Tuesday, December 20, 2011

Stats from China's Crash

22 months unsold inventory in Beijing
21 months unsold inventory in Shanghai
Chinese steel production down 15% since June
100 local governments had land auctions fail last month
The average wage earner would have to work 36 years to buy an average home in Beijing
18 years in Singapore
12 years in New York
5 years in Frankfurt
Transaction volumes down 50% percent year on year in Shenzhen
57% in Tianjin
79% in Changsha

Foreign Affairs: China’s Real Estate Crash
Because the industry kept on building [believing like previous cooling measures that the government would have to back off them], there has been no negative impact on GDP. Real estate investment has continued growing at nearly 30 percent annually. But inflation began to rise from 1.5 percent in January 2010 to a peak of 6.5 percent in July 2011, and authorities began to sweat. They broadened their cooling efforts. The central bank tightened credit expansion, and China’s economy began to slow. As 2011 progressed, developers scrambled for new lines of financing to keep their overstocked inventories. They first relied on bank loans (until they were cut off), then high-yield bonds in Hong Kong (until the market soured), then private investment vehicles (sponsored by banks as an end run around lending constraints), and finally, in some cases, loan sharks. By the end of last summer, many Chinese developers had run out of options and were forced to begin liquidating inventory. Hence, the price slashing: 30, 40, and even 50 percent discounts.
Ironically, as Chinese investors start pulling their money out of property, many are putting it into bank- and trust-sponsored “private wealth management” vehicles that promise high fixed rates of return but channel the proceeds into investments — like real estate developers and local government bonds — whose returns are themselves predicated on ever rising property prices. Many fear this repackaging of real estate risk is laying the foundation for a follow-on crisis that some are labeling the Chinese equivalent of Wall Street’s collateralized-debt-obligation mess.
Interesting follow-on prediction. There are no safe landing places for the money, not even Yuan, which will decline as China has to realize the bad loans on the banks' books.

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