
China can deflate the world’s largest credit bubble in an orderly fashion - frgtpsswrdlame
http://www.scmp.com/business/companies/article/2093137/why-china-can-deflate-worlds-largest-credit-bubble-orderly
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dis-sys
People rarely think about the crashes China had in the last 5 decades - the
great leap forward movement, the culture revolution, the massive layoff in the
mid to late 90s that saw tens of millions out of their jobs. Suddenly the
exact same system/government that caused all those crashes are now ready to
deflate the current bubble in an orderly fashion?

How all these happened in the first place? Because the central government had
the full power to control the entire economy!

In a smaller scale, how about the recent stock market crash? Media stopped
talking about it as it is no longer that newsworthy, but how about those 100
million investors who actually invested their life savings into that stock
market? Have you ever calculated their annual returns in the last say 15
years? Did that bubble got deflated in an orderly manner?

Repeatedly, history has shown again and again that hard working smart Chinese
people are paying heavy prices to overcome the burdens brought to them by
those highly inefficient Chinese central governments, this never changed since
the Han Dynasty, it is never about the government/system, the biggest
difference is the people.

In case you have no idea of the definition of the current bubble, let me give
you one - I live in Shanghai, there are millions of those ugly apartments
built before the 90s which were basically handed over to local residents for
free, the vast majority of them are located in average or above average areas.
Thanks to a "booming" market, nowadays you need to pay $1m to get one of those
70 sqm ones. Did the CCP give every household $1m? No, they give you a bubble
and you are paying for it. Oh, btw, Beijing is 20% more expensive than that
even when the living conditions there are worse for obvious reasons.

~~~
dmix
One big difference now is the scale of this potential crisis is massive. A lot
more is at stake here and the state is highly motivated to keep things as
stable as possible.

Despite the inefficacy of the Chinese government, and I do entirely agree with
you that they are continually on fragile ground as the tentacles of the
government continually wrap around every aspect of the economy, they still
have beat many peoples projections that they'd have a big recession/debt
crisis by now.

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throwaway04444
This is from South China Morning Post, a paper that has now significantly
shifted its viewpoint to align with the Chinese government, after Alibaba's
founder purchased it.

Also, China's debt is huge, it's 300% gdp (bigger than US in 2008), and that's
not accounting the shadow banking that would need to be unwound. Couple that
the demographics crisis, fleeing foreign money/factories, middle income trap,
lack of innovations, authoritarian government controls, capital outflow
crisis, and one can see that there's no way this bubble will be unwound
"orderly".

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1001101
SCMP seems to be a little more independent than say the Renmin Ribao, but
skepticism is warranted.

I would add to your list that Chinese capital has been completely
misallocated. Roads and bridges to nowhere, ghost cities. They've poured more
concrete in the last 5 or so years than the US did in the first 100 years of
its history [1] to give you a sense of the scale. There are cities that are
unoccupied - entire cities. I'm still unclear on how these were financed, but
my guess is with liberalization of the financial sector these were packaged up
somehow and sold to Ma and Pa. It's going to end like it always does, with
lots of tears (except for those like Kyle Bass who have positioned themselves
to profit).

[1]
[https://www.washingtonpost.com/news/wonk/wp/2015/03/24/how-c...](https://www.washingtonpost.com/news/wonk/wp/2015/03/24/how-
china-used-more-cement-in-3-years-than-the-u-s-did-in-the-entire-20th-
century/?utm_term=.0f20c328c19b)

More on ghost cities: [https://www.wired.com/2016/02/kai-caemmerer-unborn-
cities/](https://www.wired.com/2016/02/kai-caemmerer-unborn-cities/)
[http://www.businessinsider.com/china-ghost-cities-
satellite-...](http://www.businessinsider.com/china-ghost-cities-satellite-
images-2017-3/#-streets-full-of-mcmansions-in-2015--7)

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fnazeeri
I'm pretty sure history doesn't not count orderly bubble deflations. It's like
recording non-car accidents. I'm not suggesting this article is likely true,
I'm just skeptical that there has never been an orderly bubble deflation.

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xbmcuser
With the kind of control Chinese government has on everything in its economy l
they probably are the one country that could deflate in a controlled manner
compared to the rest of the world. Instead of a trillion dollar collapse in
2-3 weeks. They can probably control smaller shocks of few hundred billion
over 1-2 years.

~~~
bilbo0s
This. I think sometimes people who have not actually had to LIVE the
experience by being in China longer term don't have an appreciation for the
degree of control that exists there.

China is a strange place where the central government is omni-present, AND
nowhere all at the same time. It's strange, and difficult to describe. But I
agree with xbmcuser...

The Chinese government, as long as it maintains its current structure, is in a
happy position vis-a-vis economic control.

(Or any other type of control for that matter.)

~~~
AnimalMuppet
The issue may not be the amount of control. It may be the wisdom to use that
control in a way that causes the least (economic) harm. At this point, how
best to deflate that bubble might be regarded as an unsolved problem. (There
may be theories. In fact, there probably are _more_ theories than there are
successful examples.)

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apo
If so, this would be the first orderly deflation of a credit bubble in
history.

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rm_-rf_slash
Something to note: the article features a link to the author's previous piece,
titled "China's credit excess is unlike anything the world has ever seen."

So are we honestly meant to believe that the biggest credit expansion ever can
be whisked away by the first ever orderly bubble deflation?

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jcriddle4
A "Market Based Approach" but the word bankruptcy didn't appear in the article
once?

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faragon
TL;DR: Yet another "financial/asset bubble soft landing is possible"
prediction.

