Weekend reading: The Dictator fights

David Llewellyn-Smith
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  1. Re: Debunking McKibbin:

    Some great quotes in there, from a piece that’s supposed to be debunking the idea that China is in a bubble…

    Mostly, they buy flats, usually placing a 15 per cent deposit, anticipating eventual price appreciation. If they fail to find tenants in the short term, it’s of no great concern.

    Buying property with no rental return in the anticipation of capital gain. Classic bubble characteristics.

    The banks are state owned … and will not call in such loans just because the mortgagee may have fallen behind a few months, or even years.

    Loans that never go bad. Classic bubble characteristics.

    These “loans” are unlikely to be paid back substantially…

    Loans that never have to be repaid. Classic bubble characteristics.

    “It’s a mortgage market with Chinese characteristics,” Martin says.

    Its different here. Classic bubble characteristics.

    Plus the usual points made in any China-will-boom-forever piece:

    But it is hard to see demand waning in the near future. In 2009, half the 1.3 billion population lived in cities.

    By 2030, 70 per cent will be urban — full migrants, not merely migrant workers in temporary factory jobs. That means up to 300 million more people to accommodate in the cities.

    Well if they needed all these new apartments, why are they untenanted? Why are migrant workers crammed into shipping containers while millions of new apartments go empty?

    • That is one extraordinary article. To me it flashes “warning… warning”. In addition to your points raised above, there is this gem highlighting just how reliant Australia is on China’s continued housing construction:

      “Professor Shi He-ling of Monash University says that 70 per cent of China’s steel consumption — which grew an annual 16.7 per cent between 2000 and 2009 — goes into construction. Of that, housing comprises 69 per cent, infrastructure 25 per cent and commercial buildings 6 per cent.

      China has unusually high steel intensity against GDP, benefiting Australian iron ore and coal exports immensely. But it is hard to see demand waning in the near future. In 2009, half the 1.3 billion population lived in cities.

      By 2030, 70 per cent will be urban — full migrants, not merely migrant workers in temporary factory jobs. That means up to 300 million more people to accommodate in the cities. About half of all steel made in China goes into housing, 17.5 per cent into other infrastructure.”

      • Leith, your post regarding the interview of Puru Saxena by Jim Papulava was priceless.
        Indicated what, why and when.

      • Yeah China has unusually high steel intensity against GDP, but they can pay ever higher prices for iron ore and coal with no ill effects. Indeed, their demand for Aussie iron ore and coal is so voracious, they will require much much more at much higher prices for decades to come. I mean, they have lot more empty apartments to build!

    • No mention of China raising interest rates, which was McKibbens other point that would tip property prices to collapse.