If the Chinese bubble bursts, global effects how bad?

bradly1101

Diamond Member
May 5, 2013
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www.bradlygsmith.org
http://www.bbc.com/news/business-37403363?SThisFB

Risks of a Chinese banking crisis are mounting, according to a warning indicator from the banking industry's global watchdog.

A key gauge of stress in the banking sector is now more than three times above the danger level, the Bank for International Settlements (BIS) said in its latest quarterly review.

China's credit-to-GDP gap hit 30.1 in the first quarter of 2016, it said.

The BIS considers a credit-to-GDP gap of 10 to be a sign of potential danger.

I smell trouble, but how bad?
 

Starbuck1975

Lifer
Jan 6, 2005
14,698
1,909
126
Expect a hit to our housing market, but isolated to the cities where the Chinese are parking their money.
 

daxzy

Senior member
Dec 22, 2013
393
77
101
Most of my money is tied up in stocks in a couple companies that would likely be fine.

I wouldn't mind China finally crash and burning a bit myself personally, especially as many companies have off shored there so long now I wouldn't mind seeing them take a big hit either.

Would be almost a Karma thing to me.

I definitely see a China crash coming (and a BIG one), but what stocks are free from a crash in China?

What will likely happen is Chinese spending would crumble, which would affect multinational companies everywhere. When multinational companies are affected, then they will cut spending domestically, which would also affect domestic companies. With both those affected, jobs will be cut and housing prices will drop.

Not very. PBOC's got their back.

And what options does the PBOC have? Right now they're cutting interest rates. Right now interest rates are slightly above US level, so they got a little more room to leverage, but their options are running out fast. Everyone gripes at US's national/total debt, but China's total debt is hovering around 250-300% GDP. Instead of using stimulus to boost a sagging economy, leadership (in pursuit of populism) used it to boost an already growing economy. IIRC, about 16% of fortune 1000 companies in China that can't even pay off the interest of their loans.

Of course another big issue is that actual data is tightly controlled, so everyone's in guestimate mode when it comes to China.
 
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monkeydelmagico

Diamond Member
Nov 16, 2011
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And what options does the PBOC have?

They still have room to lend. BOJ is setting the floor and is the one to watch right now. Don't get me wrong, China has some significant issues, but the regulatory backstop their government is capable of putting in place is impressive. It all just delays the inevitable global banking reset but I don't think China will be the contagion.
 

daxzy

Senior member
Dec 22, 2013
393
77
101
They still have room to lend. BOJ is setting the floor and is the one to watch right now. Don't get me wrong, China has some significant issues, but the regulatory backstop their government is capable of putting in place is impressive. It all just delays the inevitable global banking reset but I don't think China will be the contagion.

Are you referring to the debt/GDP ratio being lower than Japan's, and therefore China has room to grow? Although that statistic is important, it's not the end-all measurement, by far. Some major differences between China/Japan:

1. China literally puts out bullsh!t data. The sum of China's provincial GDP is greater than the reported GDP of China by the error margin of 1 FULL PROVINCE. China's GDP was 6.7% growth, but somehow, 24 of 28 provincial regions reported > 6.7% GDP growth, with the lowest at 6.2% GDP growth.
2. Chinese housing is much more expensive comparatively (per function of wage) than US or Japan. 70% of China's household assets are tied to a house. Real estate is also 15% of total GDP and 20% of all bank loans. This paints a worrisome picture when it comes to a housing bubble being burst, compared to Japan.
3. Japanese debt is in much higher demand than Chinese, at a global scale. Global investors actually want to buy it (for the time being) as it is considered "safe".
4. Japanese corporate debt is much healthier than Chinese. 46% of Chinese companies are taking new loans to repay old loans. 16% of China's top 1000 companies can't even make the INTEREST ONLY payment on their loans. In contrast, Japanese companies are paying back their loans. Which is a key reason why Japanese debt is worth more.
5. Japan has a tightly regulated banking environment. This is compared to China's giant shadow banking market.
6. China has a massive problem with SoE (State owned Enterprises). They are inefficient and are being propped up by either local or national government. There are talks of restructuring with job losses in the millions.

Some sources
http://www.zerohedge.com/news/2016-...-provinces-report-higher-gdp-national-average

https://www.project-syndicate.org/commentary/china-corporate-debt-problem-by-david-lipton-2016-08
http://www.businessinsider.com/goldman-sachs-china-debt-ponzi-stage-2016-7
http://www.theepochtimes.com/n3/2134526-is-the-china-corporate-debt-bubble-finally-popping/

http://www.forbes.com/sites/wadeshe...housing-market-refuses-to-crash/#42dd32ac720b
https://www.bloomberg.com/view/articles/2016-09-15/china-s-housing-gets-scarily-expensive
http://www.bloomberg.com/news/artic...h-worries-about-china-s-shadow-banking-system
 

JSt0rm

Lifer
Sep 5, 2000
27,399
3,947
126
Japan is exactly where they want to be. They don't want infinite growth. They have half out population in 1/20th the land. There is no room for that. A perfect balance is great for a built out island nation.
 

agent00f

Lifer
Jun 9, 2016
12,203
1,242
86
Are you referring to the debt/GDP ratio being lower than Japan's, and therefore China has room to grow? Although that statistic is important, it's not the end-all measurement, by far. Some major differences between China/Japan:

1. China literally puts out bullsh!t data. The sum of China's provincial GDP is greater than the reported GDP of China by the error margin of 1 FULL PROVINCE. China's GDP was 6.7% growth, but somehow, 24 of 28 provincial regions reported > 6.7% GDP growth, with the lowest at 6.2% GDP growth.
2. Chinese housing is much more expensive comparatively (per function of wage) than US or Japan. 70% of China's household assets are tied to a house. Real estate is also 15% of total GDP and 20% of all bank loans. This paints a worrisome picture when it comes to a housing bubble being burst, compared to Japan.
3. Japanese debt is in much higher demand than Chinese, at a global scale. Global investors actually want to buy it (for the time being) as it is considered "safe".
4. Japanese corporate debt is much healthier than Chinese. 46% of Chinese companies are taking new loans to repay old loans. 16% of China's top 1000 companies can't even make the INTEREST ONLY payment on their loans. In contrast, Japanese companies are paying back their loans. Which is a key reason why Japanese debt is worth more.
5. Japan has a tightly regulated banking environment. This is compared to China's giant shadow banking market.
6. China has a massive problem with SoE (State owned Enterprises). They are inefficient and are being propped up by either local or national government. There are talks of restructuring with job losses in the millions.

Some sources
http://www.zerohedge.com/news/2016-...-provinces-report-higher-gdp-national-average

https://www.project-syndicate.org/commentary/china-corporate-debt-problem-by-david-lipton-2016-08
http://www.businessinsider.com/goldman-sachs-china-debt-ponzi-stage-2016-7
http://www.theepochtimes.com/n3/2134526-is-the-china-corporate-debt-bubble-finally-popping/

http://www.forbes.com/sites/wadeshe...housing-market-refuses-to-crash/#42dd32ac720b
https://www.bloomberg.com/view/articles/2016-09-15/china-s-housing-gets-scarily-expensive
http://www.bloomberg.com/news/artic...h-worries-about-china-s-shadow-banking-system

What people fixated on numbers fail to see is that money is just a way to get people to do things. China's populace is far more productive today building out infrastructure or whatever than farming the rice fields, due to government incentives. There's a certain irony that the tools of capitalism are far more effective at commanding the kind of progress the communists were looking for some years back per great leap forward & such.

The only real existential problem to their social order is the extreme inequality of outcomes which threatens the kind of peasant revolt the party is only too familiar with.
 

hal2kilo

Lifer
Feb 24, 2009
23,279
10,192
136
Expect a hit to our housing market, but isolated to the cities where the Chinese are parking their money.
It turns out the Chinese have gone ga ga over Seattle real estate, especially since the Vancouver, BC government enacted (quite sensibly) a 15% tax on property being bought by non citizens. Property values were skyrocketing as they will accelerate even more than they are already in Seattle.
 

hal2kilo

Lifer
Feb 24, 2009
23,279
10,192
136
It turns out the Chinese have gone ga ga over Seattle real estate, especially since the Vancouver, BC government enacted (quite sensibly) a 15% tax on property being bought by non citizens. Property values were skyrocketing as they will accelerate even more than they are already in Seattle.
Oh and as related to the OP, there seems to be no slow down.
 

HamburgerBoy

Lifer
Apr 12, 2004
27,112
318
126
It seems that the capitalist notion of infinite growth is hitting some roadblocks.

Not just a capitalist notion. Many government pensions and monetary policies are built on assumptions that population or stocks should grow forever.
 

senseamp

Lifer
Feb 5, 2006
35,782
6,186
126
Compared to Trump presidency, Chinese whatevers is a pretty small risk to the markets.
 

alien42

Lifer
Nov 28, 2004
12,623
3,005
136
according the the Economist, it's currently the top risk to the global economy...

"China experiences a hard landing
High probability, Very high impact; Risk intensity =
globalRisk_20.png


September 14th 2016

Introduction
We assess the prospect of a sharp economic slowdown in China - in which economic growth substantially below our already bearish forecast of 4.2% in 2018 - as the biggest risk to our global forecast.

Analysis
Continued deterioration in the country's services and manufacturing sectors, a sharp drop-off in private investment, and the ongoing build-up of the country's debt stock (which is now equivalent to at least 240% of GDP) have highlighted structural weaknesses in the economy. The government's means to revive economic confidence are limited. Its huge stimulus in 2009 led to a build-up of bad debt - a problem the government has only exacerbated by the stepping up lending during 2016 - and the People's Bank of China burnt through US$300bn of reserves between September and February in order to prop up the renminbia. Meanwhile, poorly managed official attempts to shore up the stockmarket have highlighted concerns that the government's promise to put a floor under economic growth might not be credible - as well as showing the shallow nature of the government's commitment to allowing market forces to play a role in raising productivity.

Conclusion
If China's economy slows by more than we currently expect, it will further feed the ongoing global commodity price slump (especially in oil and, in particular, metals), with a hugely detrimental impact on those Latin American, Middle Eastern and Sub-Saharan African states that had benefited from the earlier Chinese-driven boom in commodity prices. In addition, given the growing dependence of Western manufacturers and retailers on demand in China and other emerging markets, a prolonged deceleration in growth there would have a severe knock-on effect across the EU and the US - far more than would have been the case in earlier decades."

https://gfs.eiu.com/Archive.aspx?archiveType=globalrisk
 

piasabird

Lifer
Feb 6, 2002
17,168
60
91
If China collapsed tomorrow we might have to start making our own junk. However, who would make the motherboards. Better stock up.
 

daxzy

Senior member
Dec 22, 2013
393
77
101
http://www.smh.com.au/business/china/fear-that-china-debt-bubble-will-burst-20160920-grk4yj.html

Outstanding loans have reportedly reached $US28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control.

Again, the lack of clear data is bad, so we have to play the guestimate game. But based on many extrapolations, China is basically printing currency to sustain their debt driven bubble. It's just no one has called bullsh!t yet.
 

bradly1101

Diamond Member
May 5, 2013
4,689
294
126
www.bradlygsmith.org
Yes we all print our woes away temporarily.

I believe we are seeing the true effects of our population. There are so many people procreating in poverty and war zones that imbalances such as manufacturing going to the most desperate are bound to occur (not to mention the environment, increased hate that goes along with population pressure, etc).

Are we seeing a tipping point beginning before our eyes?
 

Ns1

No Lifer
Jun 17, 2001
55,412
1,566
126
Expect a hit to our housing market, but isolated to the cities where the Chinese are parking their money.

how do you figure, given they're all paid in cash anyway? are you expecting the chinese to liquidate their housing assets into cash to bring back to the motherland?