Saturday, July 16, 2011

Some notes taken while traveling to China

Traveled to China this week. Some hot topics.

House price appears to have stopped rising in major cities. In fact the developers are cutting prices. Some says the hot money begins to flow into some smaller cities but in my opinion, driving up prices in smaller cities is not going to be sustainable. Plus the government continues to battle this threat as they know this is key to their security. Will the bubble pop, may be. Will China go down with it? May be not. First, unlike the previous US debacles, these folks are not drawing their home equity to fund spending. These guys may just hold and suffer till it rebound. Secondly, most of these guys paid high substantial of their second or third houses with upfront cash. Lastly, these guys are funding it with their equivalent of our EPF saving to pay their house. It is very tough to prick this bubble. The concern that most have is when the bubble pops, many predict there will be high NPL on Chinese banks BS but I think I would rather worried of the bank loans to businesses and government projects rather than to retail investors.

The GDP number released this week brought about many relief sighs, it is a sign that China is heading towards soft landing. I think the Chinese leadership deserves applauds……I still think this is going to be the best managed economy in the world.

My assignment landed me in a smaller city of China. Surprisingly, many tourist spots full of local tourists during week days. They are taking time off and spending time with family. Good for them. I think the criticism of Chinese are not spending enough is not very fair. These folks will spend just like most people around the world. These folks are struggling with high food price and high property prices. Yeah, pork price gone through the roof again(higher than previous all time high). Unless their salaries continue to catch up, it is still a tough challenge for these folks to achieve good quality of life. While Malaysia is screaming and complaining about middle income trap, I think the Chinese is going to run before they learn to walk. Their government is forcing low value added industries to perish by keep raising the minimum wage. I think very soon, these guys will go outside China to set up a lot heavy polluting industries.

The cities I travelled such as Shanghai, Suzhou, Tianjin, Beijing, etc are full of trees. I think they spend tones of money trying to green the cities. I think the Chinese truly believes in sustainable development. While it is easy to criticize this may appear to be shallow by judging them from the outside. If you want to look something more solid, I think they have invested a lot in green technologies compared to many emerging economies. They are tapping a lot of energy from sun, wind, hydro etc. They are not only investing in technologies but they also make effort to conserve energy. Everywhere you go, you can see they are controlling their air condition temperature. It’s a bit uncomfortable for me at first when they maintain the temperature around 23 deg but I get used to it after a while.

Again, don’t get me wrong that China will have a straight smooth path, they will meet with set back but I think these folks are very tough people and capable of bouncing back very fast, especially with the huge reserves that they accumulated. Again some will start to worry what will happen to their reserves in USD, well, that is a topic for another day.

Let’s pretend that I am uncle Jim Rogers for a while. I’m not selling my Chinese shares. When Chinese market goes down, I will buy more.


yauwenchin said...

I think the SOEs will blow up. Hence, some banks may be effected. Like you said, retail loans may be OK. It is very hard to compare the West and China as far as the saving and expenditure as the economic structure is much different, they may not have medicare or social aid, hence, higher savings. Disregards, similarities with the west is their debt is very high, not so much to consumers but more towards SOEs. When the SOEs collapse, I believe it will impact the future house prices as the SOE (developer) may sell cheaper to clear stocks. I tend to support Gary Shilling argument lately with Betty Liu on Bloomberg.

dukuhead said...

SOEs have been an on-going problem for many years now. How they handle the state's divestment from SOEs and its mountains of debt will be crucial. Probably Chinese banks will have to take a hair-cut but here there's no big problem since ratings agencies such as Moody's or Standard & Poor have zero influence on Chinese banks' ratings and since the Chinese have enough of their own money to tide over any debt write-downs. This is a good write up on China currently.