Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
UK General Election 2015 Seats Forecast - Who Will Win? - 28th Feb 15
UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - 28th Feb 15
Stocks Bull Market Continues - 28th Feb 15
U.S. Debt Breaking Bad - 28th Feb 15
NATO Frankenstein - When Centralization Scales Beyond Our Control - 28th Feb 15
Gold And Silver Insanity Prevails; Precious Metals Without Direction - 28th Feb 15
Fed Raising U.S. Interest Rates - Shovelin’ Schmitt Against the Tide - 28th Feb 15
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

More Signs China Is Going Bust

Economics / China Economy Sep 29, 2011 - 12:04 PM GMT

By: Justice_Litle

Economics

Best Financial Markets Analysis ArticleWhile the world fixates on Europe, signs of a China crash are mounting behind the scenes.

Imagine you run a business with 3,000 employees. Your factories churn out 20 million pairs of sunglasses per year -- the best-selling brand in China. You are a celebrated businessman in your region, with expanded interests in real estate and solar energy.


Oh, and one more thing: You are flat broke.

As it turns out, your company borrowed huge sums at high interest -- more than cash flow could justify -- and you have no hope of paying the loans back. Now the business is insolvent. What do you do?

If your name is Hu Fulin, you run away.

"The east China city of Wenzhou is battling its own subprime crisis," Shanghai Daily reports, "after seven local business owners fled." Wenzhou, the "cradle of China's private economy," is China's latest ground zero for a credit boom gone bust.

Hu Fulin is one of the seven "runaway bosses" who, faced with insurmountable debts, decided to hit the road this month, "leaving thousands of employees in a state of shock and enormous unpaid loans in hundreds of millions of yuan."

When Mr. Hu disappeared, his suppliers panicked too. Large payments were owed, along with two months' salary for thousands of employees.

The Wenzhou crisis is dubbed "subprime" because the state-owned banks pulled back, allowing private lenders to step in at sky-high rates. The loans being defaulted on had subprime rates of interest.

The Chinese government attempted to cool off reckless lending by putting restrictions on the state-owned players. All they accomplished was a juicy handoff to others to take on more risk, in exchange for subprime lending terms.

And the net result? Bosses fleeing as loans implode. "Thousands of employees in a state of shock." A ripple of destruction all down the supply chain... and a possible tipping point in the whole Ponzi-financed boom that counts Chinese real estate as its white-hot center, as greed morphs into fear.

The Wenzhou bust comes against a backdrop of warning signs for China's broader economy. The dragon had already lost a step, as evidenced by manufacturing data declines.

"The country's huge manufacturing sector is starting to slow," the NYT reports, "and orders are weakening, especially for exports. The real estate bubble is starting to spring leaks, even as inflation remains stubbornly high."

(This isn't the first time I've spoken about China. Sign up for Taipan Daily to receive more investment commentary.)

But what about the rich?

As in the United States, it's the wealthiest portion of Chinese society that drives spending (and thus equity valuations). Those who can afford luxury apartments and Hermes scarves matter a lot more than subsistence farmers.

Here too there is trouble. "Sounding the latest alarm about slowing economic growth in China," the WSJ reports, "Mercedes-Benz on Friday said luxury-car sales gains slowed in what has been its fast-growing major market."

After 60% growth in the first half of 2011, the pace of Mercedes sales decelerated in July and August. The rich are paring back.

Yet more warning signs abound. Last week, Chinese property stocks were hit hard on fears of a financing crunch. Various Hong Kong-listed developers fell more than 10% in a single day.

"Initially, people were worrying about earnings," said Agnes Deng of Baring Asset Management. "What happened is that people started to worry about balance sheet problems as well as cash flow and funding."

Cracks in the façade are widespread. Property prices are dipping in many cities after "a sharp decline in sales volumes," the Financial Times adds. Shanghai real estate transactions are down more than 50% year-on-year.

Guess who is in the middle of all this? "China's economy is very distorted, and the banks, as ever, are at the epicenter of the distortions," says Edward Chancellor of Grantham Mayo Van Otterloo. "If China runs into problems with the banking system, which I think it will, I cannot see a situation in which foreign investors are the main priority of Beijing."

It is hard to pinpoint the bursting of a bubble. But for China the warning signs abound, with free-falling copper prices a quiet confirmation. Even as the world focuses on Europe, a full-on China bust could have greater impact than many realize.

Publisher's Note: China's collapsing as we speak. When it crashes to the bottom it will affect every single investment out there. Gold, silver, commodities, emerging markets, bonds... even blue chip stocks like Wal-Mart, Microsoft, Apple... There's only one thing you can do to protect yourself.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source :http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-092911.html

By Justice Litle
http://www.taipanpublishinggroup.com/

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2011, Taipan Publishing Group

Justice_Litle Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014