Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

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

© 2005-2016 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

Catching a Falling Financial Knife