"A publication affiliated with Xinhua, the official government news agency, even described the Sinopec Tower deal with Kaisa as a miscarriage of justice by a 'manipulated judiciary'. It did not register outside China. Analysts called the stock a 'preferred name' and a 'top pick.' Kaisa’s stock price soared, and global bond investors snapped up billions of dollars of offshore debt. None of them reached out to Mr. Zhong, the original developer, or the lead lawyer in the trial of the judicial officer. 'No, one ever called about that,' said Yang Wenlong, Yang Xiancai’s lawyer. 'We didn’t hear from any Kaisa investors.'" So whose fault is the eventual debacle, China's "one party rule" and lack of "true allegiance to the rule of law" as the ideologues would have us believe or something else entirely?
Money flows to the most corrupt levels of society in all countries. The definition of corruption however differs but like cockroaches it cannot be eliminated without bringing down the social order. The real estate market in China is and has been on shaky grounds for the last 5 years. As growth slows there are many home owners who will not be able to pay mortgages on over priced properties and banks could face a crisis like the 2008 USA housing bubble. In some cities in China one can rent, paying less then the owner's mortgage payment. This is because the owner expects the property value to increase over any loss from rent payment. Tells one a lot about the fragility of the housing market. Could the HK housing market be in trouble as the Macau gambling market???
It's striking how most of the commenters here have completely missed the point of this article. The point is that (i) Chinese public firms lack the transparency and independent accounting expected of public firms in the US and Europe and (ii) Chinese Communist Party domination of credit allocation in China leads to gross abuses and inefficiencies.
2
Clearly by starting to free up their economy from government direction the Chinese made a mistake and like the US they should take more control over all aspects of their country. - Barack Obama
Since 1776 the US has been lacking in government control. This is what I call the "past". That is why we are so unsuccessful. - B. Obama
Since 1776 the US has been lacking in government control. This is what I call the "past". That is why we are so unsuccessful. - B. Obama
Its not a question of if but when the real estate market in China will collapse; and when it does, we an't see nothing as destructive as it will be yet ...
2
Students in Hong Kong (and people of conscience throughout the world) recognize the Chinese Communist Party's deployment of armed police against peaceful demonstrators as a sign of its fundamental weakness. No one mistakes skull-cracking by communist party police for "tolerance." Not in Hong Kong any more than in Tiananmen Square or any of the hundreds of other sites at which party bosses ordered skulls cracked in 1989.
2
Nothing to see here, folks, move along - it's just Wall Street on steroids.
1
This article is a good example of the mobility of capital in the modern globalized world of trade agreements. It shows both the strength of that, and the weakness.
It is good that capital can go quickly to where it is needed, and where it will do the most good. It profits capital, but it does good work to get that profit. Housing the mass of Chinese and their growing businesses was a good thing, just as high profits were a good thing.
Rushing in too fast can easily distort a market. Rushing back out can crush a market, as it did Thailand a few years ago. There is such a thing as too much mobility.
Our international arrangements for mobilitty of capital have favored profit for investors above all. The rules leave nations, the whole people of nations, vulnerable to boom and bust. They leave the workforce, whose labor produced the savings that is investable capital, vulnerable to suddenly being out of work as the capital they produced goes somewhere else very quickly.
What happened in China also happened to the places from which that capital came to China instead of what it would have done. When China built a bubble, some other places had their bubbles burst to inflate China instead.
We all need more balanced rules, the places the "benefit" in the moment need that as much as anyone else, because they'll be the next victims.
Big money has arrogated to itself all of the benefits of the current rules, and we all suffer for that.
It is good that capital can go quickly to where it is needed, and where it will do the most good. It profits capital, but it does good work to get that profit. Housing the mass of Chinese and their growing businesses was a good thing, just as high profits were a good thing.
Rushing in too fast can easily distort a market. Rushing back out can crush a market, as it did Thailand a few years ago. There is such a thing as too much mobility.
Our international arrangements for mobilitty of capital have favored profit for investors above all. The rules leave nations, the whole people of nations, vulnerable to boom and bust. They leave the workforce, whose labor produced the savings that is investable capital, vulnerable to suddenly being out of work as the capital they produced goes somewhere else very quickly.
What happened in China also happened to the places from which that capital came to China instead of what it would have done. When China built a bubble, some other places had their bubbles burst to inflate China instead.
We all need more balanced rules, the places the "benefit" in the moment need that as much as anyone else, because they'll be the next victims.
Big money has arrogated to itself all of the benefits of the current rules, and we all suffer for that.
4
"By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.” Confucius
I see a very bitter pill on the horizon.
I see a very bitter pill on the horizon.
2
Why is it wherever the hot money flows in the world, disaster always follows?
Answer: Because they always want to make quick returns that result in shortcuts being taken that always come back to haunt you.
While the obvious flaws in China's lack of accounting and land/equity ownership records is an issue so is the matter of the same short-sighted greed and same behavior associated with lemmings that resulted in both the American and European debt and real estate bubbles.
My advice: if you see people piling in, it's time to leave.
Answer: Because they always want to make quick returns that result in shortcuts being taken that always come back to haunt you.
While the obvious flaws in China's lack of accounting and land/equity ownership records is an issue so is the matter of the same short-sighted greed and same behavior associated with lemmings that resulted in both the American and European debt and real estate bubbles.
My advice: if you see people piling in, it's time to leave.
6
why does disaster follow the hot money ? - I'll guess because like stockbrokers who make money/commissions on buying or selling - they don't care - financiers who get a cut of any money invested are always going to be chasing the latest investments - because they get their cut up front (1-4-10%?) - if the investor loses their shirt - not the financiers problem - they've already got theirs !
3
About China: "I'm shocked, shocked to find that gambling is going on in here!"
5
Gambling of all sorts seems to be a Chinese national past time. It goes on at the rear of many Chinese restaurants here in the US. A few years ago we had a robbery at one that must have become common knowledge. Viet Namese robbers came in on New Years Eve carrying shotguns and immediately went to a private room and robbed the gamblers. On the way out they robbed the regular customers up front. This was the last straw or the owner who had had a number of difficulties and he was always moving fish tanks around claiming bad feng shui advice. The gambling den was the main attraction and it was not reported by the news media. A shame it closed because the food was great.
China has, in 2014, overtaken the United States, in its size of total corporate debt, and also the ratio of total corporate debt to GDP, which is 135% (July 2014). That is, China’s corporate-debt-to-GDP ratio is now a whopping 80% larger than that of the US. This book illustrates how China’s economy is now prone to destabilization from this and other factors.
China’s 135% corporate debt to GDP ratio (the highest amongst the world’s major economies), vast overcapacity, gigantic property glut, together with the country’s pro-cyclical fiscal structure, may bring China’s GDP annual growth to below 4%, sooner than you can imagine.
The above is from a new book: China's Faustian Bargains,
http://piin.info/index.html
China’s 135% corporate debt to GDP ratio (the highest amongst the world’s major economies), vast overcapacity, gigantic property glut, together with the country’s pro-cyclical fiscal structure, may bring China’s GDP annual growth to below 4%, sooner than you can imagine.
The above is from a new book: China's Faustian Bargains,
http://piin.info/index.html
2
I have no Chinese investments for a very good reason. After Wall St. investors fled their self-made disaster, in the US and leaving ruin in their wake, they found other patsies in a more criminal empire. I hope there were incredible US losses. Couldn't be more deserved. If only they would also go to prison.
7
They don't go to prison because both parties were complicit, the brain trusts and financial backers are interlocked.
Ralph Nader was right about that. It is our fundamental problem in American politics.
Ralph Nader was right about that. It is our fundamental problem in American politics.
3
Mark--You're so right about that.
1
Remember the old saying: "If it seems to good to be true, it's not". If someone is paying 13% interest and the rest of the world is paying 1% interest, the difference is the risk it will fail.
3
That is likely part of the difference. There really are places and opportunities that have more potential than others. It is as you say rarely as much extra potential as the supposed earnings imply, the extra coming from risk of new things and things overdone lemming-like.
1
And these banksters are the ones borrowing funds from the Fed for under one percent and then investing our (the publics) subsidized loans into high risk foreign investments. And they are called "job creators." What a joke…except that it is on us.
15
Those Fed funds are meant to be stimulus HERE. Instead, they are going overseas as stimulus THERE. That is a problem of bad governance in the US.
4
"Greed has been with human beings forever. We have a number of things in our species that you would call 'the dark side,' and greed is one of them. If you don't put certain structures in place or restrictions on those parts of our being that come from that dark place, then it gets out of control' said Michael Moore.
Exactly as said this dark episode shows of no structure or restrictions of the shell companies from main land China.
China-linked firms among 255 US shell companies suspended by SEC US regulator suspends 255 shell companies, including China-related firms, in latest crackdown on 'pump and dump' schemes reported China Business http://www.scmp.com/business/money/markets-investing/article/1422763/chi....
Not only the Kaisa story offers an unusual window into what can go wrong when investors rush headlong into China, it also hints at the possibility of the disastrous prediction the country minus communists.
“We cannot predict when Chinese communism will collapse, but it is hard not to conclude that we are witnessing its final phase.” Prof. David Shambaugh an authority on China’s foreign policy, military and security issues in Chinese politics.
China is not the Chinese Communist Party and will continue to exist as a great civilization long after its Communist Party is forgotten. The evolution of democracy on Taiwan has resulted in unprecedented prosperity. No reason not to expect the same thing happen on mainland.
Exactly as said this dark episode shows of no structure or restrictions of the shell companies from main land China.
China-linked firms among 255 US shell companies suspended by SEC US regulator suspends 255 shell companies, including China-related firms, in latest crackdown on 'pump and dump' schemes reported China Business http://www.scmp.com/business/money/markets-investing/article/1422763/chi....
Not only the Kaisa story offers an unusual window into what can go wrong when investors rush headlong into China, it also hints at the possibility of the disastrous prediction the country minus communists.
“We cannot predict when Chinese communism will collapse, but it is hard not to conclude that we are witnessing its final phase.” Prof. David Shambaugh an authority on China’s foreign policy, military and security issues in Chinese politics.
China is not the Chinese Communist Party and will continue to exist as a great civilization long after its Communist Party is forgotten. The evolution of democracy on Taiwan has resulted in unprecedented prosperity. No reason not to expect the same thing happen on mainland.
4
"China is not the Chinese Communist Party and will continue to exist as a great civilization long after its Communist Party is forgotten."
Some of that can be inverted to benefit understanding -- the Chinese Communist Party is Chinese first, communist after that and rather long after that lately.
Chinese civilization dominates China. Their version of communists are just a passing manifestation of that.
Some of that can be inverted to benefit understanding -- the Chinese Communist Party is Chinese first, communist after that and rather long after that lately.
Chinese civilization dominates China. Their version of communists are just a passing manifestation of that.
1
Again we need skepticism about why Glass-Stegall was gutted by our "bi-partisan" government who touted the (absurd) "Chinese Firewall" between the taxpayer supported banking side and the investment banking operations of these too big to fail banks.
Within ten years, we saw how those too big to fail banks actually did fail--and crashed our economy after their wizzard masters sucked out their cut of the profits--then made their losses "public goods" for the taxpayers along with a bonus of pain for their stockholders.
Dodd-Frank, even before it was watered down by the bi-partisan political hacks dependent on contributions--can not, did not, and will not--fix this fundamental conflict of interest.
If informed Americans don't demand structural political change, we are going to keep on getting the shaft from the same bands of players that will continue to retain their rich payouts and political power.
Within ten years, we saw how those too big to fail banks actually did fail--and crashed our economy after their wizzard masters sucked out their cut of the profits--then made their losses "public goods" for the taxpayers along with a bonus of pain for their stockholders.
Dodd-Frank, even before it was watered down by the bi-partisan political hacks dependent on contributions--can not, did not, and will not--fix this fundamental conflict of interest.
If informed Americans don't demand structural political change, we are going to keep on getting the shaft from the same bands of players that will continue to retain their rich payouts and political power.
4
The investors did not know? By the time Kaisa went public and subsequently sold its bonds, corporate scandals involving publicly listed Chinese companies had become so common they no longer made headlines. So one might say that these investors were foolish but it would hardly be appropriate to claim they were ignorant.
How the founders made enough money to start a real estate company in China is almost always a mystery. You can make money in property development, but not so much that you can somehow transform yourself from a common peddler to a mogul overnight. Without some sort of patronage, it just would not be possible to assemble the funds needed for even the most modest projects. In real estate, you are using money to make money; so you have to be rich in order to get rich. Therefore, you might say there is a question mark surrounding practically all of these Chinese real estate companies.
It has not stopped people from investing. They knowingly buy into an industry which is corrupt and where dirty self dealing is prevalent. The real question is, why do they do so?
How the founders made enough money to start a real estate company in China is almost always a mystery. You can make money in property development, but not so much that you can somehow transform yourself from a common peddler to a mogul overnight. Without some sort of patronage, it just would not be possible to assemble the funds needed for even the most modest projects. In real estate, you are using money to make money; so you have to be rich in order to get rich. Therefore, you might say there is a question mark surrounding practically all of these Chinese real estate companies.
It has not stopped people from investing. They knowingly buy into an industry which is corrupt and where dirty self dealing is prevalent. The real question is, why do they do so?
2
I'm sure the big institutional investors were well aware of the company's history and just assumed, not unreasonably, that bribery, graft, corruption and corporate skimming was business-as-usual in the People's Republic.
3
Readers of 'a certain age' will recall the Japanese ill-advised purchase of U.S. real estate prior to one of our many RE plummets, acquiring Rockefeller Center and other 'prime' properties. They cushioned our financial industry's exposure with speculative yen.
2
i'm real wary of any equity investment outside canada, japan, korea, europe and the us. and maybe brazil. can anyone explain why we have let a communist country gut us economically by destroying our industrial base and holding all our public debt. oh yeah, we get cheap consumer goods. until the wealth accumulated previously is gone. because no workers in the us are earning anything, partly due to immigrant workers and globalization. some appreciable percentage 28 to 40 % should be reserved to products manufactured and assembled in the us. it's not safe to depend on far away countries for crucial products. a flood in thailand, harddrive prices double, a nuclear meltdown in japan you can't get cars and japan/china spat and rare earths (100% chinese produced now) are cut off. it's not safe. and don't get me started on imported oil that funds terrorism that kills us citizens and then guts us financially in middle eastern wars.
4
Hundreds of millions of Chinese have a better life today than they would have, but overall the average American is no better off economically today than in the 70s, even though we are more productive and are working harder. The middle class has simply been devastated by globalization, and most of that effect is due to trade with China. Sure, we get dirt-cheap consumer goods, in fact we are drowning in them, but they don't enrich our lives and in many if not most cases we were better off without them. Probably, eventual opening to China was probably inevitable but there is certainly nothing to celebrate.
10
Pulling China into the modern world meant a decent life for over 20% of humanity. It was a good thing.
There can be too much even of good things. Even good things can be done badly.
There can be too much even of good things. Even good things can be done badly.
1
Western investors have decided that China could be a goldmine for them, they were very imprudent in their actions. This is the story of what can happen when people are blinded by lust for acquisitiveness.
2
Western investors have lusted after the huge "China Market" since the first industrialization in the 1800's. The US industry had a saying about selling just one oil lamp to every home in China.
These are constants, not something new.
These are constants, not something new.
1
Even non-sophisticated investors (like me) have known that Chinese real estate was but castles built on sand.
Anyone who ignored the risks was so profit-hungry that they were not thinking clearly. And they hoped to get before the bubble burst.
It was extremely difficult to ignore the warning signs. Don't give stupidity a pass.
Anyone who ignored the risks was so profit-hungry that they were not thinking clearly. And they hoped to get before the bubble burst.
It was extremely difficult to ignore the warning signs. Don't give stupidity a pass.
6
That was just as true of the recent US bubbles. In the aftermath of those, we protected those who did it instead of their victims. We need to see these lessons closer to home.
1
And you wonder why there are so many rich Chinese tripping over themselves in NYC investing in residential real estate? These investors see the writing on the wall back home - their wealth could easily go to zero because of political corruption and Chinese businesses built of of a house of cards.
8
Here is the entire article in one line: "Investors, even sophisticated investors, either miss them or ignore them."
Of course they ignore them. It isn't their money, EVER. It is a productl They are not investors, they are salesman of products to other people with other people's money. As stated in many comments, these "sophisiticated" investors, or "used car salesman of investments" think they know all, even in markets of a completely different culture. Just another example of the "exceptionalism" of these lovely snake oil salesman.
Of course they ignore them. It isn't their money, EVER. It is a productl They are not investors, they are salesman of products to other people with other people's money. As stated in many comments, these "sophisiticated" investors, or "used car salesman of investments" think they know all, even in markets of a completely different culture. Just another example of the "exceptionalism" of these lovely snake oil salesman.
10
This is just a tip of iceberg on real estate bubble in China. The off balance sheet finance by government owned banks is a bigger threat on world financial market. The investors from private equity and pension fund from States assume all risks and US law makers need to ensure tax payers are not bailing out the imprudent loss incurred by incompetent financial adviser.
5
Wall Street did not get hurt. Investors did. Wall Street and investors like a non regulated, no government environment to thrive. When things go bad, they want the government, meaning the lower 99% of the economic scale, to pay for their losses.
The gambling casino owners did not get hurt. They made their profits for years. The losers were those people least able to afford losing.
In both cases the middle men and women make their fees, charges and bonuses based on the sales not the profit unless they also use their position to invest with knowledge and lesser risk than the other investors.
And in both cases, the effort to make immoral, sinful, unethical, and undemocratic wealth, profits and income, are real and equal.
The real problem is that these insane, insecure and greedy 1% run the games, set the rules and have gotten most of the people to believe this is not only the only way to play, but that god herself wants it that way. So the victims are set up as the cause of the problem.
America's economic history is 42% of depressions, recessions, panics, inflation, stagnation and most of the remaining years are filled with wars against (as a general rule) those deemed not able to defend themselves.
1% of the population owns and controls over 45% of the wealth and income opportunities. 30% of Americans can barely survive.
Wake up America for you surely have nothing to lose but the mental chains around your minds. You can work hard and still be broke at the end of the day.
The gambling casino owners did not get hurt. They made their profits for years. The losers were those people least able to afford losing.
In both cases the middle men and women make their fees, charges and bonuses based on the sales not the profit unless they also use their position to invest with knowledge and lesser risk than the other investors.
And in both cases, the effort to make immoral, sinful, unethical, and undemocratic wealth, profits and income, are real and equal.
The real problem is that these insane, insecure and greedy 1% run the games, set the rules and have gotten most of the people to believe this is not only the only way to play, but that god herself wants it that way. So the victims are set up as the cause of the problem.
America's economic history is 42% of depressions, recessions, panics, inflation, stagnation and most of the remaining years are filled with wars against (as a general rule) those deemed not able to defend themselves.
1% of the population owns and controls over 45% of the wealth and income opportunities. 30% of Americans can barely survive.
Wake up America for you surely have nothing to lose but the mental chains around your minds. You can work hard and still be broke at the end of the day.
9
Only a handful of countries offer safe investment environment. Most other countries like China, Russia, Brazil and the Middle East have a rather immature investment climate with sudden changes of laws, lack of transparency, undeveloped legal system, lack of independent and reliable data and so on. Every investor should know this and I hope they do know this, knowing full well the risks involved before they think about potential profits. In the Chinese case investor were also betting on the appreciation of the local currency versus the US$, which is or was a valid point.
7
"Then came the fall."
As it did for those who invested with Bernie Madoff and for those who bought "triple A rated" bonds backed by subprime mortgages.
Diligence, my friends, diligence.
As it did for those who invested with Bernie Madoff and for those who bought "triple A rated" bonds backed by subprime mortgages.
Diligence, my friends, diligence.
6
Perhaps if, as some suggest, speculative financial interactions bore a small tax, this would tend to dampen the bubbles that Wall Street seems to deliberately create and rely on.
The number one export of the USA at this point is a deliberately unstable and exploitative financial system.
The number one export of the USA at this point is a deliberately unstable and exploitative financial system.
11
Even a small tax on such a large project would help carry the burden here. It would help a lot to make up for what the industry gains from being here and cost the rest of us doing what it does. It would be fair.
2
I took a trip to China in 2000. The end of the trip was in Shanghai where our tour guide took us out to a residential complex. We saw dozens of finished high rise condos, but no body was living in them.
3
You can come back to Shanghai today and see that those towers you saw in 2000 are now completely filled, connected to a massive subway system and worth about 15 times what they were selling for when you saw them. Too bad you didn't invest.
Where are Guo Yingcheng's and his siblings' assets? If their company Kaisa went bust, they don't go hungry! It's unclear whether their misfortune was more political, due to business ties to relatives of the fallen "tiger" Zhou Yongkang, or Kaisa was a victim of the housing bubble. The once booming Chinese real estate market is cooling down. Due to over-supply there are more and more empty properties!
2
Every American who has money invested in a 401K must ask themselves how THEIR money is being spent. Regular contributions to 401Ks have created this money-bloated playground for "investors", aka gamblers/thieves, who are looking for a fast buck and have no social conscience. Wall Street and other seasoned financial markets created the Chinese and Russian "money masters of the universe" and helped them steal from the people of those countries. To see how shocking it actually is people can see the article/video below of one of the Chinese "ghost" cities created in the theft-frenzy. We must curtail and tax the activity of the "investment" conglomerate all over the world before they further destroy our lives. Meantime, get your money out of their hands and put it in local banks/credit unions where it will help your community.
http://www.businessinsider.com/60-minutes-chinas-ghost-cities-2013-3
http://www.businessinsider.com/60-minutes-chinas-ghost-cities-2013-3
8
It's high time to shut that nonsense down. Occupy had the right idea years ago and it's still valid. Just don't come asking working people for another bailout when the next crash happens, otherwise there will be mayhem in America!
1
Outstanding journalism - thank you.
12
I work with Americans doing business in China. 80% of them not only don't know what they are doing but won't take your cautionary advice even when they pay for it. Other foreigners are the same way. After years of doing business in China I would never put any assets there. Sell to them, yes, but don't expose your intellectual property or core business to the lawlessness and corruption.
26
You're right. Why with all the information would anyone want to put money there. It's simple greed that drives the money train.
1
oh of course, and expose them to the USA where the corruption in Wall Street is boundless and the only law that truly prevails is that of unlimited exploitation...
It seems like overlooking risk in a frenzy to make money has become -- if it wasn't always -- a prime characteristic of Wall Street. Most likely since investment banks started playing with other people's money. The old Goldman Sachs, that played with its own money, would have been more careful.
7
The corruption in China is staggering both in its ubiquity and its magnitude. Its only probably a matter of time before the Chinese economy collapses in on itself as a result. Purported crackdowns on corruption appear to be nothing more than pretense by more powerful corrupt politicians intent on brutally clearing out others who stand in the way of their personal gain.
5
fiction. They are no less shady than the U.S. version.
2
Don't tell me the Carlyle Group didn't make out on this foolishness. Those people helped make it happen. My western Montana valley town of 80,000 has always had a private water system. Carlyle Group bought it 3 yrs ago and now want to sell it for 3 times what they paid. The city filed basically eminent domain and is trying to buy it. Again. The city tried in the 80's and lost. Google Mountain Water Missoula MT to find out just how far Carlyle tentacles reach.
16
So Carlyle wants to make a profit on its investment? I don't see a scandal in that. Perhaps the better question is directed to your municipal government: Why did they sell it in the first place?
2
i guess the one thing the chinese failed to understand about how things are done in this country -- that beacon of capitalism -- is that for those at the top who engaged in deceitful practices are a protected class who will never be held accountable for their crimes.
13
News flash Lots of Chinese property developers are shady. This is not an isolated incident. Many dominos are waiting to fall...
12
Lots of property developers everywhere are shady. It is the business model, everywhere. That is all the more reason to be careful about doing such things on the far side of the world where you can't watch what is really happening, and can't find out from any reliable source, and have nobody to turn to if problems develop. That isn't just China.
1
Multiply these Wall Street deals by a 100 and one will see what these parasites are up to. When the deals crash taxpayers or pension funds will once again pick up the pieces. All thanks to the loose money policies of the Fed. Pay depositors 1% on their money and invest it in Chinese Bonds at 13%. These US Banks and the Federal Reserve make me sick!
14
It boggles the mind that the same people who chased the will-o-the-wisp of ever rising real estate not so many moons ago, have fallen into the same trap once again.
The music stops when even with liar-loans, no money down, 110% mortgages you just can't sell the entry level properties any more.
True in 2008, true in 2015, and true centuries ago when the deal was on tulips.
The music stops when even with liar-loans, no money down, 110% mortgages you just can't sell the entry level properties any more.
True in 2008, true in 2015, and true centuries ago when the deal was on tulips.
7
For those who missed the opportunity to some their savings when the bubble burst in the U.S. housing market, this could be the chance of a lifetime. Fortunately, I t is not necessary for individual investors to incur the high costs of locating underperforming properties half way around the world, because American investment companies are already on the job.
"Stock investors got burned as Kaisa’s share price fell 55 percent in just a few months. The developer had also tapped the debt markets, selling $2.5 billion worth of bonds overseas to big fund management companies like BlackRock and Fidelity Investments."
"Stock investors got burned as Kaisa’s share price fell 55 percent in just a few months. The developer had also tapped the debt markets, selling $2.5 billion worth of bonds overseas to big fund management companies like BlackRock and Fidelity Investments."
This may be the front wave of the Chinese real estate bubble bursting. Over the last couple of years, there have been several articles in NYT, BusinessWeek, Fortune and other publications about ghost cities in China. Where high percentage of apartments or villas remain unsold. The ones that are sold remain unoccupied. Many people holding these properties bought then for flipping and bought them with mortgages from state owned banks but now can not sell since the music has stopped. The govt. has backed and in few instances bailed some of the small state owned banks. But the sums at that time were small. The govt. won't be able to bail everyone out when this thing hits the fan. This is not going to end well.
3
Most likely they could not keep up with the bribes required to do business
1
Another solid piece by David Barboza, who is making a distinguished career out of plowing through Chinese media reports, prospectuses and official records and connecting the dots. A point that might have been emphasized more is that Kaisa is not an anomaly; rather it illustrates a common situation. Most developers and other entrepreneurs have an uncertain and unknown past; most operate through complex corporate structures designed to hide borrowings; and most are heavily dependent on political connections that can be withdrawn without explanation by government bodies. Poor corporate governance, plus lack of legal recourse, plus lack of transparency. One basically makes a judgment that a given company is on a track heading toward integrity and places a bet. In that game, Carlyle was smart; the bond investors were not. David, what about unraveling Anbang next?
50
Absolutely correct. And David Barboza really does a fantastic job of covering China.
7
The interesting un-answered question is why Carlyl sold all its holdings in 2012 at a profit ? What Carlyl knew that other did not ?
62
As a private equity investor before the IPO, Carlyle might have had better information than others, but generally private equity looks for a holding period of five years or less. In China, that is often stretched because of the difficulty of listing. In this case since the company listed in 2009, Carlyle probably took the chance for an orderly exit. The sale in 2012 is described as "the last of its stake", implying there was a series of other sales as they cashed out after the listing.
3
Many articles were being written in that time period about the possibility of a crash in China's property market. Some simply heeded the warning.
What seems to go with nary a mention is the fact that those big fund companies like Fidelity that bought into Kaisa are the funds that Americans rely on for their retirement. Tying back to this country's rabid fixation on dismantling Social Security and pushing the public to into funds like Fidelity, hearing stories like this make me less confident in companies like Fidelity and our government who ignore how interconnected these financial scandals are to the American public.
108
Retirement funds are forced to do risky deals 'cause inflation indexed treasury bills, a much safer investment , have negative returns .
This is the flip side of the policy pursued by Ms Yellen, appointed by President Obama.
This is the flip side of the policy pursued by Ms Yellen, appointed by President Obama.
3
And what was the rationale for the deals that were done that lead to the housing crisis and Great recession in the United States in 2008? And I don't hear about Warren Buffet engaging in these kinds risky deals ad nauseam. Sorry, but I am not buying your argument. Investments involve risks but reckless investing always comes down to greed — not gov't policy.
5
Presumably Kaisa was offering a higher yield than was available in the US market. Higher return, higher risk. Any investor who chose an Emerging Market Bond Market fund for the yield, also had to accept more risk. A company like Fidelity managing such a fund will at least be diversified across many issuers in different countries and sectors. The Kaisa default won't sink the fund or the pensioner unless the crisis is more general such as we saw in 2008 or 2009. For those inclined to take the risk, it's much better to buy through a Fidelity or Vanguard than to go to a broker and put all your money in Kaisa (or any other single emerging market issuer) directly. But of course your point about Social Security providing an essential safety net is correct. That doesn't answer the question of what to do with IRA or 401(K) or savings.
1
Yet one more reason why you should not invest in anything remotely related to China. We'll probably be reading a similar story about alibaba sometime in the future.
62
If not Ali it will be another high flyer enterprise. The Chinese market is shrouded in back room deals and unless you have been immersed in the property scene there for long enough to know all the players and their interconnections then you might just as well give them the money and walk away. Their laws are not straight forward and are subject to what seems arbitary adjustents by the Government effectively the CCP.
3
Its already happening. The class action lawsuits against Alibaba are increasing by the day since Jack Ma had to admit to Chinese regulators that at least some of the stores in their TaoBao online marketplace sell counterfeit or fraudulent goods. Many reputable commerce watchers estimate as much as 70% of all Taobao goods are fake.
Why no one bothered to look into this before Alibaba had their massive IPO last Fall boggles the mind.
The only solace is that now the stock has cratered since the beginning of the year and appears to be heading on a slow death spiral to irrelevance.
Look up "chinese stock fraud" and it will give literally hundreds of examples of fraudulent Chinese stocks. Its also interesting to note that most Chinese stocks are the most popular stocks to short - in essence betting the stock price will decrease.
Nowhere is Caveat Emptor more applicable than when it deals with anything from China.
Why no one bothered to look into this before Alibaba had their massive IPO last Fall boggles the mind.
The only solace is that now the stock has cratered since the beginning of the year and appears to be heading on a slow death spiral to irrelevance.
Look up "chinese stock fraud" and it will give literally hundreds of examples of fraudulent Chinese stocks. Its also interesting to note that most Chinese stocks are the most popular stocks to short - in essence betting the stock price will decrease.
Nowhere is Caveat Emptor more applicable than when it deals with anything from China.
1
So when do we start bailing them out?
17
I remember a year or so ago seeing a tv report on whole cities newly built in china with all the infrastructure but no residents. empty. no people. is anyone surprised the a building boom/bubble is just a fun house mirror and smog?
34
60 Minutes did a report on the hundreds of empty condo skyscrapers in China. Whole cities are ghost towns with empty towering skyscrapers that many people invested in.
1
"Get rich quick" and the riches that come from pushing around paper -- is often a zero sum game -- with such gains, somebody else loses/gets the short end.
13
I would just love to indulge myself in a large glass of Schadenfreude, but I fear it would come with a bitter pill that would stick in my throat. For far too long, all of us have counted on the soaring GDP of China to perpetuate our own system of unsustainable expansion, be it resource based economies like ours or consumer ones like America. Well that fancy new car is crashing and burning. We can jail the driver, but that will be small comfort to the rest of us.
What truly boggles my mind is that a good many people have seen this coming and warned about it for a good long while. Who in their right mind invests in places like China and Russia with a hope of any long term return? Long term? What an antiquated notion. Only the next quarter matters. If you are going to consider long term, you have to start talking about sustainable economic models and no one reaping the rewards of this system wants to talk about that let alone invest in it.
I see glimmers of understanding coming from all over the world that there is a way out of this mess, but most people will go down with the ship rather than go there. What? Smaller house? Never! Smaller car? Are you kidding? Look at the price of gas now? Chinese products will get even cheaper the more desperate they become. What's wrong with that? Woo Hoo! Let's shop!
What truly boggles my mind is that a good many people have seen this coming and warned about it for a good long while. Who in their right mind invests in places like China and Russia with a hope of any long term return? Long term? What an antiquated notion. Only the next quarter matters. If you are going to consider long term, you have to start talking about sustainable economic models and no one reaping the rewards of this system wants to talk about that let alone invest in it.
I see glimmers of understanding coming from all over the world that there is a way out of this mess, but most people will go down with the ship rather than go there. What? Smaller house? Never! Smaller car? Are you kidding? Look at the price of gas now? Chinese products will get even cheaper the more desperate they become. What's wrong with that? Woo Hoo! Let's shop!
77
"Chinese products will get even cheaper the more desperate they become."
And those products will become even more unreliable, shoddy, unworkable, designed to fail, and everything else we have come to experience and to now expect. We are once again the suckers in the entire process.
However, it could also mean that our manufacturing base will revive itself and return to decent productivity by way of reliable products.
Our productive workers will benefit through jobs, and we as consumers will profit as a result as well.
Only time will tell.
And those products will become even more unreliable, shoddy, unworkable, designed to fail, and everything else we have come to experience and to now expect. We are once again the suckers in the entire process.
However, it could also mean that our manufacturing base will revive itself and return to decent productivity by way of reliable products.
Our productive workers will benefit through jobs, and we as consumers will profit as a result as well.
Only time will tell.
2
What about all the highly paid American lawyers, acountants, and financial advisors in this sorid tale. Anyone who has worked in China for six months knows the system is thoroughly corrupt, that financial disclosure means nothing, that Chinese companies are built of sand. But the consultants tell the investors what they want to hear and collect their fees. Shameful.
94
Well, after HP purchased Autonomy, all its lawyers, accountants and financial advisors had to find work somewhere. Advising American corporations on Chinese purchases seems to be where they landed.
2
It is truly tragic as the only credible advice to be given is do not invest at scale unless you're married or blood connected to one of the dynastic families in China. The short term profits are good but anyone who invests and remains in China for the long term riches will find they've mortgaged the future on an illusion.
Unfortunately, there is too much money to make and we know about irrationalism given the 2008 recession. Everyone who is rich or getting rich on the ride will just stay until the crash.
Unfortunately, there is too much money to make and we know about irrationalism given the 2008 recession. Everyone who is rich or getting rich on the ride will just stay until the crash.
When expansion is driven by liquidity rather than demand, that is definitive of a bubble. Bubbles collapse.
China's enormous liquidity is a one-off, the yield of high birth rate + cheap labor + complete disregard for health and environment. The "miracle" is inherently non-sustainable.
We just have to assume that supposedly savvy investors are planning to get in and get out before the collapse.
China's enormous liquidity is a one-off, the yield of high birth rate + cheap labor + complete disregard for health and environment. The "miracle" is inherently non-sustainable.
We just have to assume that supposedly savvy investors are planning to get in and get out before the collapse.
19
Or, the inflation that the West was waiting for in their own countries with all of the Q.E. were simply outsourced to the emerging markets.
5
While you are right about many things, China does not have a high birth rate and has not had one for several decades -- it is easy to look up.
What China shows us is that it is entirely possible to have disasterous consequences even with a low birth rate.
What China shows us is that it is entirely possible to have disasterous consequences even with a low birth rate.
3
No intelligence needed here.........if you invest outside America, you are not investing, you are gambling. When you gamble, you lose.
12
Right, stay with the US, no Enron, no Worldcom, everything's fine here.
Fraud happens.
Fraud happens.
42
Investing inside America didn't work out too well for a whole lot of major players during the 2007-2008 financial crisis.
AIG, MBS and a host of other paths towards financial risk and ruin shows that China represents a difference in degree rather than a difference in kind when it comes to true risk transparency and evaluation.
AIG, MBS and a host of other paths towards financial risk and ruin shows that China represents a difference in degree rather than a difference in kind when it comes to true risk transparency and evaluation.
15
You are using a broad brush when a slender one would do. There are hundreds of safe markets to enter and expand your business in. Just have the sense to stay away from the Chinas and the Russias of the world.
1
Dibs on the screen play rights. Everything is bigger in China these days.
3
Using "shell companies" sounds nefarious to Americans, but in China businesses are routinely structured with multiple, maybe even dozens of empty intermediary holding companies. To assume a company is committing fraud or acting underhandedly for no reason other than because it uses this structure would be misguided.
Regardless, I'm extremely grateful to the NYT and Mr. Barboza for committing to long-form investigative business journalism.
Regardless, I'm extremely grateful to the NYT and Mr. Barboza for committing to long-form investigative business journalism.
37
That same shell companies are buying up real estate on the coastal cities and driving up the prices. Still don't care?
1
"As ... investors clamored for a piece of China’s real estate boom, it was easy to overlook the type of risk that brought down the property developer ..."
Hmmm... seems like an-all-too-familiar refrain?
So glad we were assured by the banksters that this kind of this wouldn't/couldn't happen again after 2008!
Hmmm... seems like an-all-too-familiar refrain?
So glad we were assured by the banksters that this kind of this wouldn't/couldn't happen again after 2008!
36
Does anyone notice the background to all these images? It's impenetrable smog. Out of control doesn't even describe it. It's worse than the images of "Blade Runner". It's worse pollution than anything the US ever had in the industrial revolution. All this wild-west speculative business activity is solely there for two over-arching reasons: 1) pollution weakens and thins the population making uprising extremely difficult. 2) astounding monetary opportunity gives outlet for the most intelligent, ambitious and combative to eat each other, making uprising less likely.
Once the economic activity is brought to a screeching halt from a wave of death caused by some pollution crisis in a major urban area, then the government will be facing armed rebellion.
The economic activity is only there to stop an uprising.
Once the economic activity is brought to a screeching halt from a wave of death caused by some pollution crisis in a major urban area, then the government will be facing armed rebellion.
The economic activity is only there to stop an uprising.
18
you have the kinetics wrong -- it takes decades for pollution to "thin the population". The pollution will help with the age distribution of the population, of course.
1
"Investors, even sophisticated investors, either miss them or ignore them." They are not sophisticated at all, they just know that they have their wealth hedged and that if they blow up someone else's wealth, well big deal. In other words, they have zero skin in the game.
31
Just think -- these Wall Street executives are the "smart money" people. Perhaps they should just play Powerball.
21
One of the things I have observed about Wall Street culture is their blind-spot for outside thinking. To rise in that world, you have to kiss the ring of the old lords (at least until it is time to slay the king). The whole thing works more like street gangs and organized crime than anything else.
16
As Woody Allen said, an investment advisor is someone who invests your money until it's all gone.
1
I'm not the least bit surprised that foreign investors got burned. In a political economy like China's (or Russia's, for that matter), rapidly accumulating wealth is a principal byproduct of political loyalty and the implicit favoritism that loyalty demands. You can't call it capitalism, and it's certainly not socialism. As long as China continues to be a one-party state with no true allegiance to the rule of law, this is what one would expect to see.
97
That's right - but there is a name for it: it's called "crony capitalism", and investors had better be lined up behind the right cronies and hope they don't fall out of grace till they get their money back. But who cares about them - it's all boundless greed. They sniff fortunes to be made and off they go heedless of the obvious risks dealing in those kind of opaque environments. They get what they deserve.
43
Greed and corruption are what makes the world go around. And the Chinese learned from the best and are now biting our Wall Street banksters in the proverbial behind.
32
After the first bunch of thieves get arrested, the second bunch then appear taking the loot from the first bunch and they are now in business with a different name.
35
I worked finance in Hong Kong for a couple of years a few years back, and I am seriously amused at the high degree of blind faith and trust the Western investment bankers put in their Mainland Chinese partners. This is a blatant violation of Rule One of doing business on the mainland - if you give them one millimeter, they will eat your lunch. Perhaps the bankers believed they were playing a game, thinking that Kaisa was just another simple-minded financial lamb begging for the global investment and recognition that would fatten it up for the inevitable slaughter. But the Chinese are far smarter on their own turf than these banks are, and each of them will take a royal drubbing to get out of their ill-advised investments, assuming they even can. And Mr Guo? Mr Guo is laughing in his penthouse now, and will be laughing at the gullibility of his greedhead Occidental "partners" for many, many years to come. The saying goes that every great fortune begins with a great crime, and nowhere is this more true than on Mainland China.
152
The problem with bankers is that the money they gamble is NOT theirs. They don't care what happens to it as long as they get their "fees" before the whole thing collapses.
8
CEOs are paid 400-500 times an average wage. It used to be 20-30 times. Corporate America is in the search for 10% return or greater. It used to be fine to get a 2% percent yield, boring but safe. Conservative banking as it used to be known.
Now the monied people are not satisfied unless they become a Pharaoh in their lifetime. And as the Pharaohs of the past this wealth was borne on the backs of the masses.
God created Paradise and Adam and Eve. He also created the Tree of Life. The Apple on that Tree was not just knowledge, it was many more things than that. Are we forever doomed to never learn?
Now the monied people are not satisfied unless they become a Pharaoh in their lifetime. And as the Pharaohs of the past this wealth was borne on the backs of the masses.
God created Paradise and Adam and Eve. He also created the Tree of Life. The Apple on that Tree was not just knowledge, it was many more things than that. Are we forever doomed to never learn?
45
It is well known that China's Real Estate Market represents the greatest bubble in the history of market speculation. The last gasp of the bubble deniers occurred in the preposterous assertion by a famed economist recently on Bloomberg, when he asserted that recently built, but empty cities, were not an example of overbuilding. On the contrary. Our lying eyes have apparently fooled us again. China builds cities, and then the residents move in on cue to occupy them.
When I heard this howler of factual misdirection I assumed two things. First of all that the lack of reaction by the Bloomberg interviewer meant that he accepted such a ridiculous assertion, and secondly, that this is a very bad bubble because in the face of obvious evidence, it is still being denied by very smart people.
Then again who will admit that Quantitative Easing didn't work in America? It actually punished the real economy of goods and services? Europe which chose to elevate debt to prominence as public enemy number one had embraced austerity. They were wrong, but rather than to admit it, they have chosen to emulate America's failed program of QE.
The Euro is crashing as a result of bad decisions since 2008, and the dollar is going nowhere but up, which is again another way to punish America's Real Economy. I wouldn't be surprised if the US didn't institute a new round of QE not as stimulus, but to devalue the dollar. In a non textbook economy, QE could become a catalyst to competitive devaluations.
When I heard this howler of factual misdirection I assumed two things. First of all that the lack of reaction by the Bloomberg interviewer meant that he accepted such a ridiculous assertion, and secondly, that this is a very bad bubble because in the face of obvious evidence, it is still being denied by very smart people.
Then again who will admit that Quantitative Easing didn't work in America? It actually punished the real economy of goods and services? Europe which chose to elevate debt to prominence as public enemy number one had embraced austerity. They were wrong, but rather than to admit it, they have chosen to emulate America's failed program of QE.
The Euro is crashing as a result of bad decisions since 2008, and the dollar is going nowhere but up, which is again another way to punish America's Real Economy. I wouldn't be surprised if the US didn't institute a new round of QE not as stimulus, but to devalue the dollar. In a non textbook economy, QE could become a catalyst to competitive devaluations.
8
Regulation, greed, corruption...and that air of ridiculous superiority of western kleptocracy against all others that do not basked themselves in the light of ''superior'' light of ''western'' values... thin masks, trying to cover capitalism's horrendous face
21
The Chinese are more capitalist than the West or anyone else on the planet.
2
What did you expect? Bribery is way of doing business in Asia and the Middle East. US investors' due diligence had more than a few holes in it. Disclosure, transparency and "Chinese generally accepted accounting principals" don't come close to what the U.S. requires and we still have bubbles, crashes and fraud.
22
And we're constantly told about all the financial geniuses on Wall Street and in the banks. Dumb and greedy, not smart.
But they're so big they can destroy our economy so we'll have to bail them out, take a taxpayer haircut on it, and then have to be nice to them and make sure we applaud their bonuses. And give them more tax breaks (that they won't even have to pay for their own mistakes).
Isn't 'capitalism' and the 'free market' wonderful?
But they're so big they can destroy our economy so we'll have to bail them out, take a taxpayer haircut on it, and then have to be nice to them and make sure we applaud their bonuses. And give them more tax breaks (that they won't even have to pay for their own mistakes).
Isn't 'capitalism' and the 'free market' wonderful?
53
The heartwarming part of this story is that people actually get convicted of fraud and corruption and go to jail for life.....Go China!!!!!!!!
Bring some of that to America.
Bring some of that to America.
88
The only people who go to jail (or be mysteriously executed) in China are those who fall foul of the more corrupt and more powerful in charge. Some animals are more equal than others, to quote animal farm.
7
Do you know anything of China's legal system? You want that here?
2
Yes, China's system is much fairer than the American system.
Who would you want seen shipped off to jail for fraud and corruption that hasn't been?
Who would you want seen shipped off to jail for fraud and corruption that hasn't been?
Wall Street's penchant for searching for and making these kinds of messes sort of reminds me of walking my dog: She's always sniffing, excitedly walking around in circles and tugging, before finally stooping to leave her load for me to pick up and throw away.
27
Rex, I agree with your entire post. There is more to come, President XI is doing a fantastic and courageous job of cleaning up the mess that is China. The country's economic growth has been too fast to be on a sound economic foundation.
5
This story smells bad. I think this is the beginning of the fall of the real estate boom in China. I wonder how many of the China's 1271 richest Chinese remain rich in the coming real estate crisis.
17
The biggest and richest have all bought houses in palo alto, sort of laundering through our more transparent and so less volatile economies.
3
Similar to the Enron case a decade earlier, investment banks did not perform due diligence in recommanding Kaisa to investors. The $580 million the Guo brother got will eventually go back to the pool of asset for investor compensations once the court got through them. I wouldn't be surprised if more money are hiding in subsidiaries but that will take invegators a will to track it down.
2
A fine example of a Wild West free market without strong regulation and oversight ...
19
Given that the Chinese government and Communist party restrict political free doom in China,does anyone truly believe that they were ignorant bystanders.China is not the Wild West and David the government that you want to exercise strong regulation and oversight is intimately involved in economic and businesses ventures in China. David China is not the United Sates
I fail to see much difference between the ruling families there and the revolving door in our regulatory agencies here.
3
Here in Vancouver we are seeing the fruits of China's corruption in our insane real estate prices. Canada's former ambassador to China just wrote an article on money being smuggled out and invested in our residential property. The house I bought for $570,000 10 years ago is now worth 3 million and it is a tear down. That sounds great but how will our children ever buy a home. How will we attract talent to move here and only be able to afford a 2 bedroom condo to live in with thier 2 kids.
117
Canada signd a treaty with China last year to cooperate on investigation of corruption and tax evasion cases. Once caught, the loot will be returned to the Chinese government. Some people will lose out as housing price will come down and there will be less money overall in the city’s economy but it is for the best.
13
The corruption is from government officials so don't bet on it.
10
Yes, Chris S, the Chinese, Russian and other global financial elite are buying up prime property all over the world. The answer is for every government to seize the property, nationalize it and resell it without real estate fees for reasonable rates to citizens who have to live on the property as their only home for 10 years. Maybe then countries like Canada and the Unites States can restore some semblance of reality in the real estate market.
2
My thoughts immediately were not about the corrupt Mr. Gou, but about our corrupt Wall Street, not being responsible as usual, just out to make the fastest buck at the whole world's expense!!
115
Mine, too. With the exception of the Sinopec sale (which the story failed to elucidate), what seems to be happening in this case is very similar to thilngs that happened in Florida in th '20s, in Las Vegas more recently and in many other instances.
From time to time, I see reports comparing the US rule of law unfavorably with the rule of law in, eg, China, when it comes to business environment. Maybe so, but just having laws does not result in an injection of intelligence into the brains of bankers.
From time to time, I see reports comparing the US rule of law unfavorably with the rule of law in, eg, China, when it comes to business environment. Maybe so, but just having laws does not result in an injection of intelligence into the brains of bankers.
5
I feel there is too little regulation in this field. If regulated, it is not hard to predict that the real estate in China is coming to a halt. In fact the government even recognized so by slowly marking down housing prices in the last two years. However, in terms of regulation, it might be too little and slightly late in the stage. They should have regulated from the very start - from the point where construction companies are taking loans and from the point where permits were issued...
But then...I guess one cannot stop a permit from being issued when one cannot stop a bribe (before Xi)...
But then...I guess one cannot stop a permit from being issued when one cannot stop a bribe (before Xi)...
2
President Xi have to force down real estate speculation because newly middle class Chinese wasn't able to purchase a home in the housing bubble. He is aiming for a deflation of the bubble instead of a burst a la US 2007-2008 but for the companies speculating, it is the same result: tight capital, low sales price, tight regulation and high tax.
3
The cliché that imitation is the sincerest form of flattery is exemplified by this story. American free-market capitalism was represented as the exceptionally best way to allocate market and human capital as the basis for a stable open fair liberal socioeconomic nation state. America wanted access to Chinese markets, capital, workers and customers.
Deng Xiaoping accepted the virtues of becoming rich in a growing economy with a practical take on socioeconomic ideology. But neither he nor his heirs accepted any hint of democratic political reform. While China has the 2nd largest nation state GDP with $9.2 T that is a little over half the U.S. with $16.8 T. But China has over 4x as many people and on a per capita basis ranks 89 compared to 10 by America. China has one party rule in the tradition of the Emperors ruling the Middle (Central) Kingdom under the Mandate of Heaven.
Any recent visitor to China would assume that the construction crane was the national bird. Along with assuming that the current leaders rule collectively from the carefully cloistered confines of a New Forbidden City. Corrupt crony capitalist craven corporate plutocrat oligarchs in Beijing China are acting like their D.C., London, Berlin, Paris, Rome, Tokyo, Madrid, Athens, Moscow and Lisbon counterparts.
Deng Xiaoping accepted the virtues of becoming rich in a growing economy with a practical take on socioeconomic ideology. But neither he nor his heirs accepted any hint of democratic political reform. While China has the 2nd largest nation state GDP with $9.2 T that is a little over half the U.S. with $16.8 T. But China has over 4x as many people and on a per capita basis ranks 89 compared to 10 by America. China has one party rule in the tradition of the Emperors ruling the Middle (Central) Kingdom under the Mandate of Heaven.
Any recent visitor to China would assume that the construction crane was the national bird. Along with assuming that the current leaders rule collectively from the carefully cloistered confines of a New Forbidden City. Corrupt crony capitalist craven corporate plutocrat oligarchs in Beijing China are acting like their D.C., London, Berlin, Paris, Rome, Tokyo, Madrid, Athens, Moscow and Lisbon counterparts.
45
I shuddered, when I read in the Fletcher Forum more than a decade ago, that America's quants were headed to China to initiate the Chinese in the way of Collateralized Debt Obligations, Credit Default Swaps and leverage to the moon.
To complicate what is about to tear up China, Europe is killing the Euro as they emulate America's failed program of QE, and none of the parties in charge at the ECB or the IMF seem to notice that rates are converging to zero in an investor led charge to safety.
Today, the talk among Fed Watchers is that the Fed may soon react to raise interest rates. Personally, I was amazed since wages are down, the PPI is down more than expected, oil has overflowed storage capacity, and commodities generally are deflating. China and Europe are apparently not rational.
Can you imagine the blast off which the dollar will evince, if interest rates should be raised under these circumstances in this inter related world? It will become buy the dollar and Yen. Buy gold in yen. Short the Euro, and wait for a wave of competitive devaluations to start led by the US and Japan..
To complicate what is about to tear up China, Europe is killing the Euro as they emulate America's failed program of QE, and none of the parties in charge at the ECB or the IMF seem to notice that rates are converging to zero in an investor led charge to safety.
Today, the talk among Fed Watchers is that the Fed may soon react to raise interest rates. Personally, I was amazed since wages are down, the PPI is down more than expected, oil has overflowed storage capacity, and commodities generally are deflating. China and Europe are apparently not rational.
Can you imagine the blast off which the dollar will evince, if interest rates should be raised under these circumstances in this inter related world? It will become buy the dollar and Yen. Buy gold in yen. Short the Euro, and wait for a wave of competitive devaluations to start led by the US and Japan..
6
Why wouldn't increasing interests rates also increase some wages? Sometimes wages go up with inflation. It's not impossible. Companies would have more incentive to spend their war chests of cash if it could lose value sitting there. They can easily afford more employee compensation and R&D spending. They aren't incentivized because they can sit on their piles of cash and not lose them.
1
Wage pressure, which is called cost push inflation, has been suppressed by Quantitative Easing. At all costs both Democrats and Republicans have acted to ensure that wages will not rise any time soon. Meagre wages are one reason why both in Europe and The US deflation appears to nearly intractable. In Europe almost everything which can be done to invite deflation, and make it inevitable has been done, and even if the US can create some upward pressure for wages by increased inflation, eventually deflation from Europe will bleed into the US Economy as well.
When will it finally end? Never.
As long as Governments directly or implicitly back real estate there will be a cycle of boom and bust. When a lender is not obligated to worry about the ability to repay the loan or that there will be swift oversight of any fraud then there will be massive fraud and bailouts.
But, I am not invested in China so while this is not going to directly affect me it is however altering the US real estate market.
One of the most under reported financial stories is all of the Chinese money that is flowing back into the US real estate market. How much of this money is from corruption?
There has been a silence on this because a lot of the money is helping cities in the US with increasing land values. There is also a political component. The Chinese are not US citizens but they are using relatives as straw buyers and using corporations to hide the massive outflow of wealth into the US.
A full accounting of how Wall Street and the US Government have looked the other way on the source of Chinese investments over the last 5 years could prove embarrassing to both.
But, don't hold your breath waiting for an investigation until after Obama leaves office.
As long as Governments directly or implicitly back real estate there will be a cycle of boom and bust. When a lender is not obligated to worry about the ability to repay the loan or that there will be swift oversight of any fraud then there will be massive fraud and bailouts.
But, I am not invested in China so while this is not going to directly affect me it is however altering the US real estate market.
One of the most under reported financial stories is all of the Chinese money that is flowing back into the US real estate market. How much of this money is from corruption?
There has been a silence on this because a lot of the money is helping cities in the US with increasing land values. There is also a political component. The Chinese are not US citizens but they are using relatives as straw buyers and using corporations to hide the massive outflow of wealth into the US.
A full accounting of how Wall Street and the US Government have looked the other way on the source of Chinese investments over the last 5 years could prove embarrassing to both.
But, don't hold your breath waiting for an investigation until after Obama leaves office.
20
"But, don't hold your breath waiting for an investigation until after Obama leaves office." -- a specious, facile comment.
The implication that events such as this, representing an uncommonly escalated level of corruption on the part of US corporations, is largely due to the Obama administration is without merit. Provide reputable, vetted sources to support your assertions.
Not a personal attack, but simple outrage at a disgraceful level of blatant partisanship.
The implication that events such as this, representing an uncommonly escalated level of corruption on the part of US corporations, is largely due to the Obama administration is without merit. Provide reputable, vetted sources to support your assertions.
Not a personal attack, but simple outrage at a disgraceful level of blatant partisanship.
58
Completely true. Back around 2010,I read China is trying to track down 8,000 corrupt officials that have run to the US with average loot around $970,000. Those were small fish as big fish are still plundering. After China step up invegations, many big fish cut loose and start running carrying hundreds of millions each. There are plenty of story of Chinese students in American college paying cash for million dollar apartments.
12
Sure, an actual accounting of what money was flowing into the US from virtually everywhere around the world would reveal massive corruption. If we value free flow of capital as a society, this is going to happen.
However, there isn't silence on the issue. Here in the San Francisco area, it's frequently a topic on local news and openly discussed by real estate agents. It is certainly driving up prices and hampering people who can't afford to buy in cash. I don't think my city has a significant portion of these absentee buyers, but the heart of Silicon Valley does--and it's pushing residents outward as prices spiral higher.
However, there isn't silence on the issue. Here in the San Francisco area, it's frequently a topic on local news and openly discussed by real estate agents. It is certainly driving up prices and hampering people who can't afford to buy in cash. I don't think my city has a significant portion of these absentee buyers, but the heart of Silicon Valley does--and it's pushing residents outward as prices spiral higher.
5
I hope that the U.S. government does not decide to bail out the U.S. firms that made bad investments in china real estate.
117
It's not Wall St. that owns these bonds (and the risk). It's YOU. The bonds were purchased by mutual funds and fixed income funds which are mostly owned by pension funds and insurance companies. Wall St. banks made their money on the fees. The large buyers were just greedy and stupid for buying these bonds... but, in the end, the American Citizens are the owners and, in this case, the losers.
As long as there is money to be made dealing with China's business darlings, western banks and firms will intentionally turn a blind eye to any graft, corruption, or political nepotism - just like Germany businesses in Russia. It's called greed. If such western firms pretend that they didn't "know" of this, they are flat out lying. No one invests $100-$200 million without doing some substantial due diligence. It's just the price of doing greed.
136
Actually, people do invest that kind of money without due diligence, and right in the United States. I used to read the Wall St. Journal for its crime news, and I recall a Chicago story from the '70s where a bank offered $100 million to a local entrepreneur (formerly a plumber) that he had not asked for and for which the bank did not require any business plan.
Amazingly, the whole amount was lost.
Who'da thunk?
Amazingly, the whole amount was lost.
Who'da thunk?
10
"Blind eye" my tail feathers.. they participate, just like the do in South America, Europe and elsewhere. The Western financial industry is known as 'Cutthroat' capitalism, and has been for years.
3