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Professor: "Chinese Bubble Could Pop 'tomorrow'"  
User currently offlinePHX787 From Japan, joined Mar 2012, 8384 posts, RR: 20
Posted (3 years 1 month 1 week 3 days ago) and read 2177 times:

I just finished a class here and I was chatting with a professor here about the history of the economy of japan, and how the 80s price bubble in japan essentially exploding in the 90s, and resulting in 20 years of recession which japan is now beginning to rise out of......
But this professor told me that china is in a very similar situation for the following reasons:
1) the yuan is excessively manipulated to the point where it can't rescue any bank in china if banks begin to fail and the price gets forced to the ground:

2) there is excessive speculation in the Chinese market, especially with real estate.

3) American firms are beginning to clamp down on Chinese practices, resulting in some firms looking elsewhere (especially to japan or Korea) for their business

4) china and North Korea relationship, and if the outbreak of war on the Korean Peninsula occurs, a mass exodus of Koreans into china

5) over saturation (expressed above with over speculation) which will result in an inevitable market dry up...

Basically it goes down to this: Chinese firms need to figure out how to avoid a massive explosion of their own economy. The bubble apparently can burst any day now, and would result in a massive world recession......unlessssssss, American firms and other firms focus on different markets.....as mentioned above American firms are already apparently beginning g to do this, resulting in this theory of the Chinese economy collapsing. Changes in the Japanese economic situation and an increased focus on a bilateral relationship with the states is allowing American companies to expand in japan, and apparently a few are jumping ship out of china for japan.

Cambodia as well is beginning to attract international business from china, and very soon, Myanmar will also boast extensive foreign investment.

China needs to change.....everything. Government, business practices, international relations....all of it. But I doubt this is going to happen, even with a new premier in power.


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10 replies: All unread, jump to last
User currently offlineTheCommodore From Australia, joined Dec 2007, 3799 posts, RR: 9
Reply 1, posted (3 years 1 month 1 week 3 days ago) and read 2157 times:

Quoting PHX787 (Thread starter):

I'm no expert, but it seems to me that this has been said (many) times over many years about the Chinese economy, and it has only gone from strength to strength, something the rest of the world (enviously) would very much like to follow.

Could be a case of "sour grapes" perhaps ?

Quoting PHX787 (Thread starter):
and how the 80s price bubble in japan essentially exploding in the 90s, and resulting in 20 years of recession which japan is now beginning to rise out of......

Heard last week some economist saying the the road Japan is taking, eg, just printing money like no tomorrow, could be even more dangerous that China's predicament ?

[Edited 2013-04-14 23:14:45]

“At first, they'll only dislike what you say, but the more correct you start sounding the more they'll dislike you.”
User currently offlineQFA380 From Australia, joined Jul 2005, 2196 posts, RR: 1
Reply 2, posted (3 years 1 month 1 week 3 days ago) and read 2150 times:

I'd agree with him that there are some deep issues with China, I wouldn't agree that we'll see it as he says 'pop tomorrow', their economy is not that fragile but it is very fragile. They have a host of long term issues too that will not be resolved in a hurry.

I'm reading that China is approaching or has passed their peak labour force size. This is an enormous problem, you'll have more and more people being dependent on others to survive. In their social structure that means looking after parents and possibly staying home if need be which will exacerbate the problem. Consumption can't rise if everyone is looking after mum and dad.

Much of their economy is built of slightly more substantial Keynesian 'dig a hole and fill it back up' to create production in the form of construction. Shining example of this being the venues built for the Olympics. Steel and iron ore are stockpiling, not a good sign for continued construction. Much of the wealth is based on speculation of future growth and if people start getting skittish I think you'll see an enormous sell off.

Western markets such as the US have seen wages and the dollar fall in value, tipping the scales of production for many things back to the US. This at the same time as the yuan is appreciating and wages are rising along with greater knowledge of the many issues that Chinese manufacturing has for a company will lead to lower exports, this already appears to be happening to a degree.

All this even assuming that the party can keep a tight grip on power and that other geopolitical issues don't come up.
Interesting times.

Then we see news out today that the economy grew less than expected (meaning the priced in growth) despite increased government spending and loose credit conditions. With construction slowing, Australian miners had their biggest selloff in two years.

[Edited 2013-04-14 23:41:47]

User currently offlineLH7478i From Germany, joined Jan 2012, 62 posts, RR: 0
Reply 3, posted (3 years 1 month 1 week 3 days ago) and read 2132 times:

My professor for monetary economics kind of told me the same thing. He thinks there will be a massive monetary shock regarding exchange & interest rates.

My guess is once things go bad it will be noticed first on the stock market. This enforces the overall pressure on the economy even more and forces a further or more severe decline as a result of the loss in confidence. And here we have the first big bust of Chinese economy.

A319, A320, A321, A333, A346, B733, B735, B73G, B738, B744, B748, B757, B767, CRJ200, CRJ700, CRJ900, EMB135, EMB145, E1
User currently offlineAaron747 From Japan, joined Aug 2003, 9278 posts, RR: 26
Reply 4, posted (3 years 1 month 1 week 2 days 23 hours ago) and read 2111 times:

Quoting TheCommodore (Reply 1):
Heard last week some economist saying the the road Japan is taking, eg, just printing money like no tomorrow, could be even more dangerous that China's predicament ?

Japan will need to manage inflation carefully, but the thing that gets lost in everyone's banter about Japan's debt-to-GDP ratio is that most of it is tied up in the nation's household savings. Even with the household savings rates slipping, Japanese household savings are much stronger than the rest of the industrialized world. The AVERAGE Japanese household savings is around 16.6 million yen, which is over $150,000.

Quoting TheCommodore (Reply 1):
Could be a case of "sour grapes" perhaps ?

Japanese professors with sour grapes views of contemporary China are a dime a dozen.

If you need someone to blame / throw a rock in the air / you'll hit someone guilty
User currently offlineAesma From Reunion, joined Nov 2009, 8788 posts, RR: 15
Reply 5, posted (3 years 1 month 1 week 2 days 14 hours ago) and read 1963 times:

Well I find the comments about Japan strange, Japan is manipulating its currency like crazy at the moment.

Also, there are two very different phenomena regarding foreign investment in China. Investment to make things cheaper and then export them back to the west. Investment to sell stuff to the local population. The first is decreasing because wages and costs have soared. This seems to be happening gradually, though (just like offshoring is gradual). The second is limited and has always been, because China just like Japan is protecting its market and wants to make everything itself. No risk of a bubble popping there either.

Now, what the Chinese themselves do is another story and I don't know much about that, it seems to be every man in power for himself.

New Technology is the name we give to stuff that doesn't work yet. Douglas Adams
User currently offlineFlighty From United States of America, joined Apr 2007, 10100 posts, RR: 3
Reply 6, posted (3 years 1 month 1 week 2 days 14 hours ago) and read 1945 times:

China's great virtue is that they have no currency constraints. If they need to float their economy on a wave of fictional RMB, they can do that -- it's totally their sandbox! They make the rules.

If, somehow, China is on an unsustainable path with regard to US dollar exports, we could argue for a collapse there. The US controls the US dollar. The biggest collapse / chaos candidate remains the Euro. Due to political rigidity that is part of the currency itself. Ordinarily, currency is not the main issue in economics.

The main issue is whether China's GDP growth is real or fake. I believe it is mostly real. There will come a time when it is impossible to deny the immense wealth of China. Millions of people having tens of milions of dollars / Euros, overwhelming world luxury destinations, boutiques, supercar dealers and fine universities. We're about halfway there already. Their middle class is behind the USA / Canada / Australia / Europe / Japan, but it will catch up, at which time this debate will be over.

[Edited 2013-04-15 09:21:14]

User currently offlinecomorin From United States of America, joined May 2005, 4909 posts, RR: 13
Reply 7, posted (3 years 1 month 1 week 2 days 13 hours ago) and read 1924 times:

Quoting PHX787 (Thread starter):

I think the most respected of the China watchers is someone I had the pleasure of knowing sometime ago. He was an Emerging Markets Trader and also taught at Columbia. He now lives in Beijing, teaches at Xinhua and his avocation is promoting the punk rock scene in China!

His name is Michael Pettis and you should Google him up.

User currently offlineLAXintl From United States of America, joined May 2000, 29158 posts, RR: 50
Reply 8, posted (3 years 1 month 1 week 2 days 12 hours ago) and read 1879 times:

I would not worry about China in the long run.

Yes there are issues such as real-estate market - for which the government continues to try to cool down, and there are arguments that its currency value is kept too low, but are a host of counter weighs that will continue push growth.

For starters there is demograhics - China unlike Japan is growing. Even with the one-child policy, its working population continues to grow as unlike many nations both sexes go out and get jobs.
With all this work, the nation is also on cusp of massive personal income growth. This will continue to push economic growth itself as these consumers will seek to buy ever more.
Also you have smart government policy that now is pushing industrialization from the coast into the heartland. All of a sudden inner Yangtze river cities like Chongqing, Chengdu are becoming the new Pearl River Delta stars of yesteryear's.

So yes there might be a few downs along with the ups, but I think those that say the 20th century belonged to the US, and the 21st will belong to China are onto something.

From the desert to the sea, to all of Southern California
User currently offlinedl021 From United States of America, joined May 2004, 11454 posts, RR: 72
Reply 9, posted (3 years 1 month 1 week 2 days 12 hours ago) and read 1861 times:
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Chinas biggest worries are resources. It is short on water and fuel and women. They've managed to create an imbalance in the population and have more men than women, which is always bad for organized societies (leads to aggression and depression) and their increasingly weatlhy (comparatively) population is increasing its requirement for fuel and food (more people have more money and want more protein than they've ever had).
It's working very hard to secure fuel sources outside its borders (everything from oil to wood) but it's own population demands for water are more than scary to the leadership there. Economic challenges they face from their desire to run their own program at the cost of everyone elses intellectual property rights and a shrinking economic advantage from cheap labor are secondary, if real, to the basic issues.

Is my Pan Am ticket to the moon still good?
User currently offlineAeroWesty From United States of America, joined Oct 2004, 20822 posts, RR: 60
Reply 10, posted (3 years 1 month 1 week 2 days 11 hours ago) and read 1832 times:

Quoting Flighty (Reply 6):

China's great virtue is that they have no currency constraints. If they need to float their economy on a wave of fictional RMB, they can do that -- it's totally their sandbox! They make the rules.

A worldwide calamity stemming from Chinese economic hard times/bubble is far from certain. One only has to look at how the Chinese have manipulated their currency in recent decades.

The Chinese government has kept the yuan's value stable, via purchases of foreign currency government bonds (selling yuan to buy dollars/euros) when Chinese business profits are repatriated (selling dollars/euros to buy yuan). As the Chinese rich and middle classes grow and begin to spend their yuan overseas (selling yuan to buy dollars/euros), the Chinese government can slowly sell off their overseas investments (selling dollars/euros to buy yuan)—again offsetting the affect. They have trillions to work with in this regard, and it happens slowly, not overnight.

One only needs a basic understanding of currency flows and governmental monetary policies to understand how this works. The Chinese government can at any time change the value of the yuan simply by increasing/decreasing their levels of foreign investment. Given the size of their foreign holdings, the last thing the Chinese want to allow is any domestic troubles to revalue their foreign assets, so we'll see the Chinese gov't actively involved to stabilize the yuan should any domestic bubble burst.

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