The Chinese Century | Hacker News Reader

The Chinese Century

vanityfair.com

42 pointsr0h1n18 comments

What worries me most is the fact that China has a massive real estate bubble and corruption in the real estate and banking sectors. RE Developers take out loans from the major banks at rock-bottom interest rates to build skyscrapers in towns where no one can afford the rent, and promptly turn around and sell the units off to investors. In the major cities, the average price of a new flat is often hundreds of times the average annual income, and are bought up by a tiny population of super-rich investors. Wealthy families often own hundreds of flats in Beijing and Shanghai, as well as homes overseas in Canada, the US and Australia/NZ. Many of them sit vacant. That is not a good sign for economic stability in China.

How severe is the problem? How does the housing bubble that popped in the US compare to the one in China?

The one in China is much worse, there are entire buildings sitting empty, sold to speculators, but no one living there. Even in "hot" markets like beijing, occupancy is only around 60 or so %, the rest is speculation.

However a lot of property is bought with cash, or high down payments. The lack of property taxes means you can sit on the property forever as a way of saving that beats the bank, and China lacks good investment options. So this bubble could go for awhile, and it really isn't good for the economy (unused property is unused).

As soon as the gov introduces a property tax, it will burst pretty quickly. So the gov doesn't do that.

Yep, the Chinese stock market is garbage and interest rates on savings accounts are too low, so real estate is the default savings/investment vehicle for wealthy Chinese. Policy measures could change that pretty quickly. But the policymakers themselves have a lot of skin in the game.

That's why it's especially scary--because of how opaque China's banking sector is, and how little we trust the numbers in their official reports, no one really knows. Some reports from earlier this year are claiming the bubble is already in the process of deflating. Perhaps we're not feeling the full knock-on effect yet.

http://blogs.wsj.com/chinarealtime/2014/05/05/chinas-propert...

> A new global political and economic order is emerging, the result of new economic realities. We cannot change these economic realities. But if we respond to them in the wrong way, we risk a backlash that will result in either a dysfunctional global system or a global order that is distinctly not what we would have wanted.

I just hope we don't mess this one up!

Let me get this straight,

China is selling its products to the US at artificially cheap prices and labor in exchange for ... ... pieces of green paper with $ on them. To the tune of 3.5 trillion http://en.wikipedia.org/wiki/Foreign_exchange_reserves_of_th...

The US could overnight introduce a "new" dollar exchangeable at 1:1 for any bank accounts/funds held in US Banks in USA. Cash could also be exchanged at 1:1 provided a valid IRS tax clearance certificate is shown proving that tax was paid on this cash.

So the US solves several problems with one stroke:

1. China endsup with a pile of worthless paper and a broken economy bringing manufacturing and jobs back to the US

2. US Companies laundering and holding funds abroad problem is solved, They can pay 20-30% tax to bring these funds back giving the economy a huge once off surplus.

3. The black economy is decimated as criminals endup with worthless paper or are forced to convert and hence pay tax on their dollars.

Considering the US has in the past made holding gold illegal, its not exactly outside the realm of possibility.

Didn't the China do this with RMB in the 80s? I mean, no one would actually trust the yuan to use it as a reserve currency, while plenty of people trust the USA (making it illegal to hold gold is different from taking it away). And anyways, trust is quite important to the USA economy, they aren't going to just piss it away.

That is true, but if another deep recession occurs it could happen. Faced with large unemployment and stagnant economy politicians would do anything. And solving 1) China 2)laundering corporations and 3) black economy in one go would seem like an attractive option, especially if it results in a huge surplus which could be used towards "job-creation" and "stimulus".

Hell a few years ago "magicking trillions of dollars" in the form of QE was unthinkable, yet it happened http://i.imgur.com/1NnUxNU.png

What is more remarkable is that it didn't lead to rampant inflation (yet?)

As for "taking money away" point, governments regularly do this thru' money printing.

But the USA economy ATM is doing very well. Employment is still an issue, but that has more to do with more efficiency than morbid supply and demand. We buy as much from China as China from us, we are so intertwined that the USA or china pissing in either pot would just hurt each as much, if not more, than the other.

>What is more remarkable is that it didn't lead to rampant inflation (yet?)

Nobody but the libertarians (who don't really get economics) expected it to. A low amount of inflation is healthy given that it pushes people to spend or invest, not just sit on it.

I think that without a mechanism to transfer that QE into wages, price inflation cannot occur. If Joe Consumer as a whole has less dollars available (such as through unemployment, lack of raises, lower wages due to increased supply of workers, etc.), that decreases demand and thus acts a check against price inflation.

How does wrecking the Chinese economy solve any problems? (Not to mention also completely destroying international trust in the US dollar)

For one it would bring jobs and manufacturing back to the US.

It would also prevent the rise of a military adversary which could threaten the stability of the region and allies such as Taiwan, S. Korea, Japan and Australia.

Don't forget this http://en.wikipedia.org/wiki/Nixon_Shock

I don't think you understand the importance of being a reserve currency is.

Per capita, each Chinese person owns $927 out that 3.5 trillion dollars[0]. Yeah, that's gotta suck for them.

Not as much as it will suck for the Japanese though, who'll lose 10 times of that at $9645 per capita. The Belgians have it even worst; each of them will have $33854 stolen from them.

Wait, hold on. Why are we stealing from Belgians again?

[0] http://www.factcheck.org/2013/11/who-holds-our-debt/

4. The euro and RMB become the new reserve currencies, and thus Germany and China leverage their status as the countries having the factories.

This is not smart idea. What you propose is a very hostile action that's akin to declaring war on not just China but any country that has involvement with US currency.

China is not your enemy. Yes they became number one, but the US economy and Chinese economy are interdependent on one another.

The better solution is to wait. Manufacturing costs in China will eventually rise just like the GDP. If the cost rises high enough manufacturing within the US will become viable again. This is exactly what happened with Taiwan and Japan.

The Chinese people are not our enemy. China has had a large mindshare in Western culture for centuries and now their government is getting strong enough to project power that challenges the West. Overall the Chinese seem very level headed and determined to contribute toward global stability and growth.

I fear, however, that their presence on the world stage may be something unlike we've ever seen. People today are naive in trusting the restraint, rationality, and reach of the CCP's agenda.

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