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! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

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:

  • LA5H5981sc
President George W. Bush presents the Presidential Medal of Freedom to Federal Reserve Chairman Alan Greenspan, one of 14 recipients of the 2005 Presidential Medal of Freedom, awarded Wednesday, Nov. 9, 2005 in the East Room of the Whiite House.  White House photo by Shealah CraigheadAlan “Bubbles” Greenspan Returns to Gold
      Faking It   Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961   He was in it for the power and the glory... Alan Greenspan gets presidential bling...
  • William SimonEnd of an Era: The Rise and Fall of the Petrodollar System
      The Transition   “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul   A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
  • Vote Early Zombie at Sharpstown High SchoolWriting on the Wall
      Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so.   It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh   We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
  • robot tradersA Fully Automated Stock Market Blow-Off?
      Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals.  The bots keep buying... Illustration via...
  • Toscana_Siena3_tango7174The Central Planning Virus Mutates
      Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.   A...
  • tokyo whaleDestination Mars
      Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.   The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
  • The-Deep-State-Mike-LofgrenAmerica Has Become a “Parasitocracy”
      Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to.   Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
  • London-City-Scene lo rezFat People for Trump!
      Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot.   The protest vote attractor with the funny hair. Image credit: Liberty Maniacs   Trigger warning: In the following ramble, we make fun of...
  • bristlecone-1000x672Long Term Market Perspectives
      Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world.   Ye olde bristlecone Photo credit: Kosta Konstantinidis   You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
  • Juncker, Keqiang, Tusk 2EU Sends Obsolete Industries Mission to China
      “Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”)  and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
  • chart-4-silver-basis and cobasisGold is not Going to $10,000
      One Cannot Trade Based on the Endgame The prices of the  metals were down again this week, -$15 in gold and more substantially -$0.57 in silver. Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322!   All aboard... or maybe not? It all depends on what one wants to achieve – there's many a slip 'twixt the cup and the...
  • Purchasing Power of the BuckThe Real Reason the “Rich Get Richer”
      Time the Taskmaster DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs.   Tempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell...

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