Beijing struggles to defuse anger over China's P2P lending crisis
reuters.com
reuters.com
Is it fair to say that they rush from one investment fad to the next, typically buying the top? This is how it looks from far away, can someone with local knowledge comment?
http://static.atimes.com/uploads/2015/07/retail-investors.jp...
Well, thats the hope anyways. I think that sector will crash eventually, but they’ve kept it going for so long.
China has kept pumping up its bubble unreasonably so since the mid-2000s. It has a third-world problem compared to the USA's first-world one.
US recorded 4% gdp growth in Q2.
Before adjusting for inflation, their GDP is at 1994 levels in USD terms. If you adjust for inflation, it's a brutal rollback.
Not only did they stagnate on economic output, they accumulated extreme amounts of debt, heavily debased the Yen, saw their savings rate drop to near zero, and lost their demographics age wise.
They have to perpetually destroy their economy via currency debasement until the national debt is effectively defaulted on to a high enough degree that they regain economic breathing room. The net result of that is vast wealth lost, and a gradual adjustment down in relative terms for their economic standing vs other nations (they've fallen from a top five GDP per capita nation, to number ~20; most likely that down trend will continue at least until they're between Spain and Taiwan in rank).
What debasing? USD/JPY has moved around 110 for 20 years now.
The party is far from being almighty. There was a huge number of other things that people were betting CCP will not let crash at all costs, but which nevertheless crashed: from currency, to stock market, to rural lending cooperatives (google that, it think their crash had impacted close to 1 in 3 or 4 people,) and on and on
China is no stranger to totally catastrophic financial crashes. Things like 2008 in US happen here every 4-5 years, but people seem to barely notice them.
The state, has valid legal pretext and a joker in the sleeve: the special interpretation of article 149 of property law. Not a single municipality in China ever honoured the textualist interpretation of the law, in all and every case ever going to court over article 149, the outcome was that the state can't deny the automatic lease extensions, but it leaves municipality the privilege to set conditions.
And yes, Shenzhen municipality was very very happy to resell property sold on 15 and 20 year leases. And people who were previous lease holders were royally fucked because they paid for property with 15 and 20 years leases as much as for a 70 to 50 years lease.
I found these:
>Most of this happened before the property boom began at a national level. So it is those cities that set the early pace in residential property development that have been first to encounter the issue. Wenzhou is one of them. Shenzhen, China’s oldest special economic zone, is another. A few property owners there started experiencing problems about 15 years ago. In that case most were given an option to renew their expired titles by paying 35% of a ‘baseline land value’, calculated on a historic rate far lower than the prevailing market price, Guangzhou Daily has reported.
>https://www.weekinchina.com/2016/04/a-nation-of-homeowners/
I the end, Wenzhou's leaseholders got free extension, but most likely just to shut them up. The govt did not yield to demands on relinquishing the right to set lease extension conditions. More on that in Chinese "ministry of land and resources decision, 23rd december"
I myself think that government's blessing on short term leases, (edit) plus hefty property tax on regular real estate seem to be the most logical way out of China's housing bubble.
I think China will abandon the entire leasing system once they get a national property tax in place. The current system is unsustainable at the local level, and localities need the continuous income a property tax can provide, rather than the windfall of leases every 70 years (if that).
Yes, pretty much it.
Shenzhen been very happy reselling land from all those short term leases under the new sky high prices for at least a decade.
Excerpt: "land user could apply for an extension without usage change if they pay a renewal fee based on the benchmark land price – the initial auction price on the land set by the local government"
Interesting fact FIY: the 2007 property law was the most debated act ever in Chinese legislature, with it failing to pass a number of times. While Chinese legislators are handpicked yes men, they also are quite wealthy people in their majority. Understandably, art. 149 was not on the govt's draft, but was added under the unprecedented extreme pressure from the assembly members.
Will the govt resort to the "nuclear option?" The temptation to solve the money problem in one swoop is just too high.
My coworker was evicted 2 month ago by his landlord in Shenzhen when the landlord suddenly learned that his land lease has expired when the police came to hand him a note without any prior warning.
Combined with Chinese people all saving too much and not spending on consumption - there is a huge pool of money just floating around going into every possible asset.
Its a bad combination that has to end badly sooner or later. (I've been saying this for 15 years but proved wrong every year).
Many study Finance for this education. At least in America, Europe, Africa, Japan, Korea, etc.
Take driving for example. Cars are everywhere in Chinese streets these days, but most of them appeared in the last 10 years. Imagine being in a city where everyone is a new driver, and nobody's parents ever drove and thus couldn't teach them to drive. The same goes investment as well, and in many other areas.
This isn't to say that there aren't a lot of smart Chinese who read stuff on the internet/learned in school/figured it out on their own (there are), but the aggregate cultural knowledge level in a lot of things people in developed countries take for granted is often noticeably more undeveloped in China. They'll no doubt grow out of it with time though (and hopefully without any significant catastrophes).
A lot of people are underwater when it comes to bitcoin.
You only lost if you were actively trading on December.
Abstracting that decision-making style to retail investing in a country with a bias towards savings, and the nature of Chinese equity markets makes a lot of sense.
It is actually good heuristic, I would just modify it ever slightly.. lot of customers means that they will not serve "stale" or yesterday's food.
No it's not. It assumes there's a correlation between quality and customers, or at least that quality is a prime cause of customers. But there's no reason to think that's the case. In fact, it's more likely that location is the prime factor: the restaurants in Times Square in NYC are very busy, but they are by no means the best in the city or even particularly good. They just have great locations in the heart of the tourist zone.
I remember reading something by Tyler Cowen where, with regards to NYC restaurants, he advised trying the ones on the streets and not on the avenues, because the streets get less foot traffic and so have to be better to draw people in. I've found this generally to be true living here.
After location, the second most important element is probably hype/fame. The hot restaurant of the moment isn't the best restaurant of the moment, it's the one that has managed to capture people's attention, which could be for a variety of reasons ranging from a celebrity chef to some new gimmick.
I’ve seen too many episodes of Kitchen Nightmares and similar shows to take a chance on a low volume restaurant that isn’t low volume due to an intentional design decision.
But that's not bias, the Western approach is correct and the Chinese approach is wrong, if the goal is to find good restaurants (with the assumption that "Western" and "Chinese" approaches are as described above).
that's a myth that keeps being persisted, much like their consistent 6-7% gdp growth every year.
if you read the article, it mentions that 'He and his family had invested 7 million yuan - their life savings'.
"The Myth Of China's 'Excess Savings' Is Weighed Down By Excessive Debt. Bank balances offset against enormous, rapidly rising, bad debts, a property bubble out of all contact with reality, a closed capital account to prevent money draining overseas while it still can, and an unregulated shadow banking sector where vast pools of notional value endlessly gyrate on air currents of uncertain origin"
https://www.forbes.com/sites/douglasbulloch/2017/04/26/the-m...
The average Chinese citizens savings have now been engulfed in bitcoin crash, stock market crash, real estate bubble, p2p lending, and gold crash. When money can't leave China because of capital controls for average citizens, money goes into a risky bubble (otherwise it gets eaten away by inflation).
The biggest bubble, China's real estate, which has "$202 per square foot. That's 38 percent higher than the median price per square foot in the U.S., where per-capita income is more than 700 percent higher than in China." https://www.bloomberg.com/view/articles/2018-06-24/why-china..., is at a dangerous size. And it could be bursted by any external factors: Trump's threat to tax $500B Chinese imports, manufacturers hastened exist from China, Fed raises the interest rate a few more times, faster capital outflow from China, one of the emerging market's collapse, one of the more indebted private firm collapses, triggering a wave of collection, etc.
https://www.bloomberg.com/gadfly/articles/2018-03-08/don-t-b...
is it in here ? not finding it with a few quick keywords or under exemptions.
https://nevadataxpayers.org/wp-content/uploads/2016/10/prope...
Investing money in bitcoin, stocks, real estate bubbles, etc. is still saving (not consumption). Might be bad savings, but it's still savings.
Before the bank deregulation in the 90's this was a more vividly defined line.
To my parents generation, saying, "I keep my retirement savings in a 401(k)" is an oxymoron.
Canada in general is a slow country and restaurant market is not competitive with exceptions of a couple of big cities. Waiting is normal for Canadian. In early times, being impatient I've made many wrong choices by turning around to find a less busy restaurant which always led to terrible experience without exception. Before I made wrong choices I was thinking that how those busy restaurants can survive by treating their customers so badly to let them wait in hunger. It turned out that alternatives were always worse. In China both are likely to be replaced by competitors very quickly with better services. In Canada both survived for long time. Differently market ecology. So I leaned to choose the less evil of them
The life cycle of restaurants in China is often very short - they open with investment and fanfare. They’ll have a great chef on board, a new and interesting signature dish, good ingredients, new equipment and high standards. After 6 months, all going well, the investors have made back their money. After 12 months, the profit has been made and the owners might look to sell. After 18 months, the place has beeen sold at an inflated price and the new owners will cut costs and quality to squeeze as much money as possible out of the place for its remaining lifespan.
So, a crowd of people means the place is new and quality is still high. No crowd means it’s either just crap quality, or it’s towards the end of its life cycle and quality has dropped.
Someone else can tenuously try relate that to Chinese investment psychology :)
"I found it before it was cool" is a comparatively small thing in the US. The crowded restaurants aren't Chili's or On the Border, as trends have changed, but Instagram, Yelp, etc, drive huge crowds to a certain group of winners. The whole "influencer" thing is a marketing industry desire to capitalize on followers, a concept that is very accurately named.
Back when long summer family road trips were the norm, a common saying was, "Eat where the truckers eat." Truckers were the Yelp influencers of the era.
Roadside diners, especially chains, would have oversized parking lots to attract truckers, which would then attract families. This was further capitalized on by the diners opening motels in back. (Think Howard Johnsons.) Or by other hospitality chains deliberately opening near popular diners. In a college marketing course, I remember it being noted that a certain hotel chain (Holiday Inn, maybe?) rarely did its own location research, and instead just opened across the street from every outlet of a particular diner chain (maybe Denny's) that it could.
To this day, motels and diners have a symbiotic relationship, though now probably for convenience reasons since, as you noted, people can find out about other options more easily on their smartphones.
It's not a cultural thing but how one is brought up. Upper class or rural chinese might have a different approach just as americans from different walks of life and from different states might view it differently.
Same goes for investing, those who plan for long term gains have a different perspective than those who want 'buy low. Sell high.' For short term profits.
I can't speak to his logic, but I think the whole issue is a lot more complex than is presented in this discussion.
Convenience plays a big role in American dining habits. So does price and habit. And some people react strongly to coupons and advertising.
I think Chick-fil-a is far better quality than Raising Cane's. But the Chick-fil-a in my town is on the wrong side of a road median, and if I'm picking something up on my way home, I'll hit the other chicken place instead of wasting 20 minutes making U-turns.
Convenience applies to fast food but restaurant dining is a bit different,I think what is more relevant to the thread is quality seeking customers as opposed to convenience. Investors want quality over convenience,how they decide on what is of good quality is the debate.
Same concept here in Pakistan [guess we Asians think alike ;) ] - we go to busy restaurants and shops assuming they are full because they meet the requirements (good food, low prices etc)
Stop bailing them out, and they'll stop believing they're gonna be bailed out.
This is why regulation is necessary.
In 2008 this is what the bankers told us but are these really the only options? I have my doubts.
Until it happens again.
However, when a bailout happens, what also needs to happen is nationalization. Quite obviously, that did not happen.
Finance is as important as energy, communications and food to the global economy.
I think the key is just making sure the bail out hurts nearly as much as actual bankruptcy.
Like for the cuban crisis, I think it is easy to forget how close we got to the brink. We have already witnessed a complete collapse of the banking system in 1929, in a world that was much less inter-dependent than it was in 2008. It is survivable but it is ugly.
In my view the government should have supported the system but not single banks. Let them go down and make sure that executives end up with zero money. Their lifetime contribution to the economy was negative so their bank accounts should reflect that.
The problem is that not bailing out may have been more painful than anything involved. The only US guide for this was when Hoover let the banks go into free-fall in 1929, which didn't get resolved until Roosevelt stabilized them in 1933. Are we willing to pay the price to do the right thing?
The US gov. certainly didn't stop the real estate bubble from bursting. It merely stepped in to recapitalize banks, and got its money back with interest in the process of keeping the financial system from falling apart. At the time, everyone was gearing up to make a run on the banks to get their money out first.
The bubble essentially cannot pop because too many people would end up underwater or lose most of their savings - this is a huge political issue. But on the other hand, the bubble cannot continue indefinitely, because if home prices outstrip inflation and wage growth for too long, eventually nobody will be able to purchase a house at all - this is the economic issue. This is not only happening in the US but also many other Western countries and in countries like China (exacerbated by their lack of investment vehicles).
And knowing about is this important, so you don't put your money in such an investment.
How they are investing their life savings is clearly the more important thing they should know about.
If peaceful protests were allowed then much more people would go to the streets to protest.
I don't know whether these people should be bailed out or not (the companies definitely shouldn't be), but I can see why they're upset with the government. It's not really the same situation as in the US.
But that is kind also the only reason China is not completely sank in the saving glut. They want to make it appear to people that they have no better alternative to use their money than just spending it right away.
This is one of reasons that a thing as bizarre as that bitcoin took off her.
In reality, Chicoms have no effective way to stop capital bleed. The learned that the stronger signal they send that "tomorrow it will be harder to get your money out of the country," the more money actually leaves.
All kinds of eCurrencies is one side of that, but insane loan schemes is another: the current most popular funds exfiltration scheme is following - a guy loans money to some fund in China, and in exchange gets an interest free or very low interest rate load abroad. The fund then finds more a legal front for "investing abroad" or just bangs money away inside China on pump and dump schemes.
It is borderline tragicomic that whatever seemingly makes sense,and made in good faith policies made up by Chinese government end up acting with opposite effect:
1. The 50k USD limit on foreign remittance - actually aggravates capital flight, by sending the signal that domestic capital markets are so bad that government has to resort to such extreme measures.
2. Prohibition on private ownership of major assets (real estate, land, mining licenses, ownership of private business over the revenue limit, sea ad aircraft, and on) - was made to ease saving glut, by making people rent that stuff rather than own, but... you know: an average Chinese citizen save like crazy just to get the 50 year rent.
3. Salt tax - apparently is still being kept to force people buying Iodinised salt, but everybody knows where to buy salt around the state monopoly
And on and on and on
SCMP has an article about it[2], but they're blocked in the mainland. I looked for the Xinhua article they mentioned but couldn't find it on their English site. I did find this one on Sixth Tone, which is not blocked[3]. It doesn't mention the protests. My guess is you won't see much if any mention of the protests on any mainland news.
[1] https://qz.com/1351198/how-p2p-lending-turned-middle-class-c...
[2] https://m.scmp.com/news/china/economy/article/2159372/china-...
[3] https://www.sixthtone.com/news/1002653/peer-to-peer-lending-...
This kind of wild west capitalism will eventually halt or at least stifle Chinese progress and growth, just because the risks of investments is too large.