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China Faces Crash Scenario


And sooner rather than later.


Problems in China continue to mount. Money supply is growing rampantly out of control, property prices are in a bubble, exports are weak, commodity speculation is pervasive, and GDP growth is more of a mirage than real.

Money Supply Growing Record 29.74%

Please consider China Monthly New Loans Are 294.8 Billion Yuan, Above Forecast.

New local-currency loans totaled 294.8 billion yuan ($43.2 billion), compared with 253 billion yuan in October, according to data released by the People's Bank of China on its Web site today. The median forecast of 19 economists in a Bloomberg News survey was 250 billion yuan.

M2, the broadest measure of money supply, rose a record 29.74 percent in November from a year earlier.

China's banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. China is trying to ensure that there is enough credit to support an economic recovery without increased risks of bad loans and asset bubbles.

"We believe slower credit growth in 2010 will be key to avoid a boom-bust scenario in the economy," Wang Tao, a Beijing-based economist for UBS AG, said in a report.

What Is China Doing With All That Printing?

Please take a A 4-Minute Tour of the China Property Bubble to find out.

The world's largest shopping mall, South China Mall in Guangzhou, China, is almost entirely empty. Click on the link to see a fascinating video.

China Plans to Control Property Prices

Please consider China Can Boost Growth as It Cools Property, Merrill Says.

The government "plans to control property prices by accelerating property investment and increasing supply," economists Lu Ting and T.J. Bond said in an e-mailed note today. That contrasts with efforts in 2006 to cool prices by controlling investment, the economists said.

China Is Overbuilding Already

Note the insanity. China wants to control prices by building more. It already has completely empty shopping centers, condos, and even a completely empty city.

China's Empty City

Click here to see an amazing video of a completely empty city.

China Has Trouble Maintaining Demand Growth

In spite of obvious speculation and overheating in the housing sector, China Faces Difficulties in Maintaining Demand Growth.

China, the world's third-largest economy, faces "increased difficulties" in maintaining growth in domestic consumption, the nation's top economic planning agency said.

A recovery in external demand is "difficult," the National Development and Reform Commission said on its Web site today, citing Vice Chairman Du Ying. The nation's economic recovery "is not yet solid," the agency known as NDRC said.

China will maintain a "moderately" loose monetary-policy stance and "proactive" fiscal policies in 2010 as its economic recovery isn't solid yet, the official Xinhua News Agency said Dec. 7, citing a statement by the annual central economic work conference.

The country still faces a "very challenging" international environment and "the domestic problems it is confronted with are also complicated," Du said in the statement today. "The potential risks in the fiscal and financial sectors can't be underestimated," Du said.

Economic growth in China, which is spending $586 billion on a stimulus package, accelerated to 8.9 percent in the third quarter after slipping to 6.1 percent in the first. The government is targeting 8 percent growth for the full year.

Moderately Loose Monetary Policy?!

What would a "loose" policy look like? Regardless, when Vice Chairman Du Ying says the "recovery is not solid" and the environment is "very challenging" you can take his word for it. Actually you can look at money supply growth and empty cities and conclude the same thing.

Bear in mind that China calculates GDP a peculiar way, as soon as the money is allocated. Much of that GDP growth is a mirage. Moreover, much if not most of what isn't a mirage, is nothing more than property malinvestment and other speculation.

Bubble Concerns In "Sizzling" Shanghai

Please consider 'Sizzling' Shanghai Homes Defy Tax, Bubble Concerns.

Escalating prices in Pudong, transformed within two decades from vegetable fields to skyscrapers for Citigroup Inc. (C) and HSBC Holdings Plc (HBC) underscore a Chinese property market that set record highs this year after the government unleashed $1.3 trillion in new bank lending to counter the global recession.

Premier Wen Jiabao said Nov. 28 that property speculation must be suppressed, and the government on Dec. 9 reinstated a sales tax on homes sold within five years of purchase after reducing the period to two years in January. That change is superficial and will have minimal impact, said Lu Qiling, an analyst at Shanghai Uwin Real Estate Information Services Co.

"It's only a token measure," Lu said. "It won't change the upward trend in housing prices."

"The government is clearly in a dilemma," Luk said. "It wants to address the surging property prices and concerns on bubble-bursting, yet it dares not take drastic measures for fear of hitting the market too hard."

The nation's real estate and stock markets are a "bubble" that will burst when inflation accelerates in 2011, former Morgan Stanley chief Asian economist Andy Xie said in an interview in Hong Kong today.

"China's asset markets are a Ponzi scheme," said Xie, now a Shanghai-based independent economist. "Property is heading for one huge bust that will take a year and a half to unfold."

The Shanghai Property Index, which tracks 33 developers listed in the city, has more than doubled this year, compared with a 75 percent gain for China's benchmark Shanghai Composite Index.

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