differences between china/europe on the one hand and usa on the other i/r to residential real estate is that the former have 30% down payment in the game, and the latter has nought, and the latter are laughably expensive to buy for what they are (wooden sticks in the middle of nowhere requiring much commute) and absurdly expensive to own (property taxes, maintenace due to construction material and method)
but never mind all that, because double dip recession / depression is on way regardless
just in in-tray
I spent some of the long weekend looking at rental flats as my lease expires in mid-May.
It seems as if the market has picked up a bit as of late.
From the local side, it seems that many are looking to buy from the simple fact that they have been crushed in whatever they have bought - equities, currencies, accumulators and the plethora of IB "Structured Products."
But the brokers also indicated that a lifting of certain restrictions has created new demand from mainland buyers - specifically in the "low luxury" area (i.e. - less than US$3 million area in Kowloon and Hong Kong Island).
This would make sense in the context of the recent massive stimulus from Beijing. After all, in China, any "stimulus" also implies a certain "leakage" - that is money being siphoned off via "fees" (read corruption). And that stimulus is coming through big time according to a piece today in the SCMP by Tom Holland.
(see below).
Additionally, I'm going to a lunch today where the speaker is Richard Fisher - Head of the Dallas Fed. Should be interesting to see if he has anything interesting to say. I doubt it, but the Q&A could be potentially interesting if there is one. Anyone have a good question that they'd like me to ask him if I get the opportunity?
In its determination to procure an economic growth rate of 8 per cent this year despite the global slump, Beijing has commanded the country's banks to ramp up their lending to infrastructure projects in support of the government's stimulus package.
The banks have responded with unbridled enthusiasm. Last month alone, they extended an astonishing 1.89 trillion yuan (HK$2.14 trillion) in new loans, bringing the total since the lending splurge started in December last year to a massive 5.38 trillion yuan in new loans (see the second chart).
To put that amount into context, it is more than China's banks extended in new lending during the entire preceding year and a half, and equals almost 20 per cent of China's gross domestic product for 2008.
It's estimated that almost half of that money may have gone to fund new infrastructure projects. Much of the rest has remained within the banking system, but some, at least, found its way into the stock market, helping to fuel the current rally, and even raising fears about a brand new asset bubble.
Those fears were behind a trickle of reports over the past few weeks that the authorities were preparing to shut off the taps and clamp down on runaway loan growth in order to smooth likely future volatility.
However, the central bank made clear on Sunday that it is not going to cut off the flood of liquidity any time soon, declaring it will maintain its "moderately loose" monetary stance in support of government growth policies.
That news clearly heartened equity investors yesterday, encouraging them that the flood of money will continue to flow into the stock market and that the rally will continue, for the time being at least.
But such headlong lending risks are storing up trouble for the future.
The last time China's banks embarked on such a massive lending spree in support of government policy was in 1998 during the Asian financial crisis. Faced with an economic slowdown, then as now, Beijing decreed an enormous programme of infrastructure spending, worth about 2.4 trillion yuan.
Then as now much of the spending was financed by the country's banks. Unfortunately, many of the projects never yielded a return, and when the dust settled, the mainland's big four state-owned commercial lenders were left sitting on a vast stack of non-performing assets with a face value, according to some estimates, of as much as 3 trillion yuan.
The problem was swept under the carpet by transferring 2.7 trillion yuan of bad loans they carried to state asset management companies at their full value.
That sleight of hand successfully removed the bad assets from the banks' balance sheets, allowing them to remain in business.
But the signs now are that they are treading the same path again, and that another state bailout may become necessary in the future.
So when you consider that the stimulus bill from 1998 still has to be paid, and that Beijing is now in danger of recording another equally large if not larger, then the recent stock exchange rally fuelled by all this reckless lending begins looks a lot less impressive, and a lot less sustainable
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