What the heck Happened to the Shanghai Market today.

[Lakewood90712]

Are they going down the ski slope again ?

 

[UnrealizedPotential]

My guess is that with the Chinese market being up 100% recently and then correcting back down some 30% in very fast action , there is still more downside to come. My feeling is the Chinese economy is not growing fast enough to sustain the gains the Chinese market saw . That and the fact that there needs to be better protections in place so the markets don't have these wild swings from day to day. I think the market will settle down and once they get a handle on the economy things will improve. As everyone knows : High reward brings high risk. Just my thoughts from someone watching from afar.

 

[travelover]

No one ever seems to ask why it is rising so fast, but when it falls quickly, all the questions arise.

 

[MichaelB]

I wonder why the Shanghai stock market rose so quickly...

 

[UnrealizedPotential]

I wonder why the Shanghai stock market rose so quickly...

I would be willing to guess that investors thought the economy was going to grow 8% -10% yearly. So investors went for it driving up prices. When it became obvious the economy was not growing that fast , the selling pressure started.

 

[Senator]

China was the winner here. They created a high GDP, and cashed in on it. The GDP is now going back to whatever normal is, in a command economy. The GDP can easily be raised again, all they have to do is start a bunch of government projects.

The financial numbers of most of the companies coming out of China, are made up by the Chinese government, who owns the companies.

On the other hand, maybe the numbers are true, coming from the same country that makes poisonous items such as toothpaste, dog food, baby formula, Sheetrock, etc...

 

[NW-Bound]

No one ever seems to ask why it is rising so fast, but when it falls quickly, all the questions arise.

But, but, but people are not supposed to lose money investing in stocks. Or real estate, or whatever. It's just not fair.

 

[NW-Bound]

Are they going down the ski slope again ?

Whoo Wee!

 

[imoldernu]

Separating the market from the overall Chinese economy is problematical.

The structure is very different from the US-European markets in both the types of investors (groups vs individuals) and the fact of central government control..

The current problems seem to stem from the liquidity squeeze, as yuan is leaving the country at a alarming rate. Preceding the current market drop. the Central Bank infused the economy with the largest amount of cash in nearly 2 years... this in an attempt to stop the outflow.

A bigger problem may be the use of leveraged trading, which amplifies the the instability.

The government also has a hand in market control, through the China Securities Finance Corporation, which has ownership in some large corporations. Changes in these stocks have an inordinate effect on the markets, as was the case yesterday.

Of course, underlying all of this, is the stop-go management of the country as a whole. Imagine, building housing where there was none before and then building the framework for manufacturing where it doesn't exist... with a long range plan of bringing the population in from the rural areas... changing the agrarian culture to a skilled labor force.... and...
Doing all of this in a time frame of a decade or two.

For all of the criticisms levied against Communist China, lack of vision is not one of them. It remains to be seen whether or not they can pull off this ambitious plan. Success rests on financial stability... the most obvious of all measures, and the main predictor of the future.

Just an opinion...

 

[samclem]

That and the fact that there needs to be better protections in place so the markets don't have these wild swings from day to day.

The wild swings in the Chinese market sure aren't the result of lack of government intervention. Quite the opposite.

 

[frayne]

It got shanghaid !

 

[Running_Man]

If you read the story about when Apple was designing the IPhone and how it came to be that the phones were made there you will see that if a government is willing to give plants free expansions and the right to require workers to live at the plant, it is pretty hard to fight that in USA or Europe and you will grow quite rapidly as all the business comes your way.

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.
“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

and how that plant came to be:

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

Apple, Chinese GDP and the American electronics industry have all benefitted greatly from this mutual servant arrangement. It allows Apple and other similar companies to whimsically make changes at the last minute for almost no cost killing competition in the phone market while China has a vast resource of people to make these phones whenever needed at very low cost.

In the long term the question becomes if the debt used to build up that infrastructure is going to be manageable, especially if you get to the point where you have built up very cheap factories beyond their point of need. At 280% of GDP as of June 2015 for total debt up from 157% of GDP when the Apple explosion was ramping up - China needs very fast growth to make that debt manageable. If growth stalls the debt implodes and you have very serious deflation, this is why China's economic managers are in panic mode lowering value of Yuan and buying stocks while implementing rules stopping stock sales.

China’s Debt Bomb - WSJ
http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=0

 

[NW-Bound]

It's not just factories, but China has built several ghost cities that will now take some years to fill. Who financed all that? Private money or public coffer?

On the Web, there are photos of ghost English themed towns, Scandinavian, Austrian, German, Italian, a copy of Manhattan financial district, Paris, etc... Amazing. The following Dateline report in 2011 talked of 10 cities being built every year.

 

[flyingaway]

Things are different in China. There are no (long term) investors in China, all are traders. So no matter how high the stock market does fly, it will come down. Because everyone just wants to make some quick money, and has no desire to invest for the long term. Having said that, however, if you know the rules there, it could be a great place to make quick money.

 

[NW-Bound]

I found a documentary that answers my questions above, about how the booming ghost towns and real estate bubble developed in China.

The order from the Politburo is to grow the economy, and the easiest way for provincial governments to deliver on that marching order is to build. Land was taken from farmers, and sold to developers. The poor banking system and lack of investment avenues steered people's life savings into the hand of the developers, who promised 30%/yr interest on the loans. The developers could afford to pay that interest, because the apartments they built were appreciating hugely. Many of the apartments were purchased for flipping, not for living in. A small and quite spartan apartment in Beijing could go for as high as 77x the average annual income, the equivalent of $2.5M in the US with its median wage of $32K in 2005.

So, the personal savings of the Chinese population was piled up in these empty high rises that were built and sold as investments, while much of the people still live in squalor. All this building explained the demand for steel, copper, cement until the commodity prices crashed recently.

This house of cards is tumbling down, and we will not see the end of it for a while.

 

[audreyh1]

I found a documentary that answers my questions above, about how the booming ghost towns and real estate bubble developed in China.

The order from the Politburo is to grow the economy, and the easiest way for provincial governments to deliver on that marching order is to build. Land was taken from farmers, and sold to developers. The poor banking system and lack of investment avenues steered people's life savings into the hand of the developers, who promised 30%/yr interest on the loans. The developers could afford to pay that interest, because the apartments they built were appreciating hugely. Many of the apartments were purchased for flipping, not for living in. A small and quite spartan apartment in Beijing could go for as high as 77x the average annual income, the equivalent of $2.5M in the US with its median wage of $32K in 2005.

So, the personal savings of the Chinese population was piled up in these empty high rises that were built and sold as investments, while much of the people still live in squalor. All this building explained the demand for steel, copper, cement until the commodity prices crashed recently.

This house of cards is tumbling down, and we will not see the end of it for a while.

Fascinating. Thanks!

 

[DEC-1982]

Don't worry, I checked with Chinese Yoda and the future looks good.

"The future, growth of 7% in Q3 and Q4, seen have I" - Chyoda

 

[NW-Bound]

Some say that eventually the empty office and shopping complexes and apartments in China will get occupied. But will they be standing much longer? The following video by a traveler shows the quality of construction quite alarming.

 

[travelover]

.......The following video by a traveler shows the quality of construction quite alarming.https://www.youtube.com/watch?v=MCmC9Un8Vy8

Cool ear rings.

 

[NW-Bound]

Yes, his ear lobes get lots of circulating air for cooling.

I have been looking at a few more videos on China ghost cities. Here's another one where an Australian reporter walks through a deserted modern town, but when he looks behind the main street, he discovers that some buildings are just a facade (at 4:50), like cutouts used in movie studios. How many of these Chinese cities are Potemkin Villages?

This is great! I find it as interesting as the videos on Detroit ruins that I spent quite a bit of time on last year.

 

[Mulligan]

I would love to live in a "ghost town city" provided the amenities are all there. Living the city life without all the people would be quite appealing to this small town guy.


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[NW-Bound]

I do not think these ghost buildings have electric and water, although the wiring and plumbing should be in when they are built. But with a generator and a cistern, you could be self-sufficient, just like Charlton Heston in The Omega Man.

 

[Mulligan]

I do not think these ghost buildings have electric and water, although the wiring and plumbing should be in when they are built. But with a generator and a cistern, you could be self-sufficient, just like Charlton Heston in The Omega Man.

Well that wont suffice, NW. I want the coffee shops, the restaurants, and the walkable grocery stores with all the electricity. The only thing I want missing is the crowds and crime!


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[NW-Bound]

You want too much! Coffee shops, restaurants, and grocery stores all stocked up just to serve a single customer, you?

 

[Mulligan]

You want too much! Coffee shops, restaurants, and grocery stores all stocked up just to serve a single customer, you?

Would be nice! I lived in small towns my entire life. City amenities of very compelling, but I have lived too many years not bumping shoulders with people and leaving doors unlocked without fear to change now.


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