China passes Japan.
Can the Chinese keep this up, or will we see a bubble in China?
Page 13 of 31
One of the biggest problems facing crowded cities today is transportation. If there is no existing subway or train system, building one can be extremely cost-prohibitive, not to mention disruptive to existing transit systems. The Shenzhen Hashi Future Parking Equipment Company has an idea that could address the issue at a tenth of the cost of installing a subway. It’s a train that straddles the existing highway.
While the train looks intimidating at first, it’s actually quite smart. Unlike a subway, which puts trains underneath roads, Shenzhen’s design requires minimal infrastructure, using the above-ground routes already constructed. Presumably, it requires only tracks on either side of the road to operate, and would run on solar and grid electricity. The cost for building it is estimated at 10 percent that of building an equivalent subway.
China has already commissioned a test section of 115 miles of track in Beijing’s Mentougou district to begin later this year. It will be interesting to see how it works out.
Bribery is a serious problem in China, but BusinessWeek reports that U.S. prosecutors, along with their Chinese counterparts, are stepping up enforcement.
U.S. prosecutors, empowered by the Foreign Corrupt Practices Act of 1977 (FCPA) to investigate allegations of bribery anywhere in the world, have been stepping up their activities in China, where a tradition of gift-giving in business often degenerates into serious graft. The FCPA bans U.S. companies from bribing foreign officials. It also applies to foreign companies like Siemens that list their securities on U.S. exchanges. Companies that violate the FCPA face millions in fines, and executives can go to prison. U.S. authorities have upped the number of bribery cases they pursued to a resolution around the world, from 11 in 2005 to 34 last year, according to Trace International, a nonprofit anti-bribery group based in Annapolis, Md. In a report released June 17, Trace pointed out that China, with 25 cases completed since enactment of the FCPA, fell behind only Iraq and Nigeria for the most international corruption prosecutions. Citing a World Bank estimate that more than $1 trillion in bribes are paid each year, U.S. Attorney General Eric H. Holder Jr. on May 31 called “combating corruption one of the highest priorities of the Department of Justice.”
Chinese prosecutors, meanwhile, are getting more aggressive under their own antibribery laws, says Patrick M. Norton, a partner with Steptoe & Johnson who focuses on international mediation.
Slowly but surely, the game is changing.
Mudslides engulfed the town in northwest China on Sunday, killing at least 127 people and leaving nearly 2,000 residents missing as rescue teams dug out crushed homes and sought to blast away debris clogging a river.
Many financial experts have been worried about China for quite a while. Specifically, many have been concerned that a real estate bubble has emerged in China, as local governments have spent like mad as they pushed for more economic development for their region.
Concerns are also growing in the Chinese government, and Bloomberg reports that Chinese banks will now be subjected to even more rigorous stress tests.
China’s stress tests of banks will assess the risk that a possible slump in property prices may strain developers’ finances and cause homebuyers to default, a person with knowledge of the matter said.
The banking regulator told lenders to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, the person said, declining to be identified because the regulator’s requirement hasn’t been publicly announced. Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.
That’s a staggering assumption, but when you read about what’s been going on in China, this shouldn’t be a surprise.
Short-seller Jim Chanos was sounding the alarm back in April.
CHARLIE ROSE
It’s going to be that bad for China?
JAMES CHANOS
I think it’s going to be that bad for the property market in China. Let’s be clear: What we’re talking about is a world-class—if not the world-class—property bubble.
What makes it a bubble?
What we define as a bubble is any kind of debt-fueled asset inflation where the cash flow generated by the asset itself—a rental property, office building, condo—does not cover the debt incurred to buy the asset. So you depend on a greater fool, if you will, to come in and buy at a higher price. We’re seeing behavior [we saw] in 2005 in Miami or ’06 or ’07 in Dubai.
You have said it’s a thousand times worse than Dubai.
Well, we said that [with tongue] firmly planted in cheek. But then again, according to a news report this week, there’s a developer that’s going to put in a new Times Square in suburban Beijing, replete with 32 Broadway theaters. You’re beginning to hear about these bizarre developments in China, indoor ski resorts similar to what we saw in Dubai.
There’s plenty more projects like that one. Let’s see if the government can create a soft landing here.
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