Is China Heading for a Huge Bust?

[Plutonic Panda]

From Business Insider

China Was Blasted Back To 2008 This Weekend

China released a bunch of grim economic data this weekend. The worst of it being industrial production, which slowed down to its lowest level since doom-year 2008.

It's a flashback nobody in markets wants to experience and indicates that, unless the government wants to step in, China will be shrinking for the near term at the very least.

Lets do a quick fly-around of all the disappointing metrics.

Analysts expected industrial production to rise 8.8%, but it came in at 6.9%. That's down from 9.0% print in July.
Retail sales rose 11.9% instead of 12.1% as expected and 12.2% in July.

Fixed asset investment was up 16.5% versus 16.9% expected and 17.0% previously.

All of the spells trouble, and here's some more — housing sales 11% yoy through January to August, versus a 10.5% drop in the first 7 months of the year.According to Bloomberg Economist Tom Orlick, that slowing in the housing market has been the main driver of all of this discontent.

"A sector that was once the main driver of China’s growth is now suffering a slump in sales and construction. The area of new property under development shrank 14.4 percent year on year in the first eight months of 2014," he wrote in a note.



Read more: China Was Blasted Back To 2008 This Weekend - Business Insider

[kelroy55]

I wonder if they are headed to what we went through in 08.

[Teo9969]

China has always been a paper tiger.

[adaniel]

I agree.

This is something that should be closely watched in these neck of the woods. Should they have an 08 style meltdown, it would be bad news for OK, TX, or any state that owes a big part of its current prosperity to commodities. China's insatiable appetite for stuff has been a big driver of increases in oil, metal, and food prices.

[Teo9969]

It would be bad news for everyone on some level, but it's really hard to say how it would affect the world market. I tend to think it would be a net loss, but maybe not terrible. They have, in my opinion, artificially driven up costs of quite a few things that people would otherwise be able to afford if the Chinese weren't flooding the market with their money.

For instance:

In 2005, the famous wine-region of Bordeaux (France) had one of their best vintages of the decade. There are 5 "first-growth" wineries that make what is considered the highest quality wine of the region (and quite possibly the world). You could buy a case (12 bottles) of one of these first-growths "en primeur" (They're kind of like futures. You buy the wine 24 to 36 months before it is actually released) for between £3500 - £5000.

By 2009, the chinese had dramatically increased their investing in the market and Bordeaux had another classic vintage on about the same level, maybe slightly better than 2005. Those same wines were then selling for £7500 - £13,000 en primeau. They single handedly changed the market. And if you think about the West's downturn in 2008, you would think that very little appreciation, if not a bit of a downturn in that market, would have come into effect and even lower those prices in 2005. But no.

[Pete]

The massive construction in China has certainly driven up the cost of steel around the globe.

But as mentioned, they are also a big importer of oil.

[Chadanth]

The massive construction in China has certainly driven up the cost of steel around the globe.

But as mentioned, they are also a big importer of oil.

I wonder if the downward trend in oil/gas prices without a corresponding decline in GDP in the US and Europe is driven by declining or leveling Chinese demand.

[kevinpate]

Are they over planning for the future, or do they just really like building ghost cities?

[Mel]

Wait! You mean communism doesn't work!