Green Room

You know all those amazing Chinese skylines…

posted at 1:54 pm on October 12, 2009 by

…you’re always seeing in photos illustrating blog posts and articles about the New Yellow Peril/Masters of the World? I’m referring to photos like this one (Shanghai):


Night photos are usually most impressive – if sometimes a little Blade Runner-y (say that three times fast!).

…or how about this one (Wuhan):

Ever wonder what happens inside those buildings – during working hours? I don’t know who the guy narrating the next video is, and he’s a little hard to understand in spots, but it looks like what goes on inside some of those awesome edifices is… nothing… or as reasonable a facsimile as you’ll ever find on Earth.

I guess, if you’re a China Bull, this is just anecdotal evidence……still, those are some mighty big – 70-floor, never-occupied – anecdotes.

A few years ago, such tourists wouldn’t have gotten out of China with their espionage footage, if at all – so I guess there’s been some real progress after all!

On a similar theme, this video depicts the new “world’s largest mall” – bigger even than the Mall of America. Unfortunately, it has only 12 tenants. It’s a section of a PBS documentary – you may want to skim it to get the flavor (unless you’ve got more spare time than I do).

h/t Zero Hedge commenters – under a post, “Mother of All Bubbles,” that describes how lending in China, during a season when historically the credit floodgates open, has hit a new low for the year…

cross-posted at Zombie Contentions

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I wonder if google will help the chinese filter out queries for “commercial real estate bust” as well?

WitchDoctor on October 12, 2009 at 2:25 PM

What is the point of this post?

Theworldisnotenough on October 12, 2009 at 3:13 PM

Theworldisnotenough on October 12, 2009 at 3:13 PM

China’s economic miracle looks a lot better than it may really be. If you think building 70-story skyscrapers and malls the size of cities without tenants is a good use of capital – or can’t figure out why it might not be – then maybe it’s the place for you!

CK MacLeod on October 12, 2009 at 3:25 PM

What is the point of this post?


What’s the point of your comment?

chimney sweep on October 12, 2009 at 3:52 PM

CK, all that surprises me is that the Obama administration hasn’t already sent out envoys to China to figure out how they “did” it so we can copy their model here. Where would we get the money to build perpetually vacant buildings? By selling more our debt to the Chinese.

Howard Portnoy on October 12, 2009 at 4:00 PM

Howard Portnoy on October 12, 2009 at 4:00 PM


CK MacLeod on October 12, 2009 at 4:07 PM

CK MacLeod on October 12, 2009 at 3:25 PM

Now I remember you wrote the post “The Next 100 Years: Why the 21st Century Will Be an American Century.”

So this post is used to throw out anecdotal evidence for Chinese economic ascendancy then undercit it wth a blog post that has some economic data that suggests otherwise. Am I correct?

Theworldisnotenough on October 12, 2009 at 5:03 PM

No, you’re confused. The only “evidence” of Chinese “economic ascendancy” in this post are the skyline photos that frequently adorn articles and blog posts about China’s bright future.

You seem to have a problem processing sarcasm and the evidence before your eyes. Empty skyscrapers and malls are not evidence of ascendancy. Those are “anecdotal.” The economic data on lending are a different kind of evidence. The analysis of an economist like Andy Xie or a strategic theorist like George Friedman (NEXT 100 YEARS author) would be something else again.

CK MacLeod on October 12, 2009 at 5:16 PM

Theworldisnotenough on October 12, 2009 at 5:03 PM

Have you actually clicked on the video links? If not, please do so before you comment again.

CK MacLeod on October 12, 2009 at 5:17 PM

OK – I’ve added some verbiage to help with the argument-processing, especially for the video-impaired.

CK MacLeod on October 12, 2009 at 5:24 PM

No, you’re confused. The only “evidence” of Chinese “economic ascendancy” in this post are the skyline photos that frequently adorn articles and blog posts about China’s bright future.
You seem to have a problem processing sarcasm and the evidence before your eyes. Empty skyscrapers and malls are not evidence of ascendancy. Those are “anecdotal.” The economic data on lending are a different kind of evidence. The analysis of an economist like Andy Xie or a strategic theorist like George Friedman (NEXT 100 YEARS author) would be something else again.
CK MacLeod on October 12, 2009 at 5:16 PM

I think you have a predetermined theory. Well not theory really, theories are subject to change based on evidence. What you have is a presumption, a presumption that needs to be upheld. The presumption being the Chinese economy is just an aberration, a bubble, and not to be taken seriously. Therefore any “evidence” is construed to be in agreement with this presumption.

Your evidence is a Chinese business man that builds the biggest mall in the world. The government then steps in to support said mall, for whatever reason, pride, hubris, (psychologically it gives them a goal but that is another matter) whatever. And that is your evidence for the entirety of the Chinese economy being a bubble. Oh and empty office buildings. Do you mean empty office buildings like this? Or how about a 32 story building, with one tenant. America is just a bubble! So yes your evidence is anecdotal. And if you are going to make an argument of the Chinese skyline you might want to quote someone saying that the skyline in and of itself is evidence of a dynamic Chinese economy, lest someone think you are using it as a strawman.

I can see the headline now “China Reduces Lending, Doomed.” The writer of the blog post almost mocks China bears.

“Several headfakes in the CSI, at one point a 20% decline into recession territory, seemed to have given China bears the ammunition they thought they needed. Yet these have all been pretty much just that – transitory headfake movements whose downward pattern has not sustained.”

China put the brakes on lending which means what exactly? Chinese banks listened to the regulators? Gasp! The Chinese economy is doomed!! The Chinese government does not want an overheated economy? No!!! The article itself and the blog poster fail to make a concrete conclusion. Now that I reread the post neither do you. This: “credit floodgates open, has hit a new low for the year…” is supposed to leave the reader with such a clear path that he can only conclude that China is just a bubble. Or so you think.

What your argument reminds me of is the British argument against the American economy in the 19th century. The reserve currency was British Sterling and they were the great economic power. Whatever is, has always been, and will always be… Not so much. So I expect to see more posts based on blips in the Chinese economy that will serve as evidence against the long term trends.

I know that the Chinese economy is going to sputter sometimes crash. But that is all part of the process. I figured this out by looking at America’s economic history. America did not grow in a straight line, nor will China, but grow it will. So call me unconvinced. An ill conceived mall nor a spate of empty buildings does not a bubble make.

Theworldisnotenough on October 12, 2009 at 6:56 PM

Theworldisnotenough on October 12, 2009 at 6:56 PM

Sheesh – if he wanted to make THE argument that the Chinese economy has taken on the character of a bubble, or wanted to entertain the more general proposition that China faced some hard slogging ahead, I wouldn’t try to base it on a couple of videos and a blog post. You’re also confusing two positions: You don’t have to believe that US commercial real estate or the US economy is or isn’t in great, good, or poor shape to have a view on the Chinese economy.

I see those videos as supplying anecdotal evidence in a much larger discussion – and also as encouragement, perhaps, to others not to get caught up in the glossy facade as represented in those skyline photos, or for that matter the ’08 Olympics extravaganzas.

As for the fragment of the blog post that you quote, you leave out the concluding sentence: “And the broken pattern will continue so long as Ben and his covert-ops Chinese counterparts (good luck trying to pass HR 1207 in China) continue flooding markets with increasingly worthless pieces of paper (keep in mind, currency devaluations are relative phenomena).” The blogger is or was primarily a trader, and he writes in a sardonic, shorthand style. His point of view shouldn’t be confused with Friedman’s (which is based on a much longer view), though coincides with Andy Xie’s very much – that China, parallel to the U.S. and in a way linked with the U.S. economy directly, is inflating a massive asset bubble, partly reflected in a rising stock market.

For a less anecdotal, more analytical view on the Chinese economy from the aforementioned Xie, you can check this entry from a couple of months ago – here’s a quote:

Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast.

In the conclusion of the piece, after a lengthy discussion of the real economics of the Chinese commercial and residential real estate market, and with a look at China’s equity markets as well, he concludes as follows:

Today’s market frenzy won’t last long. The correction may happen in the fourth quarter. There could be another frenetic wave next year as China releases more liquidity. When the dollar recovers, possibly in 2012, China’s property and stock markets could experience the kind of collapse seen during the Asian Financial Crisis.

Within the context of the above analysis, a precipitous fall in Chinese credit markets could be an important signal, or could just be a bump in the road, with the real collapse coming down the line.

Or maybe they’ll figure something out, or other major events will chart a completely different course.

Here’s the background on Xie: Guest economist to Caijing and a board member of Rosetta Stone Advisors Limited. Andy Xie was Morgan Stanley’s Chief Economist for Asia Pacific from 1997 to 2006. Andy earned both a Ph.D in Economics (1990) and a M.S. in civil engineering (1987) from M.I.T.

I find Xie’s analysis logical, factual, and persuasive. I find the Scotsman and the empty buildings or the Mall of the Dead striking in a different way.

CK MacLeod on October 12, 2009 at 7:44 PM

As for the fragment of the blog post that you quote, you leave out the concluding sentence

CK MacLeod on October 12, 2009 at 7:44 PM

I left out the last sentence because I thought it not relevant. Do you think Bernanke and Obama aren’t about to stop printing money anytime soon? So the trend has no foreseeable end.

It’s not too hard to predict a timetable for a bubble burst. When the dollar becomes strong again, sufficient amounts of liquidity could leave China to pop the bubble. What’s occurring in China now is no different from what happened in other emerging markets in the past: A weak dollar led to bubbles in hot, emerging economies, and when the dollar turned around, the bubbles inevitably burst.

And when might the dollar strengthen? In the world of fiat currencies he who inflates least wins and that ain’t us…

However, monetary policy could trigger a short but powerful bull market for the dollar. In the early 1980s, the then-chairman of the Fed, Paul Volker, increased interest rates to double digits to contain inflation. Afterward, the dollar rallied hard. A Latin American crisis had a lot to do with that.
The current situation is similar. As in the 1970s, the Fed is denying inflation risk due to its loose monetary policy. The longer the Fed waits, the higher inflation will peak. When inflation starts to accelerate, it could cause panic in financial markets. To calm the markets, the Fed would have to tighten aggressively, probably excessively, leading to a massive dollar rally. This would be the worst possible situation: A strong dollar and a weak U.S. economy. China’s asset markets — and the economy — would almost surely see a hard landing

Again probability of Bernanke raising rates, which will create another recession? Slim and none and slim just left town. And I agree with Xie the situation is similar. What is important is how it is different. Chiefly we do not control our money supply we are the biggest debtor nation we cannot control what our debtors do, treasuries could be dumped. Which would be armageddon for the dollar. What makes the situation so precarious is that they do not need to dump the dollar at all, just stop buying it and we massive inflation. In that case rates would have to be so high as to make them politically intolerable.
When far less of our debt was owned by foreign nations it took a large spike then steady decline in interest rates. Now we have a challenge to the dollar in the Yen and Euro they weren’t there in 1980. A simple spike interest rates won’t be enough to fend off the active challenges to the dollar.
By the time we do have the political will to raise rates China will be long since decoupled from the dollar. They aren’t using the yuan for international settlements for nothing. China is not the worlds largest gold producer and buyer for no reason. China is not admonishing its citizens to buy gold for no reason (while we sell our to infomercials). China is has not doubled its own strategic oil reserve for no reason. I could go on but it is bullish sign after bullish sign. China is preparing while we crumble.

I really do not care if China has a real estate bubble. That bubble popping wont cripple their economy the way it did ours. Our problems aren’t China’s. Our problems are our own and they are being made worse by other nations acting in their own self interest. And moving away from supporting the dollar.

Theworldisnotenough on October 13, 2009 at 6:02 PM

I could go on but it is bullish sign after bullish sign

Those are not “bullish signs,” those are measures that in fact reflect insecurity.

Bernanke has already promised to tighten. The question is whether he will seek to head off inflation or, as is much more likely, trail behind it.

As for the value of the dollar, it could go two ways: Continued erosion will “de-couple” China from the dollar chiefly by devaluing China’s holdings in the dollar. Relative appreciation, which the other processes Xie describes may make more likely, dis-serves China in the other way.

We could speculate endlessly, and repeat prior discussions on the 100 YEARS thread, and maybe the export depression thread, about whether China’s economic model needs to be radically adjusted and whether that adjustment can be easily accomplishhed – and not persuade each other of anything, I suspect – especially since you argue like someone who has made a bet and is determined to defend it against all challenges. For now, I see no reason at all to accept your assertion, over Xie’s, that China’s real estate and equity bubbles popping won’t perturb the Chinese.

CK MacLeod on October 13, 2009 at 7:07 PM

Two other things to consider:

1). Do you know why these pictures are taken at night or at dusk? Because otherwise you’d see the pollution in the air.

2). There are plenty of major Chinese cities that have really crappy, dirty, polluted skylines. Like Guangzhou, for instance.

Jimbo3 on October 14, 2009 at 12:52 PM

Jimbo3, it is said that 15 of the world’s 20 most polluted cities are located in China.

CK MacLeod on October 14, 2009 at 3:54 PM

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