China’s Con­crete Bub­ble

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Chi­nese con­struc­tion keeps trend­ing down with Sany the worlds sixth largest heavy machin­ery maker report­ing a rise in profit of 5.4% in the same quar­ter as a blow out in receiv­ables of USD $1.39  bil­lion  and cash reserves falling by USD $535 mil­lion  . Sany is clearly book­ing prof­its on 100% financed machin­ery while pro­vid­ing zero trans­parency on credit risk  and delin­quency . If the GFC has taught the world any­thing. then 100% ‘no money down” ven­dor finance should ring alarm bells. This all started about about 3 months ago when Zoom­lion started to aggres­sively financ­ing heavy machin­ery for any­one that wanted to sign up

An ana­lyst told the Inter­na­tional Finance News that Sany’s golden age of devel­op­ment has clearly passed. Recent news of staff cuts, changes to the wage struc­ture and offer­ing zero down pay­ments are per­haps the company’s way of seek­ing a break­through dur­ing this chal­leng­ing period, the ana­lyst said.

After los­ing mar­ket share Sany responded by unlock­ing GPS dis­able­ment that are nor­mally included in ven­dor finance deals and remov­ing the 20% deposit require­ment on new machin­ery .

As China slows, its con­struc­tion equip­ment mak­ers have been accel­er­at­ing pro­duc­tion – based on the sim­ple idea that long-term sur­vival can be ensured by get­ting big, fast. The amount of gear pro­duced by the indus­try increased by almost 80 per cent between 2008 and last year, when 484,316 units were made, accord­ing to data from Bloomberg. This was 13,256 more units than the indus­try could sell – in spite of a near dou­bling in exports to more than 40,000 units.

Even worse, also accord­ing to Bloomberg: demand for such equip­ment in China dropped 56 per cent in the year to April.

Matthew For­ney and Stella Zhou, writ­ing in Draganomics’ China Eco­nomic Quar­terly for June, look at Sany and its rivals. They note that indus­try exec­u­tives are talk­ing of a “col­lapse” and are look­ing to export their way out of trou­ble.

All of these com­pa­nies are react­ing to a sub­stan­tial mar­ket slow­down by expand­ing their financ­ing options. XCMG the 3rd largest heavy equip­ment maker in China sales soared by 44% in 2011 by intro­duc­ing ‘no money down’ ven­dor finance ,  open­ing four new fac­to­ries this week .

All of these com­pa­nies are buy­ing over­seas man­u­fac­tur­ers , XCMG is final­is­ing a deal to invest in pri­vately held Ger­man machin­ery man­u­fac­turer Schwing . Sany has just bought  Putzmeis­ter Hold­ing GmbH for nearly $500 mil­lion . Mean­while, Zoo­lion the com­pany we men­tioned in The Loot­ing of China has  investors increas­ingly con­cerned about the machin­ery manufacturer’s plan of rais­ing huge bank loans of up to 140 bil­lion yuan (US$22.2 bil­lion) , this seems an extra­or­di­nary amount of debt to raise for as yet an unstated pur­pose.  Zoom­lion, Sany and XCMG (as well as 30 oth­ers are head­quar­tered in Chang­sha, Hunan where by 2015 the city’s con­struc­tion machin­ery prod­ucts will account for almost a third of those sold glob­ally, ris­ing from its cur­rent 9 per­cent share. Whose Mayer Zhang Jian­fei, a for­mer direc­tor of high­ways at the Min­istry of Trans­port and World Bank adviser on trans­porta­tion, said that by the end of the 12th Five-Year Plan (2011–15), total sales in the city’s con­struc­tion equip­ment sec­tor will have hit 300 bil­lion yuan ($47 bil­lion) . who with that heavy machin­ery avail­able built one of those ghost cities you keep hear­ing about (if you fol­low this Google map link you can explore the scale of these cities for your­self) 

This is eco­nomic mad­ness on a scale never before seen in his­tory and it wont end well for any­one.

About Craig Tindale

CEO in the software and technology industry qualifications economics and computer sciences well read on Minksy, Marx, Fisher , Schumpeter , Veber and dozens of of others
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  • All of these com­pa­nies are buy­ing over­seas man­u­fac­tur­ers” — This is the result of the WTO’s “Free­dom of Move­ment of Cap­i­tal” — which sounds really great but it allows China to do Uni-Trade where we buy their exports but they don’t buy our imports. The West­ern Cur­rency they have they use to buy our mort­gages (which helps the prop­erty bub­ble), our Gov­ern­ment Bonds (so we pay more to the Chi­nese in our Tax money in inter­est on Gilts that we do on our defence bill), and now our Com­pa­nies (so now the Chi­nese get what future prof­its they make and can direct them to buy Chi­nese sourced goods rather that goods from some­where else) .
    This is eco­nomic mad­ness on a scale never before seen… and it won’t end well for the West

  • Steve Hum­mel

    Douglas’s pre­scrip­tions enable both the indi­vid­ual to be freed eco­nom­i­cally and the micro-econ­omy to con­tinue to oper­ate with profit, and macro-eco­nom­i­cally to uti­lize the cred­i­tary nature of the money sys­tem to add (with the div­i­dend) and sub­tract (with the com­pen­sated retail dis­count) so the bal­ance econ­o­mists are seek­ing is attained. 

    Can we please imple­ment these poli­cies before the chaos that will inevitably ensue with the fur­ther dete­ri­o­ra­tion of the world’s economies make his­tory rhyme 10 to the 4th power due to the increase in weapon’s tech­nol­ogy?

  • RJ

    Damien Mearns
    July 5, 2012 at 4:07 am | # 

    Tax is a polit­i­cal deci­sion. It has noth­ing to do with Chi­nese debt unless the Govt decides to use this as a rea­son to jus­tify higher tax.

    And if you are unsure why do the jour­nal entries.

  • Hi RJ,
    Has this “Dou­ble-Entry” become my party-piece ? mmm OK here we go :
    a con­sumer — called “Bob” goes to a West­ern Bank and gets a loan :
    So Bank :
    Dr Loan to Bob $100
    Cr Bob’s Cur­rent Account ($100)

    The Con­sumer Bob, Net Imports some Chi­nese Goods and pays for them with the Cur­rent Account of $100 he has.
    Now when the phrase “pays for them” is used it gives the idea that there is no debt left to pay — but when you have “Net Import­ing” then there is still the full debt to pay :
    The Bank now looks like this :
    Dr Loan to Bob $100
    Cr Chi­nese Cur­rent Account ($100)
    If the West­ern Gov­ern­ment issue some bonds, and the Chi­nese use their cur­rent Account to buy them then the Bank looks like this :
    Dr Loan to Bob $100
    Cr Gov­ern­ment Cur­rent Account ($100)

    and the West­ern Gov­ern­ment looks like this :
    Dr Cur­rent Account $100
    Cr Bond owed to Chi­nese ($100)

    Every­ones Taxes help pay the Inter­est on the Bond to the Chi­nese Bond Hold­ers.
    So even after Bob has “paid the Chi­nese in full” he now pays them Inter­est as if he only bor­rowed the money from them and didn’t pay them at all — The only way to “pay” for an Import is with an Export.
    If RJ you are say­ing that to pay the Inter­est Charges the gov­ern­ment could just bor­row more — it’s an idea — but is still means that we go more and more into debt to the Chi­nese — It’s not Bob’s fault for buy­ing a tooth­brush, it’s the government’s fault for not say­ing to the Chi­nese : “With the money you have from Bob would you like to buy a Ger­man Trac­tor — No you can’t buy the Ger­man Trac­tor Indus­try which due to cheap Chi­nese Trac­tors is strug­gling at the moment and so a bit cheap — It’ll be doing a lot bet­ter if you buy the actual trac­tors” — And limit the Chi­nese to buy­ing only West­ern Goods — Then we’ll have “Inter­na­tional Trade”, at the moment we have “Inter­na­tional Uni-Trade” — The likes or Ricardo never devel­oped the­o­ries on Uni-Trade

  • Steve Hum­mel

    Export­ing often gets rather manic for rea­sons of insuf­fi­cient demand and hence profit, and with the Chi­nese mak­ing ponzi finance look like the small­est of mis­de­meanors in com­par­i­son to what they do.….history is being set up to rhyme. Unbal­anced trade is the fast track to fric­tion and war espe­cially dur­ing inter­est­ing times like now. 

    Mean­while we have the Accoun­tomists like RJ blithely ignor­ing this and the PK econ­o­mists busily crunch­ing num­bers and attempt­ing to deci­pher every swirl and pool of the econ­omy and the money sys­tem when instead we all should be insti­tut­ing a mod­ern debt jubilee and guar­an­tee­ing a free flow­ing econ­omy in per­pe­tu­ity with sim­ple and ele­gant mech­a­nisms that would bring about the con­di­tions (and bet­ter) of every eco­nomic upturn in mod­ern his­tory. BZZZZZT. Okay guys, back to the Matrix.

  • Steve Hum­mel

    That should read, 

    for rea­sons of insuf­fi­cient demand and hence lack of profit,

  • Steve Hum­mel

    And yet I’m the one whose think­ing is irrel­e­vant. Ha!

  • RJ

    Damien Mearns
    July 5, 2012 at 10:49 am | # 

    If RJ you are say­ing that to pay the Inter­est Charges the gov­ern­ment could just bor­row more – it’s an idea ”

    A mon­e­tary sov­er­eign Govt does not bor­row money. It cre­ates by jour­nal entry all it needs. And can do this because of the power to tax. (And the need of the pop­u­la­tion to save).

    You though make the same mis­take most make. You assume a Govt with their own cen­tral bank is just like a house­hold (or com­pany etc). When in fact Govts like the US or UK or Aust (but not Euro coun­tries) are com­pletely and utterly dif­fer­ent.

    And until you under­stand the dif­fer­ence. You do not under­stand money and bank­ing.

    I have shown the sim­pli­fied rel­e­vant jour­nal entries twice on the pre­vi­ous post. But peo­ple need to drop ingrained (almost core) beliefs to see it.

    It’s like enlight­en­ment appar­ently. So sim­ple that most miss it.

  • RJ

    insti­tut­ing a mod­ern debt jubilee ”

    Debt allows peo­ple to save. So all a true debt jubilee will do is smash savers. And let the care­less spenders and risk tak­ers off the hook.

  • Steve Hum­mel

    It’s like enlight­en­ment appar­ently. So sim­ple that most miss it.”

    Oops. Care­ful, you’re falling into mys­ti­cism there. 

    Debt allows peo­ple to save. So all a true debt jubilee will do is smash savers. 

    The debt jubilee Steve has advo­cated ALSO PAYS SAVERS. Didn’t you get that? And a cra­dle to grave div­i­dend in addi­tion to work (if you can find it) would enable most peo­ple to save thus hav­ing BOTH the div­i­dend (syn­ony­mous with pen­sion) for Life AND their accu­mu­lated sav­ings.

    And let the care­less spenders and risk tak­ers off the hook.”

    Well, I con­grat­u­late you on your abil­ity to think systemically.…instead of in terms of only house­holds. (sar­casm off) 

    Most peo­ple can only buy so many gee­gaws in their youth and then they learn to be more prac­ti­cal and respon­si­ble adults with their finances. The rest, if Social Credit were instituted.…well, they’d have their div­i­dend and no excuse.

    Chang­ing the con­sumer finan­cial par­a­digm from only loan to div­i­dend and loan if desired solves so many of our eco­nomic and mon­e­tary prob­lems. Fix the financial/accounting sys­tems’ flaws with the cred­i­tary mech­a­nisms that will bring bal­ance with­out delud­ing your­self that money as debt is some sort of ulti­mate real­ity that can’t be altered. The act is get­ting old.

  • Steve Hum­mel

    Re-dis­trib­u­tive sys­tems are not ulti­mate real­ity either. Dis­trib­u­tive ones still uti­lize the cred­i­tary nature of the mon­e­tary sys­tem, elim­i­nate most of the taxes and the often oppres­sive nature of tax col­lec­tion and empower the indi­vid­ual not just the sys­tem. Most peo­ple don’t real­ize that G. K. Chester­ton and Hillaire Bel­loc out debated all of their cap­i­tal­ist and social­ist coun­ter­parts back before the turn of the 19th cen­tury, and C. h. Dou­glas did the same thing. The only thing that kept Social Credit from main­tain­ing itself as a major eco­nomic force was WW II, Keynes’ undis­cov­ered half assed pla­gia­riza­tion of Dou­glas and the re-dis­trib­u­tive eco­nomic par­a­digm that ensued which regres­sive eco­nomic and finan­cial forces eas­ily warped into noe-lib­eral kant.….…and that ain’t no revi­sion­ist his­tory, its the real thing. All you really oth­er­wise need to do is ask, Qui bono? And it all makes piti­fully per­fect sense. 

    And all you really need to do to change it all is make pol­icy based on the will to free­dom for the indi­vid­ual instead of JUST “free­dom” for the sys­tem. Just change your mind a lit­tle bit. Thats all.

  • Noel Kelly

    I had heard sev­eral months ago that Chi­nese were secretly/frantically set­ting up sub­si­dies in Africa, to dump the stuff there.

  • Noel Kelly

    @RJ

    Cur­rent debt bub­ble has smashed savers too. Bub­bling price of assets rise faster than most savers abil­ity to accu­mu­late cash to buy same assets for cash. Add in incen­tive to go into debt, home buy­ers grant, neg­a­tive gear­ing etc. That feel­ing of being left behind is hard to stom­ach, and resist long term.

  • imper­ma­nence

    Debt allows peo­ple to save. So all a true debt jubilee will do is smash savers. And let the care­less spenders and risk tak­ers off the hook.”

    RJ, imag­ine a world with­out debt. The pur­pose of life is not to find ever increas­ingly inven­tive meth­ods to abscond with other people’s labor-value, or to max-out econ­omy-of-scale poten­tial­ity.

    Qual­ity of life has lit­tle to do with rel­a­tive eco­nomic progress, and really only serves [the notion that life (tech­nol­ogy) is get­ting “bet­ter”] to keep peo­ple plugged into the machine.

    Oth­er­wise, why sub­ject your­self a life-sen­tence of dis-con­tent if you believe that things are never, “good enough?” 

    And, btw, keen insight on the enlight­en­ment com­ment.

  • Steve Hum­mel

    Tax is a polit­i­cal deci­sion.”

    This and the equally blithe and arro­gant atti­tude expressed by the cur­rently empow­ered toward icon­o­clasts who would dare to work for reform of the sys­tem, and even more impor­tantly for the empow­er­ment of the cur­rently dis­em­pow­ered INDIVIDUAL.…that they should orga­nize and make the req­ui­site polit­i­cal changes is really noth­ing more than the pow­er­ful look­ing down upon the oppressed. If such were to mouth the same into­na­tions to an awak­ened mass of the public…I’d bet their atti­tude would reflect con­sid­er­ably more pop­ulist sen­ti­ments.

  • Steve Hum­mel

    The BOTH/AND atti­tude toward Life and liv­ing is so much more flex­i­ble, inclu­sive and hence closer to total and actual real­ity. It’s the idiot abso­lutist atti­tude that motives must be com­pletely “pure” that obstructs not only men­tal and polit­i­cal progress, but the quicker insti­tu­tion­al­iza­tion of the philo­soph­i­cal Good.

  • RJ

    imper­ma­nence
    July 6, 2012 at 2:50 am | #

    RJ, imag­ine a world with­out debt. ”

    This would mean no money and no sav­ings. As both are debt assets and are always backed by a debt lia­bil­ity.

  • RJ

    Noel Kelly
    July 6, 2012 at 12:52 am | #

    @RJ

    Cur­rent debt bub­ble has smashed savers too.

    Not true. More debt always means more sav­ings. In part the huge increase in our non Govt debt lia­bil­ity is a result of our desire to save (requir­ing debt assets) and the refusal of Govt to play their part by run­ning MUCH LARGER DEFICITS.

  • RJ

    that money as debt is some sort of ulti­mate real­ity that can’t be altered. The act is get­ting old.”

    It is a fact of life that can not be altered

    Money is the asset side of an IOU. it is always with­out excep­tion backed by a debt lia­bil­ity held by another party.

    You need to accept that Social credit is based on a very flawed under­stand­ing if it believes in debt free money

    DEBT FREE MONEY IS IMPOSSIBLE NONSENSE.

  • RJ

    The debt jubilee Steve has advo­cated ALSO PAYS SAVERS.”

    Steve’s debt jubilee is just replac­ing NON GOVT DEBT with Govt debt. I agree with this but it is not a true debt jubilee. It is really just more govt debt to allow the non Govt sec­tor to pay down debt.

  • Steve Hum­mel

    DEBT FREE MONEY IS IMPOSSIBLE NONSENSE.”

    I got that a long time ago. You should just drop the word debt because nearly every­one reacts to it and say MONEY that is kept track of by dou­ble entry book keep­ing. You’d prob­a­bly com­mu­ni­cate a whole lot more. 

    What YOU need to ask your­self is how is wealth and its con­se­quent mon­e­ti­za­tion jus­ti­fied. That is on the basis of its being a fac­tor in pro­duc­tion. Tech­no­log­i­cal inno­va­tion and its pro­gres­sive build up (not sim­ply the machin­ery itself) is the over­whelm­ingly dom­i­nant and ever increas­ing fac­tor in pro­duc­tion the value of which Finance has totally usurped. Finance then makes the con­sumer pay for their own inher­i­tance by enforc­ing the loan ONLY par­a­digm for con­sumer finance. 

    See­ings how indi­vid­ual indebt­ed­ness is the core and stick­i­est prob­lem of the cur­rent cri­sis, the value and true own­er­ship of progress is the biggest unac­knowl­edged gap in eco­nomic think­ing and you are so inter­ested in indi­vid­ual sav­ings I fail to see why you would not be on the band­wagon for a citizen’s div­i­dend et al.

  • Steve Hum­mel

    Per­haps its just your purist and arro­gant sci­en­tis­tic atti­tude that “the facts” are what is only impor­tant. Of course the moral, eth­i­cal and valid human psy­cho­log­i­cal REALITES and their pos­i­tive or neg­a­tive effects on BOTH indi­vid­u­als AND soci­ety might be in some puny way also rel­e­vant. Wouldn’t you say?

  • Steve Hum­mel

    Phi­los­o­phy, the love of wis­dom, is always rel­e­vant, because it under­lies every­thing in Life.

  • imper­ma­nence

    This would mean no money and no sav­ings. As both are debt assets and are always backed by a debt lia­bil­ity.”

    RJ, there is no need for money.

  • imper­ma­nence

    Phi­los­o­phy, the love of wis­dom, is always rel­e­vant, because it under­lies every­thing in Life.”

    Steve H., why take such a tor­tu­ous path when you can just accept things are they are and be con­tent.