More Evidence of a Sharp Slowdown in China Emerges

As an update to our recent missive on China, there is now more evidence of a bursting property bubble as well as a more general economic slowdown.

BHP Billiton is reconsidering its planned iron ore related investment expansions as imports into China are declining due to falling steel production and a slowdown in car sales. 

Meanwhile, house prices have lately been falling in 45 of 70 Chinese cities, with property sales in free-fall. As the FT Alphaville Blog reports on this, quoting from a Societe Generale report:

 

“Chinese property sales and prices have made for dour reading recently. Property sales value contracted 20% year on year in the two months ending in February. This is not only the worst result since the property slide in 2008 – it’s the worst result since the series began in 2006.

It’s particularly worrying to note that the slope of the fall is as sharp as the decline in January 2008. Back then, sales fell by a further 20% year on year after the January decline. This time, the comparables are a bit better, since property sales were rising through 2007, and have been stagnant over 2011. But if we assume that the monthly sales patterns in 2008 repeat in 2012, then sales should trough at around -24% year on year

Chinese property prices released today made for equally glum reading.Prices fell in 45 of 70 cities in February from January, according to prices released on Sunday by the statistics bureau. The average decline across the cities is now around 1.5% year on year. This is similar to the 1.3% drop seen in the old series (shown in red on Chart 2), but arguably the results are a lot worse.

 

(emphasis added)

Here are the two charts referenced above:

 


 

China property sales

 


China property prices

 


 

It sure looks like the slowdown in China's economy is intensifying.

 

Australia's new Mining 'Super Tax'

Also interesting in this context is a chart we have come across that depicts the correlation between China's steel production and the external value of the Australian dollar (hat tip to 'Also sprach Analyst'):

 


 

China's steel production sand the the Australian dollar: a close correlation.

 


 

This makes it all the more ironic that Australia's socialist government has just enacted a 30% 'super tax' on coal and iron ore production in order to, you guessed it, 'diminish those excessive profits' and obtain a 'fair share' for the bureaucrats to squander. This example of 'resource nationalism' is bound to backfire mightily. It once again proves that government bureaucrats and politicians are economically illiterate. They expect mining companies to shoulder the immense risks associated with capital intensive projects,  but want to deny them the rewards during good times.  Naturally this nonsense is hailed as great progress by interventionist apologists in academe (see below). The projections regarding the likely revenue increases from this tax will likely never come true. Moreover, Australia probably can bid a good part of its mining boom adieu now. Note also here that the institution of this tax highly likely to turn out to be extremely ill-timed, as iron ore and coal prices are probably going to slump in the wake of China's slowdown. Will the government give anything back to the mining firms in the event of a bust? We don't think so.

From the Bloomberg article linked above:

 

“Australia passed legislation that will reap about $11 billion in taxes within three years from BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal miners as the government seeks to turn its budget to surplus.

Prime Minister Julia Gillard’s Minerals Resource Rent Tax was passed in the upper house yesterday and will become law on July 1 after receiving backing from the ruling Labor party and the Greens, who hold the balance of power in the Senate.

 

Passing the legislation is a success for Gillard, whose predecessor Kevin Rudd was ousted amid a campaign by mining companies against a broader 40-percent levy that he initially proposed. Gillard, the country’s first female prime minister, is trying to hold together a minority government that relies on the support of independent and Green party lawmakers.

“It’s a victory for Labor and will help the nation’s bottom line,” said Norman Abjorensen, a political analyst at Australian National University in Canberra. “Most Australians probably believe the big miners can afford to pay more tax.”

The levy will aid the prime minister’s bid to return the budget, to be announced May 8, to surplus.

“We’ve got a spectacular resources boom,” Gillard said in an interview with Channel Nine television today. “It makes sense to take some money from the turbo-charged section of the economy and share it more broadly around the nation and that is what the mining tax does.”

 

(emphasis added)

None of these projections will come to pass, you heard it here first. What 'Australians probably believe' about how much tax the mining firms can afford to pay is largely irrelevant in this context. Naturally the idea that Peter will get more if Paul is squeezed is often popular, but that doesn't make it a good basis for sensible economic policy. The irony becomes evident further below in the Bloomberg article:

 

“Australia posted its first trade deficit in 11 months in January, as weaker shipments of iron ore and coal contributed to the biggest drop in total exports in almost three years. The nation’s economic growth slowed to 0.4 percent in the fourth quarter from the previous three-month period, according to figures released on March 7.

The mining tax will raise A$10.6 billion in the three years after being implemented from July 1, according to government estimates. [no, it won't, ed.]

Parliament goes on hiatus from March 22 and resumes May 8, when the government will announce its annual budget that it says will return to surplus. Under laws already passed, the government will put a tax on carbon emissions from July 1 by charging about 500 polluters A$23 a ton for discharges until the set price gives way to a cap-and-trade system in 2015.”

 

(emphasis added)

Conclusion: sell the Australian dollar as quickly as you can. Seeing that Australia is also enacting a carbon tax and a 'cap and trade' scheme, we recommend prayer to our Australian readers as an initial ad hoc measure.

As an aside: these 'climate change' related extortions of tax payer funds are probably closely related to the state of the economy. They often are quietly dropped when economic conditions get bad enough, as they are really a luxury associated with a positive social mood ('let's all pull together to save the planet!' is a positive social mood inspired slogan). 

The climate changes all the time, regardless of what governments think they can do about it. In fact, if there is indeed a problem associated with changes in the climate (consider us extremely doubtful on that score, especially as global temperatures have completely failed to rise for 13 years running now), the last organization we want to 'deal' with it are the world's governments. They demonstrably make a hash of everything, and it won't be any different in this  case.

 

Addendum: US Housing Starts – Worse than Thought

Much ado has been made about the recently reported improvement in US housing starts. However, as the disaggregated numbers show, the bulk of the improvement was in multi-family units, not single family dwellings, which represent the bulk of the extant housing stock.

The chart below depicts the situation (via Calculated Risk):

 


 

Disaggregated US housing starts – single family dwelling starts have actually declined again.

 


 

Single family structures in isolation, long term. There's evidently nothing to get excited about. The housing slump is still not over. 

 


 

 

 

Charts by: SocGen, AlsoSprachAnalyst, Calculated Risk


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

5 Responses to “A Slowdown in China, and Ill-timed Socialist Interventions in Australia”

  • zerobs, if your comments are in my direction, in no way have I called a bottom in the market. I surely haven’t seen Pater call one, so you must have misread what I wrote. DFW was and is a growing population area, yet we had a multiple year bust after a couple of years of overbuilding. Prime suburban locations today don’t sell for any more per foot than they did in 1984, a year 113,000 housing units were constructed in the metro area. Foreclosures here were running 4000 postings a month prior to the bust, while SFR construction was running around 12,000 a quarter. So, in essense, the supply was being put back on the market as fast as it was built. I’m in the housing business here with my mother. She wants to buy. I’m waiting for the next shoe to drop. I have sensed speculation has never ceased here. If the rental market soaks up the excess, new construction will merely steal from the rental market. There isn’t enough credit to run another price run and I suspect that declining needs of an aging population will provide an overhang of supply in the mid range market.

    APM, I have marveled for years over the seeming skys the limit of the Hong Kong market. What I have never been able to rectify is the income needed to occupy such an expensive market. Having a massive amount of GDP tied up in housing can’t be productive, save for it providing a source for credit to float the rest of the economy. Of course, the bill eventually comes due.

    • APM:

      mannfm11, of course a lot of money in HK is flowing in from the outside i.e. from China, India, Australia and so forth, and real estate speculation (price appreciation) is only one of the driving factor. More important driving factors are diversification (especially for the Chinese), a low-taxation jurisdiction and in general a good place from which to run a business in Asia (rule of law, good infrastructure, developed financial system). Thus prices can stay elevated as long as the other regional economies in Asia are performing and still inflating. Corrections do occur though: between 1997 and 2003, residential real estate prices collapsed by 60% and did not reach again the 1997 level until last year (2011).

  • zerobs:

    I actually think you are understating the problem in the US.

    Statistically, the big local or national housing bubbles have taken 6-8 years to hit bottom and we are only entering year 6. We may be near the bottom, but we aren’t quite there yet. I’m not one for market timing, so I would not discourage some souls with the time and money to look at buying but when I say people with money, I mean people with cash not creditworthiness.

    Having said all that, I would probably still caution that group to think a little more. I would venture to say that nearly all US economic statistics since WWII have been tainted by a demographic bias that is almost always ignored – baby boomers (more aptly named the “ME” generation in the 70’s). To make a long post short, we may be near the “bottom” in housing, except that we are just beginning the retirement sell-off of houses which may mean we will be bouncing along the housing bottom for another 12-15 years until the number of living baby boomers no longer skews the statistics. If you consider a 67-year old’s house to be shadow inventory of 2017 (will they want to sell and move to a retirement community at age 72? will they die?), supply is probably still increasing for the next decade.

  • 30% huh? I guess China is going to have to pay it or the mines won’t run. That CDS on the Australian banks might be a good play.

    In the meantime, they have all their BS artists, beginning with Stephen Roach, on CNBS today. Makes me want to kill my TV every time they put these groups together. China has blown the mother of all housing and capacity bubbles. These bubbles feed themselves until they pop. Humpty Dumpty is broken and there is this delusion he will fit right back together again. China has been building around 20 million units a year and I have read estimates of 60 million empty units. The bubble is 3 years too large. 20 billion square feet at $100 a foot is $2 trillion. They don’t have a pipe big enough to smoke this one. If you figure the average US home was twice the size of the Chinese home, the US bubble was only about 1/5th the Chinese bubble. Empty property is near worthless.

    My personal experience and my posted analysis on the US bubble, from afar, I would consider myself an expert on this subject. When the media was calling bottoms, I was calling record low construction rates before our mess was done. Note the chart. We had the lowest birth rate since the Great Depression in 1976. Why would a dwindling number of people coming of age produce an interrupted boom in home construction and price? The levels on this chart exceed what I have added up from government data, but it is possible I added up home sales and not homes built. I assume the difference is some people build their own homes, thus they don’t count as a sale. In any case, instead of coming off the peak in the mid 1990’s, we had an accelleration. The declines are what worked off the excess of the prior few years and there wasn’t one, for 10 years after one was naturally due. My research indicated that about 750K in new home sales should have been more than enough to supply the market. From the figures I recall, sales will be about 15% less than the numbers indicated on the chart. There were years they built and sold 2 times prior peak year demand. At current construction rates, it will be absorbed at about 500K units a year. In most areas of the US, we still have a few years to go and if speculators continue to soak up the excess, the improvement in construction will merely be added to such excess. The same principals apply to China.

    • APM:

      Yes, the property bubble in China is unprecedented in terms of size and also of sheer greed. I currently live in Hong Kong and in a 7.7 million people city there are apparently between 200,000 and 300,000 empty apartments bought as “investment”. It is a peculiarity of the Chinese culture that an apartment can be resold (flipped) for a higher price if it is still “new” i.e. unused. So property gets bought, stays empty for a few years and gets resold to the next speculator in the chain. It does not take much business acumen to know where this thing is headed. The picture in Mainland China is possibly even worse. One thing that strikes me when talking to business owners and managers in China, is the amount of energy they devote to property speculation, not only on the private side with their family money but also on the business side with their firm’s funds even if real estate does not happen to be one of their (declared) areas of business. I have done business with and reviewed the balance sheet of several companies whose core business (industrial, distribution, retail) was money losing or breaking even and whose source of (paper) profit was property speculation by buying offices, stores and even residential real estate. Those companies are basically consuming their capital chasing paper profits in the real estate market. Look out below! Most likely, this will end up in a huge bust coupled with even more money printing to soften the blow.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Price Skyrockets in India after Currency Ban – Part III
      When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.   Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
  • Gold Price Skyrockets in India after Currency Ban – Part IV
      A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.   Indian jewelry...
  • A Note on Gold and India – What is Driving the Gold Price?
      Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.   Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com   In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
  • Gold Price Skyrockets in India after Currency Ban – Part V
      A Brief Recap India's Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes will no longer be legal tender. Linked are Part-I, Part-II, Part-III, and Part-IV, which provide updates on the rapidly encroaching police state Expect a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the...
  • Attaining Self-Destruct Velocity
      Bad Monday Some Monday mornings are better than others.  Others are worse than some.  For one Amazon employee, this past Monday morning was particularly bad. No doubt, the poor fellow would have been better off he’d called in sick to work.  Such a simple decision would have saved him from extreme agony.  But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.   Good-bye cruel world! On this our planet,...
  • India's Currency Debacle – An Interview with Jayant Bhandari
      A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).   Banned 500 rupee banknotes   The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
  • Will the Swamp Swallow Trump?
      Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle.   Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP   Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
  • All Aboard! Trump’s Express Train to the Future
      Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.   Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
  • There Are Two Types of Credit — One of Them Leads to Booms and Busts
      Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.   What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
  • Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
      A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.   Initially, gold rallied sharply...
  • Too Early for “Inflation Bets”?
      The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”   The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc.  We have...
  • Putting an End to the Regulatory Industry
      Gross Regulatory Overburden Corporate life in America these days is fraught with tedium.  First the MBAs imposed their silly six sigma processes and reduced workers to mere widgets. Then the regulators went through and squashed out any fun that remained. Gone are the days when shrewd eccentrics could get rich using techno-babble to hawk the Turbo Encabulator.  Alas, there are rules and regulations stymieing all creativity.  In fact, as a matter of law, such restrictions are shoved...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com