Tuesday, January 19, 2016

Tweet For Today

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James said...

Here are some other China numbers to consider. Also when it comes to numbers, it should be remembered that almost all of these "numbers" are generated by the Chinese.
" Way back in fall of ‘09 we were looking at why the global mining business was actually doing so well through the teeth of the recession, the crisis of 08-09. I knew intuitively it was because China was a vast source of demand for commodities, but I didn’t know how much until my real estate analysts put some numbers up on the white board. One of them said that as of the summer of 09, China had 5.6 billion square meters of real estate under development, both approved and pending. He said half of that was apartment buildings and half of it was commercial and mixed-use. I said, wait a minute — you’ve got the decimal point wrong because 5.6 billion square meters is 60 billion square feet. And it can’t be. He looked at me and checked the numbers a few times and said, “It’s 5.6 billion square meters.”

That was the “ah-ha” moment. If half of that was office and mixed commercial space, — 30 billion square feet out of the 60 — and China has 1.2 -1.3 billion people, then you’ve got a 5’ x 5’ office cubicle for every man, woman, and child in the country! That’s all been built, by the way. I think the latest number on that time series shows 10.6 billion meters currently under development.

It hit me as to just how vast the real estate build-out was. It was as if they had combined our commercial real estate bubble of the late 80s with our residential bubble of the millennium. Only they were doing it all at the same time. As we began to dig deeper into the numbers, we saw that their physical investments as a percentage of GDP was 50 percent. What they were doing was just stunning. They were literally building a whole country in a matter of years.

Now, when you do that, just by the nature of the accounting identity, you can control your growth. You can almost make it whatever you want as long as you have willing capital and lending ability to finance it. That’s why I always joke that China is the only industrialized country that knows its annual GDP on Jan. 1 st of that year. Because it’s planned. You can truly manufacture your growth. Now, you may end up with lots of white elephants and a banking system with lots of bad loans, and that’s the problem, whether you’re a closed system or an open system or somewhere in between (which is what I believe): a closed system with lots of leakage. At the end of the day, other countries have tried this model and it doesn’t really work that well. The Soviet Union and Japan, to some extent, in the late 80s, followed this model.

If you do dumb economic things, whether you’re capitalist, communist, or some hybrid, you ultimately pay the price."
H/T Chanos

January 19, 2016 at 7:11 AM

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