Cracks in China’s Wall of Growth

If you ever visited China, you would learn immediately that it is a collectivist culture. People will support family over strangers regardless of what is right or wrong. Their courts will always support a corrupt management over foreign investors. Never invest in a country you haven't seen first hand.

I went to China on a business trip for two weeks. I went to one of the inner much less developed provinces (Gansu) but even there you can clearly see that the infrastructure is awesome. You can also see the over building and over capacity in housing. I saw many large apartment high rises in construction with many completed buildings with no one living in them. A young employee in our partner firm mentioned that he cannot afford to buy a house in those finished buildings. Clear sign of a property bubble.

So property bubble is so obvious that it the buildings scream at you and tell you, but that does NOT mean that China will slow down drastically. They can just divert investment to infrastructure while the excess housing gets used up in next 5 years. There is a dynamism that you can feel there which is great.

In my opinion there is going to be a massive correction in real estate in China but the growth of Chinese GDP will not significantly slow down. The excess resources going to overbuilding is bound to end causing the commodities demand to fall. Aussie, Canadian and New Zealand Dollars, the "stuff" country's currency will take a hit. Commodities will enter in a major bear market.

China's ultimate goal is world domination, it's brutality will rank Genghis Khan with Jesus Christ. The TRUE Chinese culture is the most beast-like on this planet, with a facade of benevolence.

I've been to China over 30 times since 1998 while working for 3 multinationals. It's amusing to see "experts" who has not been to China or spent few days in the big Chinese cities recommending Chinese stocks... Wonder if they ever spent weeks at a time in gritty factory towns or poor interior areas...

Andy Xie is right - Chinese market is indeed a ponzi scheme and gambling den where the "house" is CCP (Chinese Communist Party).

Some sober FACTS:

1. China is a communist country ruled by 1 party with iron grip. CCP party bosses appoint the national/regional/local politicians and many private company managements since many private companies are ex-SOE (state owned enterprises).

2. Corruption in China is prevalent, rampant and one of the worst even down to lower ranking employees. For example, factory canteen worker receives an "envelopes" in scheme where he claims he received 10 bags of rice when only 8 bags are delivered.

3. There is almost no "law" since laws are written to support the communist party or corrupt local communist bosses. Judges are appointed by the local communist boss and few if any understand law. Many judges got job thru "guanxi" or connection and of course bribes.

4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of trouble for discussing hidden bad and noncollectable debts. Local communist cadres dictate banks to lend to their pet projects and of course friends who bribe them not to mention COMPLETE lack of transparency.

5. No one except pea size brains trusts the communist government's statistics which are MANIPULATED.

6. Many of the listed companies numbers are COOKED. Auditors and their management can be bribed and extorted. It's beyond me how anyone would trust Chinese companies' financials unless audited by Big 4. And even Big 4s audited numbers are suspect since most Chinese companies carry multiple books including one for taxation and another with slush funds and hidden losses.

7. Latest Chinese share and commodity appreciation have lot to do with communists pumping money to the economy by directing the banks to lend. This kind of stimulus cannot go on especially when it results in greater fool's bubble.

How can a country where 83% or little over a billion people live with income less than $2,000 be heading to middle class?

Some sober data on China for investor (speculators) fascinated with China - 3rd world country ruled by 1 party - communist. Similar to the adoration US had for Japan 20 yrs ago right before the mother of all Japanese bear markets starting in 1989.

China would have to triple the size of its economy - and the US would have to stand still - if China were to pull even with the US in GDP.

Consider the following numbers, culled from official Chinese statistics:

1. About 65 million or 5% Chinese people live in households with more than $20,000 a year in income.
2. Around 165 million or 13% make between $2,000 and $20,000 a year.
3. About 400 million or 31% Chinese have household ��incomes between $1,000 and $2,000 a year.
4. About 670 or 52% million have household incomes of less than $1,000 a year.

As you see China is a land of extra��ordinary poverty.

And some dreamers to think that China can pull US and the world out of financial rut...

No question but that this will all come crashing down, like socialistic and repressive regimes always do.

No, don't add India with China too. We all give these big speeches about how democracy is the greatest government in the world and yet everyone seems to fold when we talk about China. It's simple really, China isn't a democracy and india will. India's growth will continue and China is going to collapse in on itself.

Add India with China too.

I do find it quite interesting when Americans or alike travel to places such as China and find out quickly that 2+2 = 4 in America but it can total 5, or 6 or maybe 7 in other parts of the world. China has one objective and one objective only and that is dominance. Cooked books, phony allegiences are just pharse of the course.We here in the USA may have to find out the very hard way. God Bless America.

Buy after the next revolution.

Chinese proverb: easier to catch fish in muddy waters.