that interview was a timely show to help me follow-up and further nail-in some points w/ some economists trying to talk their thesis in the upcoming clsa investor conference, whose views i generally respect but at times also partially disagree with, per just in / out e-mail tray
From: J
Sent: Tuesday, September 4, 2012 11:22 AM
Subject: Re: Comments - Week of September 3 - enhance the faith - re gold, china, and ... the script
all about fear over greed,
china over vs over all,
inconsequential this, substantive that,
inflation over deflation,
shares and stuff over paper and obligations,
911 and fed, and and and
beautiful interview and high visibility to what otherwise should be obvious
youtube.com
either that, or frank giustra talking his book and the script i hold to
From: J
Sent: Tuesday, September 4, 2012 9:05 AM
Subject: Re: Comments - Week of September 3 - script refresher
per c read distribution attached [GS note re China infrastructure spend and capacity and rationale], as as i had earlier noted what should be the base-level obvious, that
(i) china has imperative to spend spend spend, wastes not withstanding, to fix everything, simply everything, and
(ii) leverage is not and must not be seen as problem, because 'they owe it to themselves' as opposed to being obligated to others
(iii) the chinese of this, as opposed to last or next generations, are singularly qualified as they are not yet so-soft and can still take the hardships, and have not left the confucius this and mao that so far behind
china imperatives per civilization state reincarnation
- urbanize
- industrialize
- 'cybernize'
- in a word, modernize
and
the path must be go-as-see-then-go-some-more, step-by-experimental-step
should china ceases infrastructure rollout, then true danger, not just econo-politically, or mere monetary-financially, but also environmentally, and perhaps much more importantly, for the entire planet bar none would be at risk because then only the bankrupt western ways would be sort-of-standing, and that non-option is not enough for what comes next at humanity as we must reach for the stars.
this is when china must step up catalyst game and and reinvigorate what is and was doing and left back in 1421.
for folks to claim that china is over-building is exactly the same as saying all around the world folks should be satisfied with 10 square feet of home space, a non-starter.
additional point, is hong kong over-built? of course not.
is any city on the mainland on par w/ hong kong? hardly.
conclusive recommendation: getmoregold
rah rah.
smoking good sh*t this day, and sipping starbucks.
j
From: M
Sent: Sunday, September 2, 2012 7:40 AM
Subject: Re: Comments - Week of September 3 - script refresher
R, the electric system here has historically allowed the power companies to generate a return on assets. How do you improve profits? Build more assets. Hong Kong's electric system is gold plated as a result.....they even had Kohn Pederson Fox design their headquarters. Needless to say, electricity rates are shockingly high. The system was changed a few years ago and the formula changed. Lots of grass roots political pressure on them nowadays. But the system is in great shape as long as fuel can be delivered.
M
On Sun, Sep 2, 2012 at 7:25 AM, R wrote:
I remember when I was a kid growing up in HK, droughts were not uncommon. The worst year I experienced was 4 hours of water every forth day. We lived on the 4th floor and the water pressure was just enough to fill all the plastic bags of water in the balcony.
That was a long time ago and I assume the water supply is more reliable, but at the same time, the highrises are also much taller.
I asked HongKongese when I was there last time about what happens if there is a power interruption. The answer was: Am I nuts? It never happens.
[Edit by TJ: shall spare you of what then followed as discourse re Tibet and one that meandered as far as turning up tibetan soldiers in nazi germany's military]
On Sat, Sep 1, 2012 at 4:03 PM, M wrote:
That is why Tibet is an economic issue and not a religious one for China.
90% of China's fresh water has its source in Tibet.
Control Tibet and you control China's water.
Control China's water and you control all of China.
Unacceptable to Beijing, which is why the Dali Lama (or anyone else) will always have zero influence on China's easing up on its grip of Tibet.
M
On Sun, Sep 2, 2012 at 4:02 AM, J wrote:
water is one of the easiest 'problems' to resolve ... print more paper money, invest in still more infrastructure to make more water, and save more of same
china (and india?) are two of the biggest wasters of water
china needs more infrastructure, not less
From: K
Sent: Saturday, September 1, 2012 9:34 PM
Subject: Re: Comments - Week of September 3 - script refresher
I dont know if others find this disturbing
or not but I surely do .....leaving aside
all other economic or demographic
or whatever problems the one big
problem for China & India (the
2 most populous nations on earth)
is water. The recent problem over
Diversion of water from Bhramaputra
river by China is just one such example
and both these countries have very
low levels of ground water reserves
From: J
Sent: Sunday, September 2, 2012 3:57 AM
Subject: Re: Comments - Week of September 3 - script refresher
its all a problem until not
one child policy is no more
i do not fret over china ability to produce children
what the china-has-too-many-problems crowd singularly fail to realize is that china had always had too many problems, including dealing with invaders while fighting a civil war, a particularly difficult case, and yet the civilization state comes through, and
problems, meaning imperatives, lead to solutions, else civilization state would not be civilization states
what the non-physica, non-chemistry, and non-humanity disciplines fail to account for is the capacity for hardship, and believing china is china because china is the same as everywhere else
i cannot make a believable case premised on china being the same as everywhere else, even as 'china is different' sounds like 'american exceptionalism', but
i also do not subscribe to 'america is the same as everywhere else', especially when we are talking about the multiple-parallel culture social experiment ... coke-n-pepsi ... rule-by-making-up-rules ... global reserve currency ... entitlement ... mathematically possible until not ... end-game, for either perpetual motion works w/o another big hiccup such as either 1929 or civil war ... or not ... big fellows can take a lot of falling down, hiccups, and burps, until not
iow, big fellows are not like small fries, and if they were, california would have fallen long before greece
no, instead i say big fellows fall absolutely and utterly, but only when it is time that they fall
china falling? china fell, is bottoming, more obvious.
to simply premise an entire economic belief system on 'america is the same as everywhere else' appears to me as ... unrealistic.
in some sense all the inflation vs deflation discourse, and greece vs california fretting, beijing this and washington that, we are just trying to discern the end-game of kingdoms and empires, again and always, and that is what makes the debate perpetual until not, for, as armstrong would note, we must consider time, and how folks react to that time consideration
what the 'china is building too much' crowd, and it is a crowd, fails to consider is that china is under-built, and less so than ... i dunno, pick a country, any country ... say mexico, and
also fails to take account of china's tradition, per civilization state, of taking it and moving on.
just one big note of difference between china and america, obviously to the most casual of passing observers riding on bouncy horseback at some speed, after a natural disaster, the soldiers come out on to the streets in both societies, but with very different duties, but no one asks why?
in the mean time, a read theatlantic.com , just for another reminder to be a bit more inclusive in considering the very dry economic simultaneous equations
China's Long History of Defying the Doomsayers
Stephen Platt & Jeffrey Wasserstrom - Stephen Platt is the author of Autumn in the Heavenly Kingdom: China, the West, and the Epic Story of the Taiping Civil War. Jeffrey Wasserstrom is the author of China in the 21st Century and co-editor of Chinese Characters: Profiles of Fast-Changing Lives in a Fast-Changing Land.
Losing legitimacy might not mean the end of the Communist Party. Past Chinese governments have survived worse.
Shanghai police crowd the site of a planned protest meant to model the Arab Spring. (AP)
Thirty-six years after "Great Helmsman" Mao Zedong died of a heart attack, leaving his country briefly rudderless during a time of crisis and uncertainty, the Chinese ship of state is still sailing. But is it still seaworthy? Observers are energetically debating whether the legitimacy of the Chinese Communist Party, which has endured so much, can endure. After all, the government today bases its legitimacy on economic growth, which may well be slowing. We can't predict the future, but we can examine the past, and Chinese history suggests that, even if the Communist Party does face a legitimacy crisis, it would not be out of character for it to survive this particular storm.
The China-watchers who insist the country faces a crippling legitimacy crisis include, perhaps most famously, Gordon G. Chang, author of The Coming Collapse of China, as well as political scientist Minxin Pei. As they see it, there are simply too many contradictions inherent in the Chinese model for it to survive.
Henry Kissinger and When China Rules the World author Martin Jacques, by contrast, have argued that, for better or worse, the Party is in good shape. And Beijing-based philosopher Daniel A. Bell, praising the China model in the New York Times op-ed pages and elsewhere, is even more optimistic. He portrays the Chinese model as steady and efficient, guided by Confucian values. Such boosters typically concede that China's government could use some sprucing up -- a reform here and there -- but maintain that it's basically sound, and in better shape than many others.
So who's right? In a sense, they both are. As specialists in modern Chinese history, we see ample precedent to suggest that, despite the Communist Party's ongoing struggle to maintain legitimacy, it could remain in secure power for the foreseeable future at the least.
In the 18th century, a British diplomat named Lord George Macartney visited China. It was a time when, like now, foreigners were torn between admiring and denigrating the country's system. Macartney likened China to a first-class fighting ship -- for a country not really defined by its navy, China seems to attract an oddly high frequency of nautical metaphors -- that had seen better days. The hard work of "able and vigilant officers," he said, had managed to help the awesomely enormous vessel "keep afloat." But it was impossible that it would remain seaworthy long, he predicted, as its timbers had rotted and the channels ahead were too treacherous. "She may perhaps not sink outright; she may drift some time as a wreck, and will then be dashed to pieces on the shore; but she can never be rebuilt on the old bottom," he wrote, adding that he would hardly be surprised if that end should come during his own lifetime.
Lord Macartney, best known for his failed 1790s effort to establish full diplomatic relations between Britain and the Qing Dynasty, never saw the Chinese decline he'd anticipated. He died in 1806; the Qing dynasty, which stretched back to 1644, survived another century, until 1912.
Macartney's failed prediction offers a fascinating and illuminating perspective on today's similar predictions of doom. After all, he wasn't actually wrong about the challenges facing the ethnically Manchu emperors of the Qing Dynasty. His remarkably insightful observations anticipated the spread of political corruption and the potential for rebellion from non-Manchus, who chafed under the yoke of "Tartar" rulers. It's true that the Qing dynasty fell, but only after outliving not just Macartney but generations of his heirs.
Astoundingly, China's challenges, and those facing the Qing dynasty and threatening its legitimacy, became even graver after Macartney's prediction. The stunning succession of crises included a series of internal rebellions, ranging from small-scale insurrections to vast religious risings. The Taiping Uprising, which coincided with the American Civil War but had an exponentially higher death toll (roughly 20 million killed, compared to the Civil War's 750 thousand), cost so much to suppress that it nearly bankrupted the Qing. The dynasty also survived two crushing military defeats at the hands of foreign soldiers and gunships, first in the Opium War (1839-1842) and then the Arrow War (1856-1860). The wars devastated, among other things, a legitimacy claim that the Qing and previous Chinese empires had used for centuries: that the occupant of the Dragon Throne possessed a divine mandate to govern a polity that was, in every way that mattered, the most powerful on earth.
The Qing case is a reminder that some Chinese governments have been able to endure, for generations at a time, deepening corruption, weakened legitimacy, and major challenges at home and abroad. And yet, of course, mere endurance is not proof of legitimacy.
China struggled to maintain both legitimacy and stability during one particularly difficult stretch from the early 1930s to the late 1940s. Then, as now, China was run by a tightly disciplined authoritarian organization, the Nationalist Party of Chiang Kai-shek, that was widely viewed as corrupt and nepotistic. Then, too, outside critics complained that the party's then-leaders shared little in common with the ideology of their previous head.
Today, the capitalist "communists" are contrasted with actual-communist Mao; then, Chiang looked weak and lacking in vision next to his revered revolutionary predecessor Sun Yat-sen.
Chiang's regime, hoping to counter the perception that all they cared about was holding onto power, appealed to Confucian values of order -- just as post-Mao Communist Party leaders have. They also stressed the need for a strong central government. If the Nationalists fell, the argument went, China would be cast back into the chaos of the warlord era that had preceded Chiang's rise. A divided country would also be susceptible to becoming a "lost country," the term used to describe the fate of colonized lands such as India.
This legitimizing idea, which presented the Nationalists not so much as a group to be admired as a bulwark against horrific possible futures, might look a little familiar today. Chinese leaders have repeated similar arguments, notably in their purging populist party member Bo Xilai, which they called essential to keep China from spiraling back into the madness of the Cultural Revolution. Earlier, the government cited the implosions of first Yugoslavia and later Iraq to argue that the fall of authoritarianism leads not to stability and freedom but to international bullying, a violent settling of old scores, and disunity.
Yes, Chiang's Nationalist Party fell in 1949, ousted by the Communist Party that still rules today. The foreign observers who claimed in 1937 or 1947 that the Nationalist Party was bereft of legitimacy and about to fall turned out to be correct, but they could easily have been wrong. Discredited and embattled though that government may have been, had history gone just a little bit differently, the Nationalists might well have held power longer. Counter-factual histories are impossibly speculative, of course. Yet it would not take too much stretching to imagine that, had the Nationalist Party's White Terror campaigns of the late 1920s and early 1930s succeeded in their grim mission to "exterminate" Communists, Chiang might have held on at least through the 1950s. Not because his party was popular, but because it was accepted by the country's citizenry as the only group that might bring stability after decades of civil and international warfare.
There's probably no way to know whether, in the end, history will judge China's current leaders as more like the long-enduring Qing Emperors or the doomed Nationalists of the mid-to-late 1940s. Either is possible. For now, China's Communist Party has disproven observers who have predicted its imminent demise for years.
Surprisingly adaptable and self-consciously diagnostic, the regime seems keenly aware of the precedents of history, both in China and internationally.
The Qing dynasty, as the Communist Party seems to see it, was too weak in the face of foreign pressure and failed to suppress disgruntled sectarian networks, including the anti-Manchu sworn brotherhoods (or "secret societies") that participated in the 1911 Revolution. Four decades later, the Nationalists failed to quash their political opposition. As for the Leninist states of Central and Eastern Europe whose falls Beijing so assiduously studies, they never managed to raise living standards as they'd promised.
The history-minded, stability-obsessed Communist Party's hold on power thus seems less mysterious when viewed in this historical context. And some of its actions, such as the paranoid and draconian 1999 crackdown on Falun Gong, seem less surprising.
Still, not all of the CCP's efforts have been so defensive in nature. The Party has also made some positive changes, such as loosening controls on private life, helping boost living standards, and raising China's global influence, all of which have likely made it easier for Chinese citizens to tolerate or even support the Party's rule.
The Party is talented at adapting incrementally, changing course a bit at a time. This can work for a while, even a long while, but that doesn't mean it can go on indefinitely. Both of the CCP's two most recent predecessors, struggling to maintain their legitimacy, eventually attempted their own complete reinvention. In the early 1900s, the Qing dynasty, in a failed bid to outrun the forces of revolution from within, abolished the Confucian examinations that legitimized it for more than two centuries and tried to reinvent itself as a constitutional monarchy. Taiwan, under Nationalist control from the late 1940s on, began its transformation into a thriving democracy under the watch of Chiang Kai-shek's son. Today, a Party president rules Taiwan not as a dictator but as an elected official.
China's military is presently powerful enough and its diplomacy stable enough that the Communist Party faces no realistic threats from outside. Internally, its control over society is effective enough that, while unrest and discontent may be widespread, there are neither well-organized opposition parties nor rebellious armies that might seriously challenge the central government. For now, the Communist Party finds itself in a position that would be enviable to the officials of the late Qing. It could, if it wished, reinvent itself with a new legitimizing narrative, or even open the way to a new multiparty political structure as the Nationalists did in Taiwan, likely without fear of being overthrown in the process. If it does not make such changes, however, then it seems likely that the corruption and internal dissent of today will continue to mount. If that happens, then it is likely only a matter of time until that dissent and corruption reach a critical mass necessary to end the regime. But, as the world learned from the late Lord Macartney's failed prediction, those processes can take many generations longer than we might expect. Even if the Communist Party's legitimacy does weaken enough for the party to fall, it might not be in any of our lifetimes.
On 1 Sep, 2012, at 9:21 PM, A wrote:
I thought China's aging population was a problem as well.....
From: I
Sent: Saturday, 1 September 2012, 13:58
Subject: Re: Comments - Week of September 3 - script refresher
J, are you saying that everything in China was/is so perfect that temporary (1-2 year) hiccup in growth is not possible? And if your answer is "yes, temporary hiccup is possible", then the risk is that the hiccup will be prolonged.
The current scariest thing to me is that the whole world is in a synchronous slowdown which is a hangover from binging on cheap money for years. Also the demographic situation in the developed countries is really bad, meaning they will soon have to stop spending money they don't have.
On 9/1/2012 2:26 AM, J wrote:
Doc W, the share of consumption in china has been low for 600 years, and shall likely be low for as long again. Since when was china's investment n consumption in balance, and why does it matter? It doesn't.
Otoh, must invest, always invest, forever invest. China's mistake was not investing.
If doubling n tripling real income results from monetary mistakes, then let us pray for another helping.
W/r to starting base, it had everything to do w/ holding back on investment for the last 800 years, and so no more.
Re crony whatever, an unavoidable state best lived w/ as had been for a very long time everywhere.
Re wasted idle enormous resources, yes, big countries tend to do things big, just is.
And yet, after it all, the machine moves, inexorably, per what big machines do.
The problem w/ economics is that it is not physics, and so the idea that momentum makes no difference makes no difference.
Another thing about economics is that it is not chemistry, and so 2+2 would never be 8.
A third thing about economics is that it is not humanity studies, in that the indomitable spirits are, well, indomitable.
We must raise our eyes from desktop, to observe, and reckon that events are dynamic, especially as monetary affairs are just but only math, variable every which ways all ways.
From: W
Date: Sat, 1 Sep 2012 16:25:44 +0800
Subject: Re: Comments - Week of September 3 - script refresher
"Without consequences worth noting" - you have got to be taking the Mickey, J. Why do you think the share of consumption is so low in China? Beijing just raped households - oh yes, it was at it long before Bernanke began his plunderf*ck policies - to bail out it's SOEs and banks. In turn, all china has been able to do since is widen the imbalance between consumption and investment to the point that the country is right royally screwed.
It always amazes me how intelligent commentators on the mistakes of central banking and the nexus of banks and government cronyism in the West can be so blind to the fact that China has made even bigger monetary mistakes and been supportive of cronyism for even longer but will get away with it all because, somehow, in some way, the Chinese are "different". The only difference I can see is that they have made an even bigger f*ck up than anyone else.
And before anyone trots out the moronic "look how fast they have grown in the last 20 years" (and forgetting that they haven't, it is just doctored numbers that tell you that) anyone could do that from their starting point, the amount of idle resources they had, the size of their potential market that brought the foreigners slavvering, the cheapness of their repressed (no more) labour force and a misplacing of the exchange rate and capital second to none in history.
Only now does it get hard. And what we have seen in the last 12 months is that they don't have a clue what they have unleashed nor any notion at all what to do about it - except to build more...of anything.
On Sep 1, 2012, at 12:54 PM, J wrote:
hello m, how was such 'china triangular debt' resolved last time and the time before that, and without consequences worth mentioning, and so it shall be resolved this time, without consequences merit noting
china is not going to run out of paper money, just as europe and america are not going to run out of money
last entity standing, civilization state vs pop culture nations, game on, and by that measure, china collapsed by way of regular stumble, has been bottoming, and by and by, recovering, early dayz in the super cycle
we are just playing to an ageless script.
a brief review to keep the primary in front of mind and the inevitable top of thought, so that we can ignore the noise in europe and the hubbub in asia
The elemental story had always been the same, at every age on every continent since primordial time, as the super cycle played out, inexorably towards an inevitable point of destination
…
cheers, j
From: M
Sent: Saturday, September 1, 2012 10:50 AM
Subject: Comments - Week of September 3
China and the Problem of Triangular Debt
SUMMARY: We may be revisiting the 1990s in China with triangular debt owed between companies. A rise in account receivables by sector indicates which industries have the weakest cashflow.
On my recent trip to Fujian I was astonished at the dismal state of the private sector. The state banks long ago informally abandoned SME lending – although they are now reluctantly being pushed by the China
Banking Regulator Commission to set up special departments for SME loans. Meanwhile, the unofficial lenders (guarantors, private banks, etc.), who have been a significant source of capital to SMEs, are either desperately rolling over short-term loans or pulling out of the banking business altogether. Although talk of a hard landing has more or less disappeared from the lexicon of China pundits, a capital shortage is an inevitability, which is going to severely restrict economic activity, and eventually could lead to the 4% growth forecast by our Chief Strategist, Michael Pettis. Rather than a sudden illness, I view the capital shortage as a wave of nausea creeping through the financial system.
To switch metaphors, it is realistic to speak of a grinding down of the gears of the economy rather than a frozen crankshaft. As the debt rises, payment terms are elongated. We are already seeing increasing evidence of a reoccurrence of the “triangular debt” crisis of the late 1990s when a strict cash shortage forced companies to pay each other in kind. Then, the state sector predominated, but centralization of financial authority crimped bank loans to local state firms. Now, the slowed lending is first to affect small business – not SOEs. But SOEs will not be immune, particularly in light of the fact that Beijing is preoccupied with the leadership change, and will not be interested in assisting floundering local SOEs.
The State Council clearly is worried. It has instructed a number of ministries to investigate how large the problem is and the risk it poses to the economy. These ministries include the National Development and Reform Commission, the People's Bank of China, the State-owned Assets Supervision and Administration Commission, the Ministry of Industry and Information Technology and the Ministry of Commerce. We were told in Fujian that the People’s Bank of China sent a team at the beginning of August to investigate the extent of local debt, which is just one facet of the crisis.
One forward indicator of cash constraints is accounts receivables and accounts payables. Lengthening payment terms can reflect many variables: slower SOE bank lending, slower private lending, SOE ownership structure (whether it is Beijing or local), and fundamental assessments of the future profit potential by sector. Which sector is going to hurt most?
From January to May, the turnover rate of receivables among state-run enterprises stood at 4.8 times, 0.32 times lower than the same period of last year. The problem is becoming apparent nationwide. As of Aug. 23 the outstanding invoices for 1,437 listed companies was RMB803.9 billion, a 45% increase y-o-y.
The government publicly has stated that iron and steel companies as well as equipment manufacturers are the most affected, and have witnessed rising payment defaults and begun to default on payments to their upstream customers. The average accounts receivable for iron and steel industry in the first quarter stood at RMB977 million, up 39.3 percent; the receivables for equipment manufacturers stood at RMB4.05 billion, up 14.5 percent y-o-y.
We have analyzed data on the rise in accounts receivables/payables by sector 1H 2012 compared with 1H 2011. Within transportation, one stock had the largest increase in receivables at 106%, and also, the largest increase in payables, rising 307% percent. This is Jiangsu Expressway
( 177.HK). Roads are predominantly paid by = local governments. As we confirmed with West China Cement during their earnings, local governments are running short of cash and the SOE banks – that have been supporting their infrastructure projects – are no longer doing so. This entire sector of road building is liable to a severe cash crunch that most likely will require a bailout.
Healthcare is also showing high accounts payable, but our limited sample is skewed by one company: Shandong Weigao ( 1066.HK). This is a worrisome sign – are hospitals not paying Weigao for medicines on time, perhaps because they are not receiving payments from customers?
We also looked at receivables. Once again, Jiangsu Expressway leads, with a 106% increase in receivables, presumably for the same lack of payment by banks mentioned above. It is interesting that their rate of payment is lower than their rate of receivables – they may be hoarding cash.
The consumer discretionary sector receivables and payables are up. The payables to suppliers for the group, which includes hotels, retailers, and electronics manufacturers, is all over the map, ranging from a 10% decline in payables for Skyworth Digital ( 751.HK) to a 330% increase for Shangri-la Asia ( 69.HK). Haier ( 1169.HK) is showing a 35% increase in payables H/H and a 37% increase in receivables – the slower they are paid the slower they pay their suppliers.
These restrictions on bank lending will continue to worsen throughout the year as Beijing clearly has ordered the banks to avoid a repeat of the 2008 stimulus package. For now, smaller companies are collapsing.
Soon, the proverbial tip of the iceberg will rise, revealing the full extent of the problem among larger firms.
Andrew Collier, Strategist
Andrew has been traveling across China since 1983 analyzing critical trends and issues that drive the market. Andrew is a former journalist and analyst, and was the President of BOCI New York. He graduated from Peking University and Yale University. |
