China, a country rapidly ascending into the global center stage, is now showing signs of a rapidly overheating economy. It appears that Beijing must be taking plays out of "The Maestro", Alan Greenspan's book, as its real estate market appears to be in the midst of a bubble accompanied by double digit growth in the economy.
Government figures released yesterday showed urban housing prices in March rose 11.7% during the previous 12 months, up from 10.7% the month before and the biggest increase since the index began nearly 5 years ago.
The figures released on Wednesday by the National Bureau of Statistics did suggest some cooling in demand for housing, as the 35.8% year-on-year increase in sales for the first quarter were less extreme than the 50% gain experienced at the end of last year. The data series is showing extreme volatility. Separate figures prepared by a private consulting firm indicated housing sales exploded in March by 90% versus February, despite sizable declines in the two prior months.
The Chinese economy grew at an 11.9% rate in the first quarter from a year ago, confirming Beijing's rapid recovery from the global economic crisis but raising new concerns about the risks of overheating.
The economy grew at its fastest rate in nearly 3 years and more quickly than economists had expected. The pace of growth puts new pressure on Beijing to consider tougher tightening measures, including appreciation in the exchange rate and increasing interest rates.
In spite of rising fears of overheating, consumer price inflation dipped to 2.4% last month, from 2.7% in February. However, at the producer level, inflation continued to accelerate, increasing from 5.4% to 5.9% in March.
The government has already taken some steps to reduce the stimulus it is injecting into the economy, including much tighter control over bank lending. However, concerns about potential inflation come at a time of growing international pressure to abandon China’s currency peg against the U.S. Dollar. Federal Reserve Chairman Ben Bernanke has called for a more flexible Renminbi, saying it would help keep China's inflation from accelerating further.
Asian tiger Singapore reset the band in which its currency trades and said it would allow gradual appreciation. This was designed to calm its booming economy, which grew at an annualized rate of 13.1% in the first quarter.
Political consideration continue to be the wild card. Currency markets have been volatile as recent pressure from the U.S. over the Renminbi peg have been met with resistance since the Chinese do not want to be seen as caving to pressure.
Complicating the situation further is the growing worldwide desire for sanctions on Iran. China is seen as critical for a successful diplomatic effort and the United States must tread lightly in order to secure Beijing's
support.
Marko's Take
Please visit our new YouTube video on the Legality Of The Personal Income Tax. The video can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Showing posts with label Real Estate Bubble. Show all posts
Showing posts with label Real Estate Bubble. Show all posts
Thursday, April 15, 2010
Monday, March 8, 2010
A Non-Bull In A China Shop!
China certainly has no shortage of investment fans, including such notable names as legendary investor Jimmy Rogers, who, along with billionaire-activist George Soros, co-founded the famous Quantum Fund. Recently, UBS and Morgan Stanley have turned bullish on Chinese real estate, despite fears that the market is in the midst of a massive bubble.
However, Marko's Take does not share their enthusiasm for China's prospects as articulated in some prior essays. To recap, China's demographic structure, which has been butchered by its population control efforts, is NOT conducive to long-term prosperity (http://markostake.blogspot.com/2009/12/baby-boomer-bust.html
China is also experiencing slower growth and economic stresses resulting from its currency peg to the Dollar (http://markostake.blogspot.com/2010/02/is-china-miracle-in-trouble.html).
But, the cracks in the ice continue to spread. Worsening economic problems have forced China to pare back its planned budgetary outlays.
According to a recent article in the Wall Street Journal, total government spending is slated to increase a relatively modest 11% this year, down from the 21% increase in 2009. Slower gains in both infrastructure and social programs are expected, China's finance ministry said in a presentation last Friday to the annual meeting of the legislature. While it promised more money for many of the administration's priorities, like education and housing, new spending was constrained by dim prospects for tax revenue this year.
The reports to the National People's Congress reflect the recent dis-harmony between Chinese official rhetoric, which still emphasizes the need to propel the economy and a series of actions in recent months to slow growth to head off possible overheating.
"There is insufficient internal impetus driving economic growth," Premier Wen Jiabao told delegates to the legislature, warrning of continued weakness in the global economy and persistent problems at home. Though he pledged that policies supporting economic growth will continue this year, he admitted that the scale is being reduced as the government worries about future strains on its finances.
China will shoot for around 7.5 trillion Yuan (around $1.1 trillion) worth of new local-currency loans this year, lower than the record 9.59 trillion Yuan worth of new loans banks extended last year. It will also seek to slow growth in broad money supply, or M2, to around 17% this year from nearly 28% in 2009.
One area of particular concern is the country's property market. Quickly-rising prices in some cities are discouraging many from purchasing homes, creating a political as well as an economic problem. "Bubble Speak" is mushrooming among China-watchers too, with some noted critics comparing China's situation to Dubai (http://markostake.blogspot.com/2010/03/dubai-enough-to-make-you-cry.html).
Another issue is the Chinese currency, formerly known as the Renminbi, which has remained pegged to the U.S. Dollar. Economists and currency-market participants increasingly expect that China will at some point this year allow its currency to rise against the greenback. Inflation in China is picking up as the economy recovers and from the booming increase in money supply.
Trade frictions are also on the rise. The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe, as well as China's Asian neighbors. For those critical of Chinese currency policy, Central Bank Governor Zhou Xiaochuan's indication that he is considering an exit from the peg was welcome.
The generally accepted notion that China is THE emerging superpower is quickly becoming more myth than reality. Those legions of Sino-philes are looking at some unpleasant surprises as China's many policy mistakes filter through the economy.
Still a fan of investing in China? TAKE ME ON!
Marko's Take
We expect our next segment on YouTube, explaining the Federal Reserve, to be posted within the next 24 hours. You can find our new series of video blogs here: http://www.youtube.com/markostaketv.
However, Marko's Take does not share their enthusiasm for China's prospects as articulated in some prior essays. To recap, China's demographic structure, which has been butchered by its population control efforts, is NOT conducive to long-term prosperity (http://markostake.blogspot.com/2009/12/baby-boomer-bust.html
China is also experiencing slower growth and economic stresses resulting from its currency peg to the Dollar (http://markostake.blogspot.com/2010/02/is-china-miracle-in-trouble.html).
But, the cracks in the ice continue to spread. Worsening economic problems have forced China to pare back its planned budgetary outlays.
According to a recent article in the Wall Street Journal, total government spending is slated to increase a relatively modest 11% this year, down from the 21% increase in 2009. Slower gains in both infrastructure and social programs are expected, China's finance ministry said in a presentation last Friday to the annual meeting of the legislature. While it promised more money for many of the administration's priorities, like education and housing, new spending was constrained by dim prospects for tax revenue this year.
The reports to the National People's Congress reflect the recent dis-harmony between Chinese official rhetoric, which still emphasizes the need to propel the economy and a series of actions in recent months to slow growth to head off possible overheating.
"There is insufficient internal impetus driving economic growth," Premier Wen Jiabao told delegates to the legislature, warrning of continued weakness in the global economy and persistent problems at home. Though he pledged that policies supporting economic growth will continue this year, he admitted that the scale is being reduced as the government worries about future strains on its finances.
China will shoot for around 7.5 trillion Yuan (around $1.1 trillion) worth of new local-currency loans this year, lower than the record 9.59 trillion Yuan worth of new loans banks extended last year. It will also seek to slow growth in broad money supply, or M2, to around 17% this year from nearly 28% in 2009.
One area of particular concern is the country's property market. Quickly-rising prices in some cities are discouraging many from purchasing homes, creating a political as well as an economic problem. "Bubble Speak" is mushrooming among China-watchers too, with some noted critics comparing China's situation to Dubai (http://markostake.blogspot.com/2010/03/dubai-enough-to-make-you-cry.html).
Another issue is the Chinese currency, formerly known as the Renminbi, which has remained pegged to the U.S. Dollar. Economists and currency-market participants increasingly expect that China will at some point this year allow its currency to rise against the greenback. Inflation in China is picking up as the economy recovers and from the booming increase in money supply.
Trade frictions are also on the rise. The currency peg has helped the country's exporters take advantage of the recent recovery in world trade, but has drawn increasing criticism from the U.S. and Europe, as well as China's Asian neighbors. For those critical of Chinese currency policy, Central Bank Governor Zhou Xiaochuan's indication that he is considering an exit from the peg was welcome.
The generally accepted notion that China is THE emerging superpower is quickly becoming more myth than reality. Those legions of Sino-philes are looking at some unpleasant surprises as China's many policy mistakes filter through the economy.
Still a fan of investing in China? TAKE ME ON!
Marko's Take
We expect our next segment on YouTube, explaining the Federal Reserve, to be posted within the next 24 hours. You can find our new series of video blogs here: http://www.youtube.com/markostaketv.
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