China bubble?

While the word has focused on China’s disastrous stock market bailout and the devaluation of the currency, a far larger crisis is brewing in China’s hinterland.

China’s property bubble has sagged in the big cities like Beijing and Shanghai – but it is on the verge of popping completely in the country’s heartland. After spending a week in Sichuan Province, it is clear that land sales, prices and transactions are all declining in double digits.

Sichuan province is one of China’s largest, in the heart of the country. We spent some time at a residential project called Universal City Centre, about 20km from Chongqing. The 1.08m sqm property has seen prices fall one-third from 4,000 to 5,800 psm one-third to 3,000 to 4,000 psm. Read more

The ever ingenious Chinese financial system has developed a new kind of shadow bank – insurance companies.

China’s $586bn stimulus package in 2009 caused a flurry of lending through the country’s financial arteries. Some of this money ended up leaking out of the banks into unofficial channels, including the country’s state banks and the giant provincially-owned pseudo banks called Trust Companies. By the end of 2014, these off-balance sheet loans accounted for 18 per cent of all financing, up from less than 2 per cent a decade earlier. Read more

The first whispers of worry about a Chinese property bubble surfaced in late 2009. Since then, the local real estate market has quickened and slowed in line with government measures to stoke or cool the market, but has never crashed. Nonetheless, some market watchers insist that the Chinese property bubble will burst one day. Recent sector weakness has given them further ammunition, as has the near collapse of Kaisa, a mid-sized Shenzhen-based developer.

Until December 2014, Kaisa’s finances were perceived to be strong and sales were rising. Now its survival is at the mercy of lenders and rivals. Its woes started when the government halted some of its Shenzhen projects in December without giving a reason. The chairman abruptly resigned, while debts to banks and bondholders have gone unpaid and the firm is in the process of being acquired by its competitor. It has yet to reach a consensual solution with its creditors. Read more

By Gabriel Sterne and Alessandro Theiss, Oxford Economics

If there was a financial crisis in China, the government could take a big hit, transferring a huge chunk of bad debts onto its balance sheet. But this remedy would have a big impact on the domestic and global economy.

Overall debt (public, private and financial) has skyrocketed in recent years, rising from 176 per cent of GDP in 2007, to 258 per cent of GDP by mid-2014. The debt binge may be fuelling a time bomb in the property market. Read more

By Rafael Halpin, China Confidential

For a sector regularly called “the most important in the universe”, there is a remarkable lack of consensus over the Chinese housing market. Much of the debate boils down to whether China is currently under- or over-supplied with homes.

The absence of any comprehensive data on just how many houses there are in China, has led to wildly divergent views. But, as we will seek to demonstrate in this article, despite the lack of any solid data on the total number of homes in China, it is still possible to present a strong statistical case that the market is currently under-supplied with modern housing.  Read more

By Andrew Collier, Orient Capital Research

The threat of a collapse in the shadow banking market looms over China like a hawk swooping down on its prey. Shadow loans are made outside the formal banking system and are only lightly regulated, making them a significant source of financial stress if the Chinese economy slows significantly. One of the biggest source of shadow loans, Trusts, is showing signs of weakness that could turn into a big problem for China’s economy.

There now is a staggering Rmb 11.7tn in outstanding Trust loans, approximately one-quarter of the entire shadow banking market. Using a list of 31 failed Trusts supplied by the Central University of Finance and Economics in Beijing, we examined them to see what they tell us about the fate the entire Trust industry – and by extension shadow banking in China.

What we found is a disturbing harbinger of things to come for China’s economy. Read more

By Andrew Collier, Orient Capital Research

What happens if China goes broke?

China’s Rmb4tn stimulus package in 2008 – and its ballooning lending – has raised fears of a financial collapse. Certainly, debt has exploded. The China Academy of Social Sciences (CASS) estimates that total government debt is now Rmb 27tn, or 53%, of GDP. Throw in corporate and household debt, and CASS estimates the total at Rmb 111.6tn ($18.3tn) at the end of 2012, or 215 per cent GDP.

Chinese economists are quick to point out that the country has plenty of money to pay off its debts and could easily avert a financial collapse. The government, they say, could function as lender of last resort. Read more

By Jan Dehn, Ashmore

China is in the midst of a storming change. Interest rate liberalisation is coming as China prepares to let the bond market play an ever-greater role in macroeconomic policy.

The export-led growth model of the past few decades is no longer fit for purpose. As the largest holder of foreign exchange reserves, China will be more impacted by the unwinding of global imbalances than any other country.

Quite simply, China is adapting to the world of tomorrow, instead of merely languishing in yesterday’s land of denial. Read more

My bubble's bigger than your bubble

Rising house prices and property bubbles are something of a UK obsession. But for all the help to buy worries, house prices rose by just 1.4 per cent year-on-year in the second quarter, according to estate agents Knight Frank.

The figure for London is much higher, of course. But for a housing boom of far greater magnitude, just take a look at Asia. Read more

He’s back. Hugh Hendry, the outspoken hedge fund manager best known for his bearish views on China and this jerky, homemade video of empty malls and deserted developments, has come out with a new letter to his investors after an 18 month absence.

China bulls will find few comforting words in it though. Quite simply, Hendry thinks China’s massive property bubble will burst in a spectacular fashion and become the focal point of the next financial crisis. Read more

Shares in AgBank – China’s No.3 lender by market value – fell 3 per cent in Hong Kong on Friday after it released full year earnings that came up short. The broader market was also down, but only by 1 per cent.

Though some analysts say investors can dismiss the miss, the market looks nervy. Read more

Carson Block, founder and chief executive of the company Muddy Waters Research, which provides analyst coverage of under-researched Chinese stocks listed in North America, talks to the FT after winning the award for best newcomer at the 2012 FT ArcelorMittal Boldness in Business Awards.

China’s Q4 GDP figures are due on Tuesday. What should we look out for? Here are five things economists say are worth keeping an eye on.

  Read more

By Jonathan Anderson, head of Asia-Pacific Economics at UBS

Almost exactly nine years ago – in the summer of 2002 to be exact – two extraordinary things happened.

The first is that China’s astounding growth story first began to make itself truly felt on the global stage. The latter part of that year marked the beginning of China’s decade-long explosion in commodity and primary resource imports, with the mainland quickly establishing itself as the world’s largest consumer of iron ore, cement, soybeans and a host of other products. (See chart below after the break.) Read more

Sino Forest is the latest company to exemplify what is fast becoming a truism: if a company has Sino or China in its name and was listed abroad via a reverse takeover, shorting it might be a very profitable play.

The Toronto-listed forestry firm plunged more than 20 percent on Thursday following a highly critical research report. China MediaExpress Holdings, a firm that places ads on buses, had its Nasdaq-listed stock halted in March after falling nearly 50 percent in six weeks. China Agritech, another Nasdaq-listed firm, had lost more than 60 percent since late last year before its shares were suspendedRead more

By Paul Louie,  head of property research for Asia ex-Japan at Nomura

Back in 1998 in the aftermath of the Asian Crisis, Hong Kong embarked on an ambitious quest to become a “World City” in the same fashion as New York and London. It highlighted human capital and the living environment as pivotal to its development. Now, 14 years after the 1997 handover, the focus is not on whether Hong Kong has succeeded in that quest but on home prices, which are almost back to 1997 highs. Observers now say: Hong Kong has another property bubble on its hands.

But if Hong Kong has turned itself into a World City, is it so surprising that home prices are up around 1997 highs? Read more

This is the fifth in a beyondbrics series on bubbles in the Chinese economy

Few advanced nations in the developed world have hitched a ride on the tails of the Red Dragon to the same degree as Australia.

The Wonder from Down Under, now in its 20th year of uninterrupted growth, shares an increasingly intimate trading relationship with China that eclipses all others. Read more

By Victor Shih, associate professor of political science, Northwestern University. This is the fourth in a beyondbrics series on bubbles in the Chinese economy

At the end of April, Baotou-based Chinese billionaire Jin Libin set himself on fire to escape his creditors.  His method of dealing with the situation was disturbing enough, but the structure of his debt was equally shocking. Investigators found that his billion renminbi business owed banks only 150 million RMB, but owed individual creditors and informal banks Rmb1.23bn.

In other words, he owed private creditors and informal banks over eight times what he owed the banks. Although extreme, Jin’s debt situation suggests a highly risky debt bubble that seems to be growing without much control outside of the banking system. Read more

This is the third in a beyondbrics series on bubbles in the Chinese economy

When a bottle of wine costs more at an auction than an undergraduate education at Harvard, some hear alarm bells ringing alongside the rap of the auctioneer’s gavel.

But as the latest fine wine auction at Christie’s in Hong Kong last week showed Chinese interest in the market remains unsatiated. Read more

By Jian Chang at BarCap. This is the second in a beyondbrics series on bubbles in the Chinese economy

Ghost towns, empty airports, highways to nowhere – these are striking stories that often lead to concerns about China’s investment bubbles, NPLs/local government debt, and a banking or sovereign crisis in the pipeline. Read more