China’s Economy on the Brink of Collapse
China’s economy is on a dangerous track and may soon experience a crisis worse than the European debt crisis, Chinese economists say.
Since the Chinese regime implemented a series of “tightening” policies to curb the real estate market, home prices have been falling across China. Meanwhile, land sales–the main source of local governments’ revenues–have also dropped sharply.
In late October, several developers in Shanghai abruptly lowered home prices in new developments by 20 to 40 percent. Soon after, price cutting spread to Beijing, Hangzhou and Ningbo in Zhejiang Province, and Nanjing in Jiangsu Province. Recent homebuyers, unhappy about the sudden devaluation of their investments, staged protests with many demanding refunds.
End of Huge Profits
“The price cuts in Shanghai are just the beginning, the worst time will be the first season of next year,” an analyst at Centaline China Property Research in Shanghai told The Epoch Times. He added that the era of huge real estate profits will no longer exist in the next decade.
Economist Xie Guozhong recently stated at different occasions: “If China continues its tight monetary policy, many real estate developers will go bankrupt,” and “a 50 percent drop in property values will be the norm in China in the future.”
The large glut of unsold housing can only be digested by the market when prices drop to a level that is affordable to first time home buyers–which means there will be a significant drop in prices, Xie said.
Land Sales Cooling
Government land sales have also cooled off across the country, and local governments’ income from land sales has dropped sharply as a result. Zhuhai City in Guangdong Province serves as an example.
Southern Metropolis Daily said, data published by Zhuhai City’s Financial Bureau shows that land transfer fees in the first three quarters of this year have fallen significantly. Previously estimated at 8.8 billion yuan (US$1.4 billion), the Financial Bureau has adjusted them down to 5 billion yuan (US$788.65 million), a 3 billion yuan (US$473.2 million) reduction.
According to another analysis by First Financial Daily, revenues from land sales in Zhuhai City for the first 10 months of 2010 were 20.39 billion yuan (US$3.22 billion), which accounted for 24 percent of the city’s GDP, and a 14 fold increase from the previous year. Land revenue for the first 10 months of 2011, by contrast, are barely half that amount.
On Nov. 1, the city started implementing a new restriction on home purchases and prices. Many developers see this as a trigger for a new wave of real estate prices declining.
Financial Crisis Imminent
Cheng Xiaonong, an economist based in the U.S., told The Epoch Times that a 30 percent drop in home prices in a short period of time is a sign that a financial crisis is about to hit China.
“When the housing bubble bursts and developers go bankrupt, banks will grapple with high default rates and bad debt, resulting in a financial crisis in the banking system,” Cheng said.
Cheng said within a year China could experience a crisis worse than the European debt crisis. “Actually, a financial crisis has already erupted in China,” he said.
Chen Zhifei, an economics professor at New York’s City University told New Tang Dynasty TV that the rapid drop in both home and land sales will lead to drastic reductions in local governments’ land revenues, and local governments will make up the loss through taxation.
Such taxation would lead to mass protests and social instability as was seen recently in Huzhou of eastern China’s Zhejiang Province where a mass protest against taxation attracted worldwide attention, Chen said.
Economist and author He Qinglian told The Epoch Times that China’s real estate bubble should have burst in 2008. But at that time the Chinese regime put out a 4 trillion yuan (US$630.92 billion) stimulus package to save the economy, and half of it went to the real estate market and related fields, delaying the bursting of the bubble.
“The bursting of the bubble at the present time, its damage and negative impact on China’s economy, is a lot harder for the Chinese regime to deal with now,” Ms. He said.
Bursting the bubble gives China’s economy a chance to adjust the economic structure, and local governments should tighten their belts, since land revenues have dropped, Ms. He said.
“Nevertheless, they will increase taxes to raise their income, and China’s economy therefore will never be on the right track,” she added.
Ms. He said China’s economic development is a false prosperity achieved at the cost of damaging the environment and natural resources. Being the world’s factory, China doesn’t have its own brand name products. In addition China heavily relies on imports for its energy needs and has few resources to export except rare earth metals. Furthermore, with the largest peasant population in the world, China is unable to maintain self-sufficiency in food production.
Regarding some economists’ comments that the collapse of the real estate market will result in a “hard landing” for China’s economy, He said: “China’s economy has never taken off, so there is no such thing as a landing. Actually, China’s economy is more like an out-of-control high speed train that could derail at anytime.”
Source : Epoch Times
Professor of Finance at Chinese University of Hong Kong says Chinese regime on brink of bankruptcy
China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.
Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.
The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.
In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.
Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”
He said that the regime doesn’t listen to experts, and that Party officials are insufferably arrogant. “If you don’t agree with him, he thinks you are against him,” he said.
Lang’s assessment that the regime is bankrupt was based on five conjectures.
Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.
Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.
Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.
Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).
Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.
Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said.
Several commentators have expressed broad agreement with Lang’s analysis.
Professor Frank Xie at the University of South Carolina, Aiken, said that the idea of China going bankrupt isn’t far fetched. Major construction projects have helped inflate the GDP, he says. “On the surface, it is a big number, but inflation is even higher. So in reality, China’s economy is in recession.”
Further, Xie said that official figures shouldn’t be relied on. The regime’s vice premier, Li Keqiang for example, admitted to a U.S. diplomat that he doesn’t believe the statistics produced by lower-level officials, and when he was the governor of Liaoning Province “had to personally see the hard data.”
Cheng Xiaonong, an economist and former aide to ousted Party leader Zhao Ziyang, said that high praise of the “China model” is often made on the basis of the high-visibility construction projects, a big GDP, and much money in foreign reserves. “They pay little attention to things such as whether people’s basic rights are guaranteed, or their living standard has improved or not,” he said.
Behind the fiat control of the economy, which can have the appearance of being efficient, there is enormous waste and corruption, Cheng said. It means that little spending is done on education, welfare, the health system, etc.
Cheng says that for the last decade the Chinese regime has accumulated its wealth primarily by promoting real estate development, buying urban and suburban residential properties at low prices (or simply taking them), and selling them to developers at high prices.
According to Cheng, the goals of regime officials (to enrich themselves and increase their power) are in direct conflict with those of the people–so social injustice expands, and economic propaganda meant to portray the situation as otherwise prevails.
Few scholars inside the country dare to speak as Lang has, Cheng said. And that’s probably because he has a professorship in Hong Kong.
Source : Epoch Times
Lending Crisis Stokes Fears of ‘China Economic Model’ Collapse
China’s distorted economic model is to blame for the lending crisis faced by privately owned businesses, that has hit several Chinese cities, including the wealthy city of Ordos, and Wenzhou, the eastern entrepreneurial hub, according to leading Chinese economists.
Dubbed as Dubai of China, Ordos, in Inner Mongolia, is one of the wealthiest cities in all of China, where private business has flourished. Over 7,000 residents own assets worth more than 100 million yuan (US$15.67 million), according to a report by the Ministry of Housing and Urban-Rural Development. More than 80 percent of property development in Ordos has been financed by private lending, according to the report.
However, since July at least one business owner in Ordos has committed suicide and several have fled after failing to resolve their debts owed to private loan sharks.
Mr. Wang, a local businessman, told The Epoch Times that the area’s rich natural resources have created many nouveau riche who wanted to make money with money, which led to the booming usury business there.
Many people were engaged in speculative real estate investments a few years ago, according to Ms. Song, an Ordos resident. But recently almost half of Ordos’ real estate businesses have closed or are facing closure, a real estate agent told The Epoch Times.
“Many real estate companies in Ordos have been facing disruption of their capital chain, which will get worst by the end of the year,” financial analyst Li Huizhong, who investigated private capital in Ordos, told China’s National Business Daily.
Wenzhou Business Shut-Downs
In China’s eastern entrepreneurial hub of Wenzhou, Zhejiang Province, a thriving underground lending market has helped keep small and medium-sized enterprises (SMEs) going for years.
But with the economy slowing down in recent months, at least 90 business owners have disappeared, leaving behind mounting debts and their companies completely or partially shut down. Three business owners were reported to have attempted suicide.
A lot of money from private lenders has also gone into the real estate market, Zhou Dewen, chairman of Wenzhou’s Small and Medium Enterprise Development and Promotion (SMEDP) told Zheshang Magazine. Only 35 percent was invested in businesses, according to a report by the Central Bank’s branch in Wenzhou.
Characterized by low cost and low profit margins, the Wenzhou model has been challenged by increased cost of production, labor, and land. Consequently, the average profit margin for Wenzhou’s SMEs has dropped to between three and five percent, Zhou told the Guangzhou Daily.
Unfair Economic Environment
Bank loans are hard to come by. Nearly 90 percent of SMEs in Wenzhou could not obtain loans from banks, according to a recent report by Wenzhou’s SMEDP. Private businesses that do get a bank loan have to pay higher interest rates and higher loan processing fees than state-owned enterprises (SOEs).
Private businesses are also deprived the right to enter high-profit sectors monopolized by SOEs. Real estate is one of the few high-profit sectors open to private businesses, and that’s why so much hot money in Wenzhou and Ordos has gone into the real estate market.
The increased money tightening, and a series of measures to curb the real estate market since early 2011, eventually led to a private lending crisis.
After visiting Wenzhou on Oct. 5, Premier Wen Jiabao urged financial support for SMEs and recommended a crackdown on the private high-interest lending market. But private lending has helped many private businesses stay in business, and a crackdown will only aggravate the problem, according to Zhou Bin, chief economic editor of the 21st Century Business Herald.
China has more than 10 million privately owned SMEs, accounting for 99 percent of enterprises, generating 60 percent of GDP, 50 percent of tax revenues, and 80 percent of job opportunities, according to data released by the Department of Medium & Small Enterprises at the Ministry of Industry and Information Technology.
Hu Xindou, an economics professor at the Beijing Institute of Technology says the Chinese regime’s monopolistic system has distorted the economy by establishing a discriminative and unfair economic environment that is dominated by bureaucracy and power.
“China’s distorted economy is responsible for creating the current financial crisis in Wenzhou, Ordos, and other areas of China,” Hu told Private and Entrepreneur Magazine.
According to Hu and several other analysts, the Chinese regime needs to be serious about building an open economy that gives equal access and opportunities to all businesses, including SMEs and SOEs, that allows private banks to operate, and that implements market-based interest rates instead of the rigid state-controlled interest rates.
According to the Business Herald’s Zhou Bin, the Wenzhou model is the epitome of the China economic model. Many people are worried that the collapse of the Wenzhou model may lead to the collapse of the China economic model.
Source : Epoch Times
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