Tuesday, November 11, 2014

How Much of China's "Investment" Was Totally Useless?

"No Longer Business as Usual in China"

"When China joined the World Trade Organization 13 years ago, the government welcomed foreign companies, eager for their factories and technology. Now China is using its growing economic and financial muscle to dictate new terms, as dozens of American, European and Japanese businesses face scrutiny for corruption, monopolistic practices and, most recently, tax evasion."
Sounds like extortion and shakedowns. Investing in China, whether directly or thorugh the securities markets, is not smart. I would guess increasing shakedowns are associated with the developing financial crisis.

"Few Signs of Construction at Yujiapu, China's Manhattan Replica"
"China's $50-billion knock-off of the Big Apple sits on a river bend — much like its namesake — near the port city of Tianjin, some 120 miles from Beijing. Complete with its own Rockefeller Center and Twin Towers, it's been billed as the world's largest financial center in the making. But this Manhattan still has a long way to go. A recent visit shows that construction that began in 2008 on the back of a massive credit boom unleashed in China after the global financial crisis appears to have ground to a halt."
This is the Tianjin / Yujiapu Financial District that we have talked about before. As I said before, the world's dry bulk ships have been carrying raw materials for useless boondoggle cities. A financial center develops organically. It doesn't work to just plop a dozen 50 story high rises somewhere and call it a major financial center.

As one commenter put it,
"Eventually, when China melts down, everyone will understand the brute fact that China has melted down. Until then, you have a chance to make a profit from the slow diffusion of understanding."
Commodities, especially the building materials iron ore, met coal, copper, are still unbelievably overpriced if China is entering a crisis.

6 comments:

Stagflationary Mark said...

Commodities, especially the building materials iron ore, met coal, copper, are still unbelievably overpriced if China is entering a crisis.

I hear that!

1.4 billion people packed in an area the size of the USA? With less arable land? And people expect me to embrace the miracle growth story?

And what if factory automation continues (which it will)?

November 9, 2014
China's high employment cause for short-term comfort, long-term concern

"Fifty percent of coal companies are not paying their employees on time. Do you count that as employment?" said Andrew Polk, a Beijing-based economist at the Conference Board.

Ouch.

"I run into people all the time who say, 'I bought a Chinese business, and I'm going to restructure it to make it work. And the way I'm going to make it work is I'm going to eliminate a third of the jobs,'" said Steve Dickinson, a Chinese labor law specialist at Harris Moure in Qingdao, but added that the laws make it practically impossible to do so.

"Maybe those workers are redundant, maybe they're useless, but the government doesn't want them on the street."

Luke The Debtor said...

How Much of China's "Investment" Was Totally Useless?

You mean, like, "totally", or like, "totally, dude!"?

Stagflationary Mark
1.4 billion people packed in an area the size of the USA? With less arable land? And people expect me to embrace the miracle growth story?

I get these emails in my junk box from Estonia that might change your mind about "miracle growth".

Viennacapitalist said...

I think this goes for oil - to a smaller extent - as well: think of all that energy that's needed to construct these things...

CP said...

I would agree with that about oil. Maybe that's what we are seeing all of a sudden in the oil futures since October?

Stagflationary Mark said...

Luke The Debtor,

Don't you be hecklin' miraculous junk mail!

Junk snail mail helped turn me into a permabear in 2004. The mortgage offers had fantastic teaser rates and terms, but there was nothing teaser about the fine print. It was filled with financial strangulation and long-term despair.

Perfect for those who needed better cash flow short-term, but hoped a miracle would happen long-term! You know, like they could simply repeat the deal in the future as housing prices continue to grow exponentially without fail! Woohoo! Sigh.

Anonymous said...

CP,

An alternative point of view is that ghost towns are a "bump in the road:" http://forumblog.org/2014/09/china-ghost-towns-lgfv-debt/

The bigger issue in China is that the financial institutions are in need of structural reforms, monetary policy needs tightening (although too much would be painful), and the RMB is under pressure due to a strengthening USD and rising rates in the future.

Even if the Yujiapu ROI is negative $50 billion, I don't think that it would would dent the market or state enough to cause a "China melt down."