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Wednesday, December 15, 2010

Continued Bull Market in China - Lots of Bull ?

That's what Blogger Balance Junkie does more than imply in 'China: The Bear Case', citing Jim Chanos CEO of hedge fund Kynikos Associates--an early ENRON skeptic--among others, who see a Chinese Real Estate Bubble ready to burst.

Some excerpts :
As with Enron, Chanos has looked at the math for Chinese real estate and found that it just doesn’t add up. Here’s a quick summary of his view:
    * Too Much Too Fast: In 2009, Chanos found out that China was embarking on 30 billion square feet of new construction, with a little over half of that allocated to new office space. That’s “a five-by-five-foot cubicle for every man, woman, and child in the country.”
    * 60% of GDP: In a TV appearance this past Friday, Chanos pointed out that construction is 60% of Chinese GDP compared to only 5% for exports. That’s huge. “We’ve seen this movie before,” he says. “Whether it was Dubai a couple of years ago, Thailand and Indonesia during the Asian crisis of the late ’90s, or Tokyo circa 1989, this always ends badly.”
    * Empty Cities: There are, quite literally, entire cities in China that contain empty buildings. There are neighbourhoods full of unoccupied housing. There are office buildings and malls standing empty. Who will populate these ghost towns? Many of those who own these properties are investors, not residents. The people who are moving from rural to urban areas can’t afford these homes. Many of them are coming to the city to work in – you guessed it – construction.
Other indications of a Chinese real-estate bubble : 
Dylan Grice of Société Générale observed that a 400 square foot property in Hong Kong recently sold for the equivalent of $1.8 million. That type of asset inflation seems to scream bubble and Grice wonders if the Chinese government has already lost control. He worries “that Japan is a leading indicator for the rest of us.” According to Chanos, that’s the biggest risk in China. If the government has waited too long to deflate the bubble in an orderly way, they may tighten policy just as the market begins to correct lower, triggering a chain reaction of asset price deflation.
Back in early August of this year, James Quinn wrote about China: The Mother of All Bubbles, pointing out that at the time, China had “65 million vacant housing units.” Mr. Quinn further notes that the “2.2 million square foot South China Mall, with room for 2,100 stores, sits completely vacant. The Chinese have taken the concept of “bridges to nowhere” to a new level.”

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