth and families are not necessary bailing out or fleeing. It is an insurance similar to what HK's elite had been showcasing before the handover to China and serves as a diversification tool with auxiliary benefits such as education to children. Measuring the outflow of wealth vis-a-vis the accumulation of wealth domestically is a task hard enough to become a base for broader conclusion.

I could not easily summarize the political reforms 'everybody knows have to be made', and which current and next leaders are too weak to make.

We have to accept that China operates a political system in tandem with an economic governance that none has tried and tested before. How and how fast to reform this operating system? In my view it is rather anybody's guess than being a question of leadership courage or power. 

In time of peak oil, making bad strategic acquisitions in the fossil fuel industry is difficult. Noting that most of these energy sources are already factored in into the peak equation, I think instead of these assets becoming  a burden, they rather serve as an advantage to power the creation and acceleration of new markets.

If we live in a world where we need less resources and they are plentiful, yes, they are a burden, though I think we live in a different world.


The striking energy inefficiency of a nation which understands it in fact is a tremendous reserve in the system, and this is what gives hope that the environment will not entirely give up on this transformation, because clearly keeping the status quo would be unsustainable. 

Regulations to curb demand for property have been ranging from soft to extremely harsh during a period of a year, and this process cannot make buyers just disappear.

Hence stopping an undesired property value nosedive seems to be a question of measures.

Property prices skyrocketed to the extend not welcomed by central government, even if local government income heavily relies on land sales (leases, indeed) a lot. Given the low loan to value ratios, a 30% drop does not send owners underwater. I can't now define a reason why the central leadership, having engineered a stop of price growth and a start of price decline, were doomed to fail at an attempt to further manage prices as need be, under strong demand circumstances given continued high level of urbanization.


Property for rich Chinese is a store of value and an investment, I assume not very different from other parts of the world. The real question is the development of vacancy rates and of property investment yield in China.

Vacancy rates in key cities are low and declining, rental market is strengthening as sales market declines, hence rental yield increases. These are signs of a functioning property market in good health. Home price decline is not necessarily a cause or a sde product of a hard landing.

Housing loan practice is much stricter in terms of loan/value ratio than in the western world, and because of the multi-year run-up in prices, the proportion of mortgages on banks' balance sheets going underwater after a 50% price drop will not be entirely unmanageable.

The constant support for property price is the increase of productivity. We should not worry about whether there is room for productivity increase, rather their ability to apply the necessary pace of increase in productivity and energy efficiency.

Growth of china's export has been only partly driven by the growth of the markets in

Europe and the US; the bulk of their export growth come from their increase of share in those export markets, coupled with the entry of new export markets. China is well set to walk further down that path. The continuation of China's economic efficiency drive will need to step in to compensate for the stagnation or decline of export market sizes. 

China has tons of problems to solve and tackle ( I name environment and corruption as their key dilemmas),  but in my view a hard landing is not prescribed yet. 

It's growth should not be labeled as threat as it often is. A threat is normally fought against, whereas a competition is competed against.


A friend of mine always reminds me: whatever you say about China, the opposite of that is also appropriate. Indeed a complex enough system for the full understanding of which our perspective sometimes proves insufficient. 



thanks for reading

Rokorea

 

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What the...

Wow, a post about China that isn't just more fear-driven groupthink marketing drama for the goldbugs and inflationists!

What the heck is happening to CM.com? 

If this sacrilege catches on, Hugh Hendry is going to make a killing. Oh wait,  he already is.

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JAG wrote: Wow, a post about

JAG wrote:

Wow, a post about China that isn't just more fear-driven groupthink marketing drama for the goldbugs and inflationists!

What the heck is happening to CM.com? 

If this sacrilege catches on, Hugh Hendry is going to make a killing. Oh wait,  he already is.

You'll notice he isn't loading up on photovoltaic arrays.;-)

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umm...

Why would you blame Chinese for it . You got what you paid for . Your decision ..

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China

Assuming that everything in the post is correct;

They have the largest manufacturing base. They have cheap labour. They are the largest manufacturer of alternative energy components and systems. If every country is going to go through a monetary collapse, they are the one that is going to emerge the least damaged. If they are going to experience peak oil issues the huge infrastucture build up is a step in the right direction with the hydro on the rivers for electricity and water.

On the subject of quality;

You get what you pay for for, caveat emptor.

I bought three chinese( i think) saddlery knives from what i assume was the same batch. 2 were good, one was bad. It's the slag and scrap steel they mix in when making steel things. It shows up when you bury them. I have learnt to bury all new knives for about 6 months. I then unbury them and polish out the surface rust. You can spot the bad steel a mile away after they have had a few months in the dirt. If you don't know this trick it was taught to me by a saddler. He said it's the best way to get a knife that can't keep a good edge to keep one. All the impurities rust away. Point of the story, is that I bought these three for the same price as one good british knife. I am happy, sometimes chinese is good, sometimes it is bad.

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Mish comments on China

Mish noted possible issues in China in today's post

http://globaleconomicanalysis.blogspot.com/2011/11/chinas-vice-premier-sees-chronic-global.html

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MIUSA

I was expecting quality when I purchased a wood burning furnace made in the USA, Minnesota no less. While it is for the most part an excellent furnace, the documentation is poor enough that it could have come from China and some of the add ons are what you would expect from a poor quality Chinese product. The poor quality problem isn't just in China, it's just worse in China. Two of the best quality things I've owned in the past ten years were a Hyundai XG350 and a Honda lawn mower. Honda engines are becoming so popular that I expect their quality to go down due to the increased demand for quantity, lets hope not.

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Demand for quantity?

jonesb.mta wrote:

I was expecting quality when I purchased a wood burning furnace made in the USA, Minnesota no less. While it is for the most part an excellent furnace, the documentation is poor enough that it could have come from China and some of the add ons are what you would expect from a poor quality Chinese product. The poor quality problem isn't just in China, it's just worse in China. Two of the best quality things I've owned in the past ten years were a Hyundai XG350 and a Honda lawn mower. Honda engines are becoming so popular that I expect their quality to go down due to the increased demand for quantity, lets hope not.

What demand? The way I figure this, the reason why the world didn't blow up after Fukushima is because there was no demand... no production, but who cares when there is no demand? So anyway, if you have more info about that demand, let me know, thanks

Samuel

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Demand

If you look at small engine applications there are more and more powered by Honda engines. They're also getting into the repower market in a big way, replacement engines in equipment, from log splitters and lawn mowers to garden tractors.

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Honda engines

Funny you mention Honda engines.  The Amish near where I live have many Honda engines providing their energy needs for the various shops they have.

Doug

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Elephant in this room

One little thing that seems to be missing in Mr. Chang's otherwise excellent analysis is the possibility that the Chinese might decide to take the course that many growing economies have taken when faced with similar problems of internal pressures and a lack of external markets, that is military aggression.  Don't laugh.  China has a large, young, majority male population.  It could obviously not happen over night, but unlike the US and other world economic leaders, they are not a declining world power or an ex-power.  Regional military expansion could be viewed by many of their leaders as a solution to domestic unrest, currency problems and industrial underutility.  Don't know how it could help the housing problem, but 3 out of 4 ain't bad.

And what other world power would be in a position to block them?  Certainly they've been watching the USA's inability to secure an effective resolution with a couple of pizzant powers like Iraq and Afghanistan.  They also have the ability to cause some havoc in our economy, owning such a large chunk of our debt.

It would take a pretty rapid build-up in the armaments sector, but they are pretty good at that sort of change.  My observations, even down at Harbor Freight, is that their durable goods have improved in quality over the last decade or so.  When an item costs 10x less than a competitor, it doesn't need to be as good, just better than 10x worse.  How good was our technology in the 1940s, when we kicked ass or armed all of the other world military powers?

Their AKs are much better quality than ony other than the Russians.  They can make a LOT of them fast, along with more 7.62X39 than they will ever need.  If I were in Taiwan, SE Asia, Western Pacific, Australia, I would be worried.

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Double down

Mr. Chang published 'The Coming Collapse of China' in 2001 - needless to say he was as far off the mark as is physically possible, the reality 10 years later is diametrically opposed to his predictions. Now he doubles down withe some more nonesense - why would anybody be surprised by a an author like (from Wikipedia) 'He is a regular contributor to The John Batchelor Show, The Glenn Beck Program on Fox News, and CNN.'

Even the general public finally came to detest the drivel of Glenn Beck - through what twists and tribulations did this blog get hooked on such blather?

As for the quality of Chinese made goods - anybody remember 'Made in Japan' of 40years ago and the predictions of how far they would get with that cheap junk? or Made in Korea cars of just a few generations (design cycle generations) ago - and what do we have today?  Good luck with the concept of a China imploding, giving America the former glory back - I would hedge against that hope coming to fruition, the simple reason being that the Chinese have an audacity of educating their masses to a level the majority in the USA is way too lazy to compete with. Until that precept is changed, China will raise to dominant world power.

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Somewhere in between

After listening to this interview with Mr. Chang and then the bullish on China's future FSN interview with Stephen Leeb last week, I've got to say that whenever you have 2 extremes in viewpoints, the answer is probably somewhere in between. Perhaps you want to get Dr. Leeb on for a future interview as a counter to Mr. Chang?

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I work with China every

I work with China every day...  Sometimes I just want to pull my hair out and beat the newly bald head against the wall.  Their mfg capability just flat out sucks.  I recently paid over 100k to airship some assemblies to the US.  Through some careful (phone pounding) discussion, actually got the parts delivered EARLY.  Which ended up being a moot point, because the US supplier screwed up a part that is deep in the assembly and can not be replaced :(  Sometimes, just SMH at the global stupidity.

Does anybody know how to do their job anymore?

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China's real GDP dropping, 5.7 trillion$ debt (Chin.economist)

Mirv posted this on a past DD.  It's too important for it to potentially get lost in the traffic here, so, hopefully Mirv won't mind, I moved it to here.......

Mike

If this is true, this is the most important news out there but is not covered/reported here in the west:
Larry Lang, Chinese Economist: China "cooks" its own books, has negative GDP growth and total debt is almost 6 trillion (in dollars)

http://www.theepochtimes.com/n2/china-ne...
http://www.wealthson.com/1762/chinese-re...

According to this expert economist in Hong Kong (his speech to party insiders was surreptitiously recorded) China's 9%  increase in GDP is nonsense and is cooked two ways: 1. 70% of the GDP comes from speculative land deals, and 2. real inflation is (he says) 16%, which inflates the apparent increase in economic activity (sounds familiar-Fed. Reserve here does that).  Further he says that the country is just about to enter an accounting (crash) after which he thinks that China will become the poorest country in the world again.  Hmmmm. if this is even half true, then many of us may want to review our understanding of China's role in the path of an unraveling world economy.

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Sub-par discussion

I wish some people who know more than I do about China and how it fits into the whole world economic situation would discuss it here.  Somehow, the discussion of this very important topic got sidelined by a lot of petty bickering over the quality of Chinese export goods.  I joined in a little in my comment.

To get things started, I'll ask a few questions:

1. If China is headed to a major "bust" soon, what does that mean?  A big recession, or the end of China as a world trading power?

2. What effect on the overall energy and liquid fuels consumption curves would the sudden removal of China as a buyer have?

3. What effect would that then have on liquid fuels production, development, exploration, and alternatives?

4. Would a demand-driven oil price slump destabilize oil-exporting countries?

5. What about all of the underdeveloped countries that China has invested in agricultural land, etc?

6. As I asked before, could this lead to Chinese military aggression?

7. If Chang is all wet, would someone give a good argument (other than he was wrong before) as to specific reasons why he is?

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Elephant in this room, not Japan!

green_achers wrote:

Their AKs are much better quality than ony other than the Russians.  They can make a LOT of them fast, along with more 7.62X39 than they will ever need.  If I were in Taiwan, SE Asia, Western Pacific, Australia, I would be worried.

No need to worry about Japan, it's radioactive! Not even China wants that crap!

Samuel

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Domestic Security

This was a good podcast, though it didn't add any new information, just affirmed a lot of what already circulates out ther.  I don't mean this to say that it was a waste of time, on the contrary.  I find it interesting when people coming from different perspectives, especially from a localized one, converge in their assessment.

However, one thing was really new to me: state expenditures in domestic security as a leading indicator that the state entertains defending itself from the masses against it.  Well, if I take a look around with this in mind, I think that a Chinese apparatchik would feel at home stateside.  Take the DHS and the TSA as glaring examples and it seems that our worst enemy is not in Teheran or in Beijing, but in DC.  How much has the US increased the spending in internal security?  Surely, all under the guise of protecting us from "foreign terrorists" that are just sigh-unseen, except for those baited by the FBI to justify its bloated size.  Conveniently, the very same apparatus can be easily used against us the people.

I haven't given much thought to all the civil rights abuses from the perspective of the state preparing to oppress us the people until now.  To me it's been mostly stupidity and disregard for civil rights and common sense, not a prelude to an aggression on us the people.

We may all be on the way to being Syrians too.  THIS is some food for further thoughts...

Cheers.

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