Andy Xie

[kennynah]

... we will never know for sure.... but whether if lehman died in vain or not, is a great topic of talk cock conversation over beers indeed...

[winston]

Another long article.... ; How come this guy cannot write simple short articles ?

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Andy Xie: Why One Bubble Burst Deserves Another

Many investors today think a bubble is inevitable and, when it bursts, another can be created quickly to keep on going with life as usual. What has occurred over the past six months seems to validate this viewpoint. History, however, is not kind to this view.

Serial bubble making leads to a bigger economic crisis later. What occurred in the United States in the 1930s and Japan over the past two decades are good examples in that regard. If a new bubble were always available for bailouts, we'd have the ultimate free lunch. But there is no free lunch.

Our serial bubble making began 10 years ago with the Asian Financial Crisis. It led to loose monetary policy in developed economies, especially in the United States, and undervalued exchange rates in developing economies.

The inflationary force from this loose monetary policy was kept down by excess capacity or capacity creation in developing economies. The environment for tolerating such a loose monetary environment ends when inflation surges in emerging economies first and developed economies second.

When inflation becomes a political problem and policymakers are forced to respond, money supplies will be cut. After that, no more bubbles.

http://english.caijing.com.cn/2009-09-28/110267252.html

[kennynah]

Another long article.... ; How come this guy cannot write simple short articles ?

those who can...are concise and precise

those who cant... take you for a carousel ride, eventually returning to the same spot...

[winston]

China Risks Property-Market ‘Bubbles’ to Boost Growth, Xie Says

Oct. 22 (Bloomberg) -- China is risking property-market “bubbles” to promote growth in the world’s third-largest economy, according to former Morgan Stanley Asian economist Andy Xie.

“People are looking at the bubbles as a way to gain economic growth in the short term,” Xie said in a Bloomberg Television interview in Hong Kong today. “They are not sure of long-term damages that they may suffer.”

“Land prices have become so elevated,” said Xie, who correctly predicted in April 2007 that China’s equities would tumble. “The economy has become so dependent on property and the prices are so high and it carries a lot of risk for the country going forward.”

“Actual consumption depends on government consumption and enterprises,” said Xie, now an independent economist based in Shanghai. “The only thing they can think of they could get it up is property, and so they are going for that.”

http://www.bloomberg.com/apps/news?pid= ... p2GYj11ZKM

[winston]

Analyst: Beware Huge China Property Bubble By: Gene J. Koprowski

China is encouraging property-market bubbles to stimulate growth and power, past other countries hit by the global economic downturn, says Andy Xie, an economist formerly of Morgan Stanley Asia.

“People are looking at the bubbles as a way to gain economic growth in the short term,” Xie said on Bloomberg Television.

“They are not sure of long-term damages that they may suffer.”

The Communist Party cabinet is carrying on with monetary and fiscal stimulus, even though the economy surpassed the government’s forecasts for the first nine months of the year.

As a result of that policy, property sales — and property values — have soared there, while America and Europe have struggled.

The Chinese government financed a $585 billion stimulus package and banks extended a new record $1.27 trillion of credit. China’s economy expanded 8.9 percent in the third quarter, while housing prices climbed at the quickest pace in a year.

“Land prices have become so elevated,” said Xie, who accurately predicted in April 2007 China’s looming equities downturn.

“The economy has become so dependent on property and the prices are so high and it carries a lot of risk for the country going forward.”

Beijing’s biggest property developer, Soho China, Ltd., in fact, acknowledged this week that pre-sales will surpass $1.5 billion for the first time this year “largely” because of the government’s stimulus plan.

China’s property developers listed on the Shanghai Composite Index have more than doubled this year, compared with the mere 68 percent gain by the overall gauge.

This may not continue for long, however.

The Wall Street Journal is reporting scuttlebutt that indicates that China may revise its stimulus policy to avoid overheating the economy.

Source: Newsmax.

http://www.moneynews.com/streettalk/chi ... ode=8F52-1

[winston]

Xie: China Wants Bubble Until Dollar Bottoms By: Julie Crawshaw

Economist Andy Xie says China is trying to prolong its bubble because when the U.S. dollar bottoms — which he thinks will happen a couple of years from now —it will cause money to flow substantially out of China.

Xie likens the Chinese economy to riding a tiger: If you get off, it could kill you, which is why China is tying to prolong its bubble instead of pricking it.

“The Chinese government has done a reasonably good job so far,” Xie says. “They are basically implementing an incremental tightening approach.”

“They intend to preserve the value of money, and as long as they keep doing that, inflation can be kept at around 7 percent and not exceeding 10 percent.”

China’s government, Xie believes, does think the yuan should be higher against the dollar — but if adjusted up too quickly, it could collapse the property market.

The real value of China's foreign exchange reserves will be eroded unless the Federal Reserve implements an exit strategy successfully, Yu Yongding, a former adviser to the People's Bank of China, said in a recent speech delivered in Melbourne, RTT News reports.

Yu said the "inevitable" decline of the dollar may erode China's holdings of U.S. Treasuries, and that China should reduce its current and capital account surplus, or divert its forex reserves away from the U.S.

Citing the huge gap between the massive growth rate of monetary supply and economic growth, Yu warned that the country’s current loose monetary policy is paving the way for anther asset bubble.

http://moneynews.newsmax.com/streettalk ... 93211.html

[winston]

Bernanke Low Rates ‘Poison’ to U.S. Economy, Xie Says (Update1)
By Shamim Adam

Dec. 8 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is prescribing “poison” to the U.S. economy by keeping interest rates near zero and fueling a wave of speculative capital that may cause the next global crisis, former Morgan Stanley chief Asian economist Andy Xie said.

“There is a Chinese saying that one could quench the thirst by drinking poison,” said Xie, who predicted in September 2006 that the U.S. economy would fall into a recession in 2008. “Bernanke seems to be prescribing exactly this to the U.S. economy. The slower Bernanke raises interest rates, the bigger the next crisis.”

http://www.bloomberg.com/apps/news?pid= ... VuIVpuwo4I

[LenaHuat]

Xie thinks China's equity and property bubbles will burst in 2012:-
谢国忠：2012年中国股市楼市泡沫终将破灭 老百姓最无助

[winston]

China Asset Bubbles Will Burst on Inflation, Xie Says (Update1) By Shiyin Chen

Dec. 18 (Bloomberg) -- China’s property and stock markets are a “bubble” that will burst when inflation accelerates in 2011, former Morgan Stanley chief Asian economist Andy Xie said.

“China’s asset markets are a ponzi scheme,” Xie, now an independent economist based in Shanghai, in an interview in Hong Kong. “Property is heading for one huge bust that will take a year and a half to unfold.”

“It’s a less glamorous version of the Greenspan bubble and the story will end with inflation,” Xie said, referring to former Federal Reserve Chairman Alan Greenspan, who was once regarded by some observers as the greatest central banker and has seen his legacy criticized since the U.S. subprime-mortgage market collapsed in 2007.

Economists estimate China’s interest rates may increase 54 basis points in the second half of next year, Bloomberg data show.

In the shorter term, China’s yuan-denominated stocks may “struggle” in the next three to four months before staging a rally that may help the market exceed its 2009 highs as banks resume lending, Xie, who correctly predicted in April 2007 that China’s equities would tumble, told Bloomberg Television.

“Markets are going to struggle in the next three to four months and then afterwards, China’s lending policy may help it along in the second half,” he said. “It’s possible that the A- share market may make a new high in terms relative to the Aug. 4 high this year.”

Xie said today that Hong Kong stocks are also about 30 percent “overvalued” and may face a “major correction” in the next four to five months as the market factors in a possible stimulus exit by the Fed. The market may recover in the second half, he predicted.

Morgan Stanley, Xie’s former employer, said this week the China’s stock market is headed for a “boom and bust” in 2010 because a rally in the first half may stall as inflation accelerates and the government withdraws some stimulus. The brokerage predicted that the MSCI China Index may rise to 81.7 next year, almost 29 percent higher than yesterday’s close.

http://www.bloomberg.com/apps/news?pid= ... xrS1SDcnZM

[iam802]

Trapped Inside A Property Bubble

http://english.caing.com/2010-01-10/100106991.html


When China's real estate bubble finally bursts while exports become less competitive, the consequences could be severe.

The next 10 years will be more challenging than the past decade. Indeed, unless economic policies are adjusted, China's inflated real estate market could suddenly shrivel while the decade is still young.

China's market share gains in global trade and foreign direct investment due to low costs and rising global demand drove the nation's success. But China is no longer the lowest of the low-cost producers, and it's unlikely to gain market share. Moreover, global demand isn't likely to rise as fast as before; expect economic development at one-third previous speeds.

The biggest risk to China's economy is the desire to maintain past economic growth rates by maximizing investments in property -- an unproductive asset. It supports short-term growth by sacrificing long-term growth as capital's average productivity declines over time.

Local government performance in China is measured according to GDP and fiscal revenue. Property development can achieve high numbers for both quickly. This is why property's share in China's capital allocation is rapidly rising as prices appreciate and volumes increase. This is a politically driven bubble -- and it's already massive. Unless the trend is reversed by reforming incentives for local governments, China's property bubble could mushroom in two years from what's now a dangerous level. The burst could happen in 2012, endangering social and political stability.

The first decade of the 21st century began when an IT bubble burst. It was laced with 9-11 and SARS, and ended with a global financial crisis. It was a horrible decade. Now, much of the world has stagnated or regressed. Western prosperity mid-decade turned out to be a mirage manufactured on Wall Street.

The West didn't accept the need for adjusting living standards as emerging economies caught up, which led to a delayed bubble that made the problem bigger. Now the West, particularly the United States and Britain, faces a terrible decade ahead.

Amid the horror, China has risen like no other. Its GDP in dollars has quadrupled while exports quintupled. Adjusting for dilution due to dollar's external depreciation and internal inflation, from outside looking in, China's economic strength has still more than doubled in real value. It is an unprecedented accomplishment for such a massive country. And the primary drivers of success were gains in global trade and investment market share.

Low base, reform and luck could explain China's success. When the Asian Financial Crisis hit more than a decade ago, China chose not to devalue to maintain competitiveness but lowered state sector costs. When the global economy normalized, China became more competitive. Joining the World Trade Organization was an insurance policy that maximized low-cost benefits, and China's global market share tripled. Internally, China built infrastructure for growth without inflation that could erode competitiveness. The policy mix was perfect.

Neither competitiveness nor winning share in a shrinking market can guarantee growth. But by increasing consumer debt, the United States sustained demand while losing in areas of global investment and income. The credit bubble maintained global demand while China's market share gained rapidly. It was a lucky break for China, but now it's run out. The 2008 financial crisis means the United States is likely to cut debt-financed consumption with half as much growth over the next decade, while Europe and Japan are likely to have zero growth.

Meanwhile, China over the past five years has seen rising prices for production factors such as labor, raw materials, land, environmental control and taxes. These prices had been stable previously. Now, wage costs for export factories have roughly doubled in yuan terms, as have raw material prices. Before the Asian Financial Crisis, China's wage costs were half of Southeast Asia's. Now they are twice as high. Bangladesh's wage costs are even lower. It's likely China will lose market share to these low-cost competitors.

Two of three factors for the past decade's success are gone, so China needs to depend more on improved efficiency for growth. But instead, the recent trend seems to be going the other way. Rising costs and weak demand are making manufacturing less profitable. Hence, capital investment is weak, as reflected in weak equipment import data.

Most local governments seem to embrace property development as a growth savior. But shifting surplus capital into property is likely to lower future growth by decreasing average capital efficiency. This deters consumption development by increasing property expenditure expectations, and threatens financial stability by increasing loan levels, using overvalued land as collateral.

Other Asian economies such as Japan, South Korea and Taiwan failed to shed export dependency and develop domestic growth. Periodic spikes in consumption are usually due to asset inflation. Once a country loses export market share on rising costs, it stagnates because property bubbles during high growth periods deter consumption while overwhelming the middle class with housing expenses. China may be following the same path: Despite a decade of talking about promoting consumption, that share of GDP has been declining year in, year out.


Japan stagnated roughly at per capita income of US$ 40,000 over the past two decades. Hong Kong, South Korea, Singapore and Taiwan have stagnated at about US$ 20,000 for the past decade. Stagnation at such high income levels doesn't seem bad. However, China's size means its exports face challenges at much lower per capita income levels. Unless China changes its growth model, it could stagnate at a much lower level.

The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society. Such desires cannot be fulfilled; the terrible logic of economics is that money must circulate. Creating bubbles can temporarily blind people to this logic, as overvalued assets substitute for money to fill psychological needs. This is why, whenever conditions permit, China seems to have asset bubbles.

Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making. Both existed over the past five years. But now, China depends entirely on cheap money to support overvalued assets. Cheap money came from past exports and was warehoused in banks. Cash also came from hot money inflows due to the yuan's peg to the dollar and weak Fed dollar policy.

Neither money source is sustainable. The dollar has bottomed. The Fed will begin raising interest rates in 2010. The combination of China's strong loan and weak export growth is reducing bank liquidity, but inflation soon may force China to tighten anyway. The cheap money may not last long.

China's exports are recovering from a low base – a trend that may last through 2010. But one should not confuse low base recovery with a revival of past trends.

The high export growth era is over for three reasons. China's market share in global trade is twice as big as its GDP share. The odds are low that China could continue to expand its market share. Second, the tide won't rise as fast as before. The Greenspan era saw a credit bubble supercharge western consumption, but the bubble has burst. Odds are that future trade growth will be half or less as in the past. Finally, a western employment crisis will lead to protectionism targeting China. Other developing countries may gain market share at China's expense.

One possible way to prolong the bubble is to appreciate the currency, as Japan did after the Plaza Accord, to contain inflation and attract hot money. Such a strategy will not work in China. Japan's businesses were already at the cutting edge in production technologies and had pricing power during currency appreciation. They could raise export prices to partly offset currency appreciation. Chinese companies don't have such advantages but rely on low costs to compete.

After export-led growth peaks, consumption is the alternative to sustaining growth at a lower rate. This transition would require a wholesale change in the political economy. The key is to increase middle class disposable income and lower consumption costs. No East Asian economy has made this transition.

China has been trying to promote consumption for a decade. However, consumption's share of GDP has declined annually. The reason is the policy environment has been squeezing China's nascent middle class through high property and auto prices along with high income tax rates. China's disproportionate dependency on exports and withering consumption components are results of national policies, not the peculiar characteristics of Chinese households.

A large, vibrant middle class is the foundation of a stable, modern society. China's policies rightfully care for the lower class. Yet the semi-market economy offers a few spectacular gains from arbitrage and speculation. Society is drifting toward a small, super-rich minority along with a small -- possibly less than 20 percent of the population – yet heavily burdened middle class, and a vast, low-income majority. Such an income structure cannot support a balanced economy, forcing export dependence.

China's rapid economic growth has spawned millions of white-collar jobs: managers, engineers, accountants and bankers. Such jobs should provide middle class income for buying property, cars and vacations. However, property prices have increased more rapidly than middle class income, increasing fear of the future.

China's property market is creating winners and losers based on timing. All other factors – including education and experience -- have been marginalized as the economy rewards speculators. And as more play the game, the speculator ranks rise and fewer people work, perhaps contributing to a labor shortage.

In the previous decade, the West refused to acknowledge its competitiveness problem and created a bubble to hide it. I am afraid China could try the same in the next decade, and the consequences could be serious. Fear of consequences could lead many to argue for sustaining the bubble, but that worsens the problem.

During a bubble period, most people think nothing will bring it down. But bubbles always burst, and the longer one is prolonged, the more severe the consequences. Oversupply or rising interest rates will bring down China's property bubble. The former brought down the U.S. bubble, and later Hong Kong's.

China's banks always seem ready to roll over credit lines for developers during market downturns. Hence, supplies tend to dry up during market downturns, preventing price adjustments. Such manipulation has created a speculative psychology that theorizes the government would never let prices fall. When speculators think prices won't fall, speculative demand lasts as long as banks have the liquidity.

The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst.