Tuesday, March 25, 2014

"These GIFs Of Rapidly Expanding Chinese Cities Will Blow Your Mind"

This is smart China bubble evidence - time lapse satellite photos of Chinese cities. Look at the explosion of development over the past ten years. The population of China has only grown 4.2 percent over that time period.


AllanF said...

Apologies for the OT comment, but as a book review guy, I thought you'd appreciate this:


"Piketty's grande idée is very simple: if returns to capital r exceed GDP growth g, and if ownership of capital is concentrated, then runaway inequality will result. He argues that throughout most of history [and presumably going forward if S. Mark is correct], r > g."

CP said...

Thanks, I read Steve Hsu.

Income inequality has been rising for a long time and as usual people are extrapolating the trend into infinity.

I wonder if it's due to reverse? What if housing prices and stock prices come to reflect demographic trends?

Anonymous said...

CP, the prices fluctuate and will surely reverse in time. I watched a BBC documentary on the subject of the real estate bubble in China last month. The reporter interviewed many people and diagnosed the problem: it is not so much oversupply (as many generations of families still remain under one roof), but rather that there is not enough demand to fill the high end of the market. Property managers reported high vacancy rates, with more and more empty units being built in second-tier cities. The cost of capital for mortgages, rentals, and investments are getting higher. The problem will affect mainly real estate investors (wealthy high net worth individuals in China who are investing in properties through asset management and private wealth management funds). It is the opposite of the US subprime housing bubble, since bank financing is not really tied up in real estate. The credit shock will get absorbed by those with access to credit and who have real assets rather than those who have negative net worth. People are too bullish on China as a market; it is really a collection of markets, which, like Europe, have very different compositions, are moving at different speeds, and will remain unbalanced until there are structural adjustments (between the north and south in Europe and the east and west in China).

Anonymous said...

You all should evaluate buying China Sunergy put options.

CSUN is a smaller, younger Suntech which is in a similar situation: $458 million notes payable and $132 million long-term debt against $500 million of assets, of which $31 million is cash as of the most recent quarter.

CSUN revenue halved as a result of EU tariffs and it has operated at a loss in all but one year since it's NASDAQ listing in 2007.

Given declining margins and production capability utilization over the past few years, management decided it would be a best to (drum roll) issue debt to build a new plant in Turkey.

The CSUN strategy is simply to reduce the cost of producing solar panels and roll-forward short term bank debt by drawing down and re-extending credit facilities.

Like many other Chinese solar manufacturers, there are many reasons as to why CSUN will now get "a cold shoulder from banks in the form of smaller and costlier loans:" http://www.reuters.com/article/2014/03/26/us-china-debt-idUSBREA2P07Q20140326.

The only reason banks extended fully utilized credit facilities is because they were guaranteed (in 2011) by assets of the chairman, two of his asset management companies, and the Bank of Nanjing, a city located in the same debt-ridden providence as Wuxi.

CSUN has been operating with a significant working capital deficit and desperately needs cash, as it today announced that it would transfer an idle plant to the chairman's privately-owned competitor, CEEG, for $13 million cash and $25 million of debt relief.

Additionally, CSUN has stated that it is "in need of additional funding to sustain our business as a going concern" numerous times each year for the past few years.

You can find a liquidity plan in the last (2012) annual report for what will happen when the company cannot roll-forward it's bank debt or breaches long-term debt covenants.

The 2013 annual is due on 4/4 next week so we will get an update on the financial position of the company.

The bank borrowings have 6-12 month terms that mature at various times throughout the year, while the short-term credit facilities are subject to annual renewal.

Given the outstanding debt, the issuance of equity is really the only card left for CSUN aside from undergoing a restructuring.

Therefore, the June and September puts may be better options than the shorter-term ones, but all will rise in value due to the severe working capital shortfall and CSUN's debt burdens.