The Chinese economy

[john70t]

(moderators: if this is/becomes parf please move)
As patriotic as I am, I've been amazed at what China has been doing over the last decade or so with their new money. They have been investing heavily in their long-term infrastructure.
When fuel costs eventually go through the roof, their economy will still have the fundamentals of low-cost production and transportation. This may happen tens or hundreds of years from now, but it will happen.

This is something the U.S. has long been capable of , but hasen't- due mainly to a public myopia, partisan at it's core, which is centered around oil and Middle East politics.
While technology has advanced, CAFE has remained the same as 75 years ago.
The strong corporate lobby which destroyed rail here a hundred years ago remains strong. (disclaimer: I'm very much for the fundamental freedom of personal transportation, but in perspective.)

1). The Three Gorges Dam project holds reserve water supply and invests in clean electricity. It puts Hoover Dam in the shadows.
CHINA THREE GORGES PROJECT

2). China is investing in solar thermal power farms, and will probably outdo Iceland's geo-thermal infrastructure.
eSolar strikes deal to build power plants in China - Yahoo! News

3) China is creating high speed rail the same as Japan and Europe. Rail is infinitly more efficient at moving people freight long distances. Berkshire Hathaway is heavily betting on the benefits here.
High-speed rail in China - Wikipedia, the free encyclopedia

4) Chinese companies have realized the benefits of recycling, which is more efficient than sourcing and processing the materials from the ground miles away. Although most of this is currently done by peasants in dangerous and polluting ways, this too will become more efficient.
Top 10 Richest Women - Listverse

Because China has grown so quickly, and because they resist international investment/influence, some investors are predicting a crash on global scale.
contrarian-investor-sees-economic-crash-in-china: Personal Finance News from Yahoo! Finance

[K9Torro]

I hold CPSL and if you want a good stock tip, BUY some.

Todd

[m21sniper]

I just read an article on yahoo that one of the richest men on earth is warning everyone that China is heading for a MASSIVE crash that will be like "Dubai x 10,000."

If that happens, we are all truly fked.

Amusing that a guy is in here lauding them, when a multi-billionaire investor is warning everyone to grab their women and children and run for cover.

http://finance.yahoo.com/retirement/article/108534/contrarian-investor-sees-economic-crash-in-china?mod=retire-planning

BILLIONAIRE PREDICTS MASSIVE CRASH IN CHINA:

New York Times

James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent. More from

"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." He is planning a speech later this month at the University of Oxford to drive home his point.

As America's pre-eminent short-seller -- he bets big money that companies' strategies will fail -- Mr. Chanos's narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience -- in addition to predicting Enron's demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world's biggest banks -- his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

"I find it interesting that people who couldn't spell China 10 years ago are now experts on China," said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. "China is not in a bubble."

Colleagues acknowledge that Mr. Chanos began studying China's economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China's stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

"In China, he seems to see the excesses, to the third and fourth power, that he's been tilting against all these decades," said Jim Grant, a longtime friend and the editor of Grant's Interest Rate Observer, who is also bearish on China. "He homes in on the excesses of the markets and profits from them. That's been his stock and trade."

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

"The Chinese," he warned in an interview in November with Politico.com, "are in danger of producing huge quantities of goods and products that they will be unable to sell."

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation's huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of "speculative capital," has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 -- one that Mr. Chanos and others have called wasteful and overdone.

"It's going to be a bust," said Gordon G. Chang, whose book, "The Coming Collapse of China" (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd -- even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.

A contrarian by nature, Mr. Chanos researches companies, pores over public filings to sift out clues to fraud and deceptive accounting, and then decides whether a stock is overvalued and ready for a fall. He has a staff of 26 in the firm's offices in New York and London, searching for other China-related information.

"His record is impressive," said Byron R. Wien, vice chairman of Blackstone Advisory Services. "He's no fly-by-night charlatan. And I'm bullish on China."

Mr. Chanos grew up in Milwaukee, one of three sons born to the owners of a chain of dry cleaners. At Yale, he was a pre-med student before switching to economics because of what he described as a passionate interest in the way markets operate.

His guiding philosophy was discovered in a book called "The Contrarian Investor," according to an account of his life in "The Smartest Guys in the Room," a book that chronicled Enron's rise and downfall.

After college, he went to Wall Street, where he worked at a series of brokerage houses before starting his own firm in 1985, out of what he later said was frustration with the way Wall Street brokers promoted stocks.

At Kynikos Associates, he created a firm focused on betting on falling stock prices. His theories are summed up in testimony he gave to the House Committee on Energy and Commerce in 2002, after the Enron debacle. His firm, he said, looks for companies that appear to have overstated earnings, like Enron; were victims of a flawed business plan, like many Internet firms; or have been engaged in "outright fraud."

That short-sellers are held in low regard by some on Wall Street, as well as Main Street, has long troubled him.

Short-sellers were blamed for intensifying market sell-offs in the fall 2008, before the practice was temporarily banned. Regulators are now trying to decide whether to restrict the practice.

Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other "financial disasters" over the years.

"They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys," he has said.

[m21sniper]

Remember, if something looks too good to be true, it is.

Chinese expansion looks far too good to be true.

[Dottore]

There have been many nay-sayers about China for years. All of them have missed the largest sustained economic boom in human history. Can it continue indefinitely? I doubt it. There will always be corrections and adjustments. But the trend and long term future for China is pretty clear.

If you have any serious doubt about this being the Chinese Century—just spend some time there.

BTW, I happen to know Gordon Chang who is quoted in the NYT article. Former partner of mine. He quit a very lucrative China practice in the early 1990's in order to write books about the impending collapse of the Chinese economy. Talk about getting it wrong. He's a bit of a tragic figure today.

[nostatic]

China's economy will slow because they are having to deal with environmental issues and there will be a rising cost of labor. The other issue is an aging population. But they likely won't tank for a few decades. Then watch out for India.

China has an interesting mix of central government and rampant capitalism. The US just has the central government part these days. In addition, the Chinese population as a whole value hard work and are proud of their country and achievements. They are patient and look to the future. Marked contrast to the bulk of the US population...

[Tervuren]

OUCH! You could substitute the United States into that article...

[alf]

China's econumy is growing and will continue to do so. The fundemantals are all there. They just need to keep the country stable.

There is a RE bubble in the top tier cities from speculation but i think that the central govt will be able to deflate that and minimize the impacts. They do, afterall, own ALL the land in China.

[nota]

talk about too big too fail ???

have they even got 1/2 their people off the farm and into a factory yet ???????????

[Shaun @ Tru6]

The fabric dye houses in Tirupur, India have been on strike for the past 3 weeks due to new government environmental regulations and increased costs. The cut&sew manufacturing sector is very concerned customers that place new monthly orders will just move to China.

I have to believe that China already has this type, or similar, of problem across all industries and it will only get worse. How each country deals with new environmental regulatory controls will in part define their success. Having been to India 3 years ago, I was amazed that used dye effluent just ran out of pipes in a stream, or a big pond or just out onto the ground. Hundreds of gallons of seriously toxic stuff just dumped out daily.

A growing middle class in both countries will keep their economies growing. It won't be as robust with a weak U.S. economy, but probably better. Slow and steady growth is always better than a bubble in which greed and common sense take over to circumvent regulation leading to its bursting. The balance will be between government regulation, monetary policy and the developing middle class.

Eastern culture has much more ant to it while Western is clearly grasshopper.

[Porsche-O-Phile]

China is a bubble. No question.

[red-beard]

Japan Inc was supposed to be unstoppable, until the 1990's...

[Shaun @ Tru6]

Japan didn't buy most of South America and Africa when it should have. It doesn't have the land mass, internal or external natural resources and it doesn't have the population that China does. There is no comparison.

[nostatic]

Originally Posted by red-beard

Japan Inc was supposed to be unstoppable, until the 1990's...

Not really comparable. China has natural resources, has bought up more resources, and has a huge labor pool.

[Dottore]

Originally Posted by nostatic

Not really comparable. China has natural resources, has bought up more resources, and has a huge labor pool.

Not only that, the Chinese don't sleep at night.

[Bill Douglas]

China has one advantage over the rest of us, that can help it ride out problems, that it is cash rich.

[jyl]

This is a very interesting topic.

I don't know if China is one giant bubble ready to collapse and stay deflated. That seems unlikely but I haven't studied it enough to be confident one way or the other.

But China can certainly have bubbles, in property prices, in stock prices, in bank lending, in capital investment. And when they burst, you can certainly get hurt very badly (or profit), even if the market recovers in a year or three.

Not many economies or markets go up, up, up in a steady line without some blow-ups along the way.

Thanks for starting this thread, it's reminded me that I need to work on this.

[Rick Lee]

China is able to do a lot of these things because their gov't. doesn't have to bother with elections. Yes, the Three Gorges Dam is an engineering masterpiece. But they displaced well over 1 million people to build it and flooded countless archaeological treasures when they blew the final retaining walls three years ago. That stuff would be politically and legally impossible in the US. So, let it not be said that an authoritarian gov't. is always a bad thing. They have a tendency to cut through the red tape, eliminate the legal hurdles and silence the troublemakers.

[Playa76911S]

I've been wanting to buy into a fund that shorts stocks, and Mr. Chanos' "Ursus Partners" fund sounds like the ticket. I can't find a way to buy into that fund...does it have a trading symbol? Or are these funds not available to just anyone? I will invest $10,000 on Monday, if I can, and I'll let you know how it does.

[andrewan]

Hello.

I have read that article and this is indeed post and informative also. Travel in China will expand to become a $65 billion industry by 2011 and The government in China has recognized tourism as a pillar.