病毒为什么要杀死宿主:Watch out for China’s ‘freak’ economy

Oct. 25, 2011, 12:55 a.m. EDT · CORRECTED
Watch out for China’s ‘freak’ economy
Commentary: This is the real danger to the global economy
MarketWatch Topics: Middle East
Asia Markets |Europe Markets |
Massive high-rise real estate projects have erupted across the country in recent years. Visitors tell stories of giant, empty condo buildings — “ghost” cities. Prices in the major cities have skyrocketed. And newly middle-class investors have piled in.
They’ve never seen a housing bust. They assumed it will go on forever.
Ten years ago, homes in Shanghai sold for about six times an average family’s income. Today that’s 13 times. Shenzhen has gone from five times to 14 times. These are off-the-charts absurd ratios. This is a bona fide mania.
And it works fine until the music stops.
Where are we now?
Prices have started falling. Now, fewer than 46 of 70 major cities saw prices stall or decline in September, reports the National Statistical Bureau. As recently as January the number was just 10.
Analysts at DBS Vickers Securities say developers are now slashing prices to move unsold inventory, and they see a lot more to come in the next few months.

Reuters
A laborer works at a construction site for new houses in Huaxi village, Jiangsu Province in China earlier this month.
The cuts are already so deep, says DBS Vickers, they are already provoking protests and attacks on sales offices from those who bought at earlier, higher prices!
You can see a proxy for the Chinese housing bust in the performance on Wall Street of E-House (China) Holdings/quotes/zigman/477117/quotes/nls/ej EJ -0.69%  , a real estate broker with a U.S. listing. The stock has collapsed in a year from $17 to less than $7, and the company recently reported it swung to a second-quarter loss thanks to “tough market conditions.”
The credit bubble is imploding.
What would a housing bust be without a credit bust? This will be the mother of all implosions, too.
In the past two and a half years, China has witnessed a staggering credit bubble. Total lending has come to about $7.8 trillion.
To put this in context, that is twice the entire net government debts of the European so-called “PIIGS” — the troubled countries of Portugal, Ireland, Italy, Greece and Spain — put together.
What sort of accountability has there been to all this lending in a single party, Communist-run, Third World economy with little previous experience of credit?
Um…
An alarming report from Schroders said Chinese banking operates in a “twilight zone” of phony accounting and shadow money and it’s all coming apart. “Almost half of all credit creation in China is off balance sheet,” wrote the team at Schroders.
They think this situation could unravel “over the next three to six months,” producing a huge crisis with international implications. Most Chinese banks, they predict, will end up as “zombie banks.”
The canary in the coal mine might be the boom city of Wenzhou in the south. On a single day last month, nine company bosses all suddenly went on the lam to avoid bankruptcy. Nine on one day.
Reports put the figure in the town at 29 since April. One boss committed suicide.
The stock market is signaling trouble.
It’s a mistake to assume the stock market is always correct, but generally speaking when it signals a downturn it does so pretty clearly.
And what it’s saying about China is alarming.
Chinese stock prices have slumped by 22% since July, says FactSet. They are, on average, down to nine times forecast earnings, valuations last seen during the depths of the financial crisis in 2008-2009. Prices of property developers have collapsed, in many cases below book value.
And you can see in the prices of mining and other resources stocks elsewhere. They have in many cases slumped by a third or more. In London, mining giant Vedanta Resources/quotes/zigman/336962 UK:VED -0.50%  has halved in price since early last year.
In most cases, the stocks of resource companies have fared much worse, so far, than the prices of the underlying resources themselves. Maybe that makes them a buy. Or maybe the forward-looking equity market is seeing something sooner than the commodities markets — as was the case for gold mining stocks six weeks ago.
Albert Edwards at SG Securities warned that China’s long-running investment boom has no precedent and is bound to burst. “China is a ‘freak’ economy,” he wrote. “To my knowledge no other economy in history has experienced such high investment/GDP ratios and seen so many sequential years of strong investment growth.” The Asian tigers in the 1990s? Japan? Nothing comes close, says Edwards.
That boom has helped carry the world economy through the troubles of the past five years. What happens if it, too, ends?
Don’t ask.