Thursday, January 20, 2011

China's Celtic Tiger

China's Economy, Is it for real or just another Celtic Tiger. In any
Western Economy Housing as has just being proven in Ireland and
the United States is the underpinning force of the Economy. So why
is there 64 Million new homes sitting empty in China. The Chinese
Government had to keep the party going and keep everyone working
to stop civil unrest. This meant building many new completely empty
cities. Sounds to me like the Bubbles of all Bubbles. What do the
Chart say.

Above, China's 600 Stock Index on a weekly basis. It declined in Synch with the
Global economy and actually bottomed much later than Mar 2009 , bottomimg
in November 2009. It looks to be consolidating with another big leg up.

Above , looking at the same Index using a method of charting called
point & Figure we see that the price projection is for the Index is to
rise to around 39,000 from its current 30,000. As a comparison
the Down Jones Industrial using the same method is projected to
 rise to just over 13,000 from its current 11,800.

If History Is A Guide Than Chinese Construction Investment Has To Hit The Wall

If the history of Asian development is anything to go by, China is about to hit an investment wall and its loans to the property and construction sectors are about to collapse, according to Nomura.

Nomura on China:
Then there is the overcapacity issue. Other Asian economies (Japan, Korea, Singapore, and Thailand) have hit the wall on investment share of GDP at the seven- to eight-year mark. The building out of railway network has reached art form status. Individuals facing negative real deposit rates save via housing, but prices are declining with an uncertain tail risk and negative liquidity conditions.
Home prices may be declining, but inflation is skyrocketing. Societe Generale think the country should anticipate an "inflation break-out," as monetary policy is now lagging too far behind the current problem.
Even if China does get around to the aggressive rate hikes Societe Generale suggest, Nomura's Fred Goodwin warns, "monetary policy is a blunt tool, prone to accidents."
One thing that now seems likely: the massive growth in construction and real estate loans as a percent of Chinese GDP appears ready to head the opposite way.
See More Charts Of The Day 

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