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Some relevant links: "(Chinese bank's) nonperforming loans may be at 20 percent to 21 percent, or even higher." http://www.bloomberg.com/news/articles/2015-10-

Some relevant links: "(Chinese bank's) nonperforming loans may be at 20 percent to 21 percent, or even higher." http://www.bloomberg.com/news/articles/2015-10-29/risky-math-how-analysts-calculate-china-s-true-bad-loan-burden http://www.bloomberg.com/news/articles/2015-10-29/risky-math... "by 2018 all of China's excess reserves — cash that it has on hand to use immediately — could be gone." http://www.businessinsider.com/chinas-record-capital-outflows http://www.businessinsider.com/chinas-record-capital-outflow... "China’s 42.2 trillion yuan (US$6.7 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago" http://www.thestar.com.my/Business/Business-News/2015/10/10/If-you-think-Chinas-equity-bubble-is-scary-check-out-bonds/?style=biz http://www.thestar.com.my/Business/Business-News/2015/10/10/...

narrator 11y ago
How long has this "China is about to crash" story been in the news? It's been around for at least 10 years. There's an article almost every month. I should write a big FAQ about why the Chinese financial system doesn't follow western financial system rules and link to it whenever these articles come up.
- seanmcdirmid 11y ago
  The economy can remain insane longer than you can remain solvent. You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. But we've heard that before about American real estate, where people were saying "how long has this real estate is about to crash story been in the news?" in 2007... If everyone around you is talking about how to get money out of China, then something might be up.
  - narrator 11y ago
    >You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. That right there is the fundamental flaw in your thinking. You think boom and bust is physics. It's not. (Here we go again, for like the 50th time explaining how this stuff works) It's a direct consequence of the fractional reserve banking model that sticks the taxpayer with the bailout. In China, the government just prints the money electronically. They've had trillions in bad loans in the banking system forever and the Chinese gov periodically goes and cleans it up with printed money and shoots a few misbehaving bankers. In the west, we make the taxpayer and savers pay 100 cents on the dollar on the bad loans and transfer wealth from them to the bankers. We also take everyone's property and give it back to the bankers while China just lets all the bad loans sit in default forever without any action being taken. They even periodically let big investment funds default and it doesn't crash the financial system because the reverse money multiplier doesn't kick in like it does in the west because the gov just comes in and prints the money, hands it to the banks and they keep lending.
    - seanmcdirmid 11y ago
      I've talked about this with my colleagues at work a lot. There are only a couple of ways out of this mess: 1. An assets crash, turning who were winners (the speculators) into losers. Is there really a reason for that 90 sqm apartment in Beijing to be worth $1 million when it can only rent for 9000 RMB a month? 2. Significant inflation with the RMB, keeping the (well connected, mostly middle class) winners as winners, and turning everyone else who wasn't speculating into losers. Keep in mind that a vast majority of the Chinese population has saved lots of RMB and isn't exposed so much to assets (though they would like to be). We, like you, think that 2 might be a possibility. Hence my need to transfer my RMB into USD and get it out of the country. Likewise, those who know better than me have been more aggressive about getting out of the RMB, as the article states (I had to go through and get tax receipts, income statements, and a bunch of other hoops to do my transfers). 1 is still a possibility also, which means getting into real estate (the only investment for us mere mortals) is very risky. And just because you can print your way out of a crash doesn't mean the crash hasn't happened. It sucks when the US does this with its freely convertible currency, it is even worse when/if China does this with its nonconvertible currency.
      - narrator 11y ago
        Here's the twist. What if they build a ton of houses and get the second tier cities hooked up to infrastructure such that they create housing booms further inland at the expense of costal property. New capital is always being created and developed and the central planners in China aren't that bad at this. You just have a different set of winners this time around with the marginal profitability of Shanghai slowing down in favor of the Inland cities. In the US urban infrastructure is garbage outside of a few major metros so all the money piles into those and the rest is is ignored and then bubbles and pops. China actually does development like they mean it and is expanding out thousands of miles of roads and trains building out new markets so the new money injected can find a way to profitably invest itself.
        seanmcdirmid 11y ago
        So my wife lives in Chenzhou, which is a small inland 3rd/4th tier city by Chinese standards; we visit sometimes. Speculators will speculate, and there is a huge surplus of apartments as a result, with no hope anytime soon of really selling them off and putting them into use...new capital wasn't created, it was just sunk into these buildings. They won't create new capital until they are occupied, those people with jobs doing things to create value. Just building them doesn't create capital. It does create jobs for migrant workers, which I guess is the primary goal. And the houses are poorly constructed concrete monstrosities, no central heating (I hate visiting in the winter). You just can't help but think they'll be torn down in 10 or 20 years before they are actually used. Even in Beijing, an apartment building built 5 years ago would be considered decrepit by western standards. I was looking for a new apartment to rent and came away thoroughly depressed...the prices were high sure, but there was nothing even close to what I wanted anyways. So I stayed put in my current flat, whose rent hasn't gone up in the 3 years I've been renting it. Chinese urban infrastructure would love to have US urban infrastructure problems. Trains are wonderful, roads are great also if you want to cut down on 10-day long traffic jams. But they are nowhere near the states in terms of infrastructure, and much of it are white elephant projects that will never contribute to the economy in any meaningful way.
  - api 11y ago
    I mostly agree but I have to quibble just a little: American real estate is still insane. The housing crash was really just a small dip on what seems to be an unrelenting hyperinflation in real estate. When government policies deliberately encourage insanity -- as many policies both in the USA and abroad (such as in China) do for real estate -- then the economy can remain insane much longer than you can remain solvent. It might remain insane so long that the entire rest of the economy reorganizes around the insanity, institutionalizing it into a permanent state of affairs. I'm a bit concerned that this is going to happen with housing... that we'll end up with a future where most things are very cheap but real estate is so insane that some huge fraction of everyone's earnings just goes into paying rent or paying off a 60 year mega-mega-jumbo mortgage. Everyone will just accept that a starter home starts at $2.5 million. As far as China goes: why can't its government just keep artificially re-adjusting the economy so that it can never fall for as long as its government exists? I don't see why there's a hard upper bound to Keynes-on-meth economic policy, and China in turn is so huge that this could distort the entire world economy. As this article hints it's probably one of the factors driving real estate nuts. The only thing I can see that could stop this is if other large nations and blocs like the EU decide that China's exporting of domestic economic insanity is hurting them and decide to start some kind of trade or currency war. But that's unlikely since the entire world is completely dependent on Chinese manufacturing power.
    - seanmcdirmid 11y ago
      You are totally right. You need to look at supply and demand in the states, many markets are distorted by a lot of baby boomers ready to leave the market and speculation from abroad. I think our future might be Switzerland, where that house will cost you $1 million, but it isn't going to go up or down very much. Adjustments work when they are small, but if you keep adjusting, eventually your house of cards will implode. You'll either crash hard or print more money, perhaps crashing even harder. The US has done OK in making adjustments, because they just need to nudge it this way or another. China has meddled much more deeply in the economy, creating a lot more risk for a hard crash in the near future.
      - api 11y ago

narrator 11y ago

How long has this "China is about to crash" story been in the news? It's been around for at least 10 years. There's an article almost every month. I should write a big FAQ about why the Chinese financial system doesn't follow western financial system rules and link to it whenever these articles come up.

seanmcdirmid 11y ago
The economy can remain insane longer than you can remain solvent. You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. But we've heard that before about American real estate, where people were saying "how long has this real estate is about to crash story been in the news?" in 2007... If everyone around you is talking about how to get money out of China, then something might be up.
- narrator 11y ago
  >You can claim that the Chinese financial system is immune to economic cycles and that the law of gravity doesn't apply. That right there is the fundamental flaw in your thinking. You think boom and bust is physics. It's not. (Here we go again, for like the 50th time explaining how this stuff works) It's a direct consequence of the fractional reserve banking model that sticks the taxpayer with the bailout. In China, the government just prints the money electronically. They've had trillions in bad loans in the banking system forever and the Chinese gov periodically goes and cleans it up with printed money and shoots a few misbehaving bankers. In the west, we make the taxpayer and savers pay 100 cents on the dollar on the bad loans and transfer wealth from them to the bankers. We also take everyone's property and give it back to the bankers while China just lets all the bad loans sit in default forever without any action being taken. They even periodically let big investment funds default and it doesn't crash the financial system because the reverse money multiplier doesn't kick in like it does in the west because the gov just comes in and prints the money, hands it to the banks and they keep lending.
  - seanmcdirmid 11y ago
    I've talked about this with my colleagues at work a lot. There are only a couple of ways out of this mess: 1. An assets crash, turning who were winners (the speculators) into losers. Is there really a reason for that 90 sqm apartment in Beijing to be worth $1 million when it can only rent for 9000 RMB a month? 2. Significant inflation with the RMB, keeping the (well connected, mostly middle class) winners as winners, and turning everyone else who wasn't speculating into losers. Keep in mind that a vast majority of the Chinese population has saved lots of RMB and isn't exposed so much to assets (though they would like to be). We, like you, think that 2 might be a possibility. Hence my need to transfer my RMB into USD and get it out of the country. Likewise, those who know better than me have been more aggressive about getting out of the RMB, as the article states (I had to go through and get tax receipts, income statements, and a bunch of other hoops to do my transfers). 1 is still a possibility also, which means getting into real estate (the only investment for us mere mortals) is very risky. And just because you can print your way out of a crash doesn't mean the crash hasn't happened. It sucks when the US does this with its freely convertible currency, it is even worse when/if China does this with its nonconvertible currency.
    - narrator 11y ago
      Here's the twist. What if they build a ton of houses and get the second tier cities hooked up to infrastructure such that they create housing booms further inland at the expense of costal property. New capital is always being created and developed and the central planners in China aren't that bad at this. You just have a different set of winners this time around with the marginal profitability of Shanghai slowing down in favor of the Inland cities. In the US urban infrastructure is garbage outside of a few major metros so all the money piles into those and the rest is is ignored and then bubbles and pops. China actually does development like they mean it and is expanding out thousands of miles of roads and trains building out new markets so the new money injected can find a way to profitably invest itself.
      - seanmcdirmid 11y ago
        So my wife lives in Chenzhou, which is a small inland 3rd/4th tier city by Chinese standards; we visit sometimes. Speculators will speculate, and there is a huge surplus of apartments as a result, with no hope anytime soon of really selling them off and putting them into use...new capital wasn't created, it was just sunk into these buildings. They won't create new capital until they are occupied, those people with jobs doing things to create value. Just building them doesn't create capital. It does create jobs for migrant workers, which I guess is the primary goal. And the houses are poorly constructed concrete monstrosities, no central heating (I hate visiting in the winter). You just can't help but think they'll be torn down in 10 or 20 years before they are actually used. Even in Beijing, an apartment building built 5 years ago would be considered decrepit by western standards. I was looking for a new apartment to rent and came away thoroughly depressed...the prices were high sure, but there was nothing even close to what I wanted anyways. So I stayed put in my current flat, whose rent hasn't gone up in the 3 years I've been renting it. Chinese urban infrastructure would love to have US urban infrastructure problems. Trains are wonderful, roads are great also if you want to cut down on 10-day long traffic jams. But they are nowhere near the states in terms of infrastructure, and much of it are white elephant projects that will never contribute to the economy in any meaningful way.
- api 11y ago
  I mostly agree but I have to quibble just a little: American real estate is still insane. The housing crash was really just a small dip on what seems to be an unrelenting hyperinflation in real estate. When government policies deliberately encourage insanity -- as many policies both in the USA and abroad (such as in China) do for real estate -- then the economy can remain insane much longer than you can remain solvent. It might remain insane so long that the entire rest of the economy reorganizes around the insanity, institutionalizing it into a permanent state of affairs. I'm a bit concerned that this is going to happen with housing... that we'll end up with a future where most things are very cheap but real estate is so insane that some huge fraction of everyone's earnings just goes into paying rent or paying off a 60 year mega-mega-jumbo mortgage. Everyone will just accept that a starter home starts at $2.5 million. As far as China goes: why can't its government just keep artificially re-adjusting the economy so that it can never fall for as long as its government exists? I don't see why there's a hard upper bound to Keynes-on-meth economic policy, and China in turn is so huge that this could distort the entire world economy. As this article hints it's probably one of the factors driving real estate nuts. The only thing I can see that could stop this is if other large nations and blocs like the EU decide that China's exporting of domestic economic insanity is hurting them and decide to start some kind of trade or currency war. But that's unlikely since the entire world is completely dependent on Chinese manufacturing power.
  - seanmcdirmid 11y ago
    You are totally right. You need to look at supply and demand in the states, many markets are distorted by a lot of baby boomers ready to leave the market and speculation from abroad. I think our future might be Switzerland, where that house will cost you $1 million, but it isn't going to go up or down very much. Adjustments work when they are small, but if you keep adjusting, eventually your house of cards will implode. You'll either crash hard or print more money, perhaps crashing even harder. The US has done OK in making adjustments, because they just need to nudge it this way or another. China has meddled much more deeply in the economy, creating a lot more risk for a hard crash in the near future.
    - api 11y ago