China Hard Landing – the Underpants Evidence

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I have warned so many times that China is set for a hard landing in the second half of 2012 that if you have ignored my numerous articles then there is probably no helping you at any stage. But I shall try again and I shall be brief. That is a pun. I am talking underpants here.

© Image copyright numb3r

Just a reminder of prior warnings before we go to the subject of knickers. You can read them HERE, HERE and HERE

I cite a report from Bloomberg where the chairman of Weigiao Textile Company, China’s largest cotton-textiles enterprise, admitted that consumption might well fall by 11% this year. To quote exactly “The Chinese economy is at the beginning of a harsh winter – China is now facing a situation where everything from coal to steel inventories are piling up.” And clearly there is also a growing mountain of unsold underpants as well.

Now if you believe those clever analysts at Goldman Sachs etc, two cuts in base rates and further monetary and fiscal stimulus on the way, was meant to ensure a soft landing. Given the high level of gearing within China for speculative investments (Cities with 1 million buy to let luxury flats with no actual tenants), that was never a runner. If folks are not buying underpants, let alone ships, electricity (i.e. coal) why on earth should they continue to feed speculative property bubbles. Bubbles do not deflate, they collapse. And that is what will happen in the next Chapter of China, the Hard Landing of 2012/13.

And now, from the same Bloomberg piece I cite an expert who seems rather sensible. Indeed far too sensible to be a financial expert. “The slowdown in China is due to overall industrial overcapacity accumulated in recent years,” said Lou Zhi, head of the trading department at Hunter Capital Ltd., a Dalian-based commodity hedge fund. “Overseas demand is unlikely to revive soon as the European debt crisis  looks set to drag on. Despite a recovery in the U.S., growth there seems anaemic.”

Well that says it all. China is still producing too much for its own needs. European demand is shrinking. US demand might grow a tad but it faces huge overcapacity. That plus a large number of debt financed investment bubbles is a recipe for a very hard landing indeed. The Chinese can slash base rates as much as they want ( and they will slash away) but this train crash is unavoidable.  I do not share the view of Anthony Bolton that the worst is over and that investors should hang on for the long term growth story. There will be far more attractive entry points to investing in China this time next year ( after the hard landing) than there are now ( just a few months into it, with the biggest investment bubbles yet to go pop).

To give you an idea of the speed of this collapse. Back in March the chairman of Weigiao was forecasting that Chinese cotton demand would increase from 9 million metric tons in 2011 to 9.5 million metric tons this year. Now he forecasts that 2012 demand will be just 8 million metric tons.  Things are moving fast out East. And not the right way.

 

 

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Comments

  1. Rick McCoy says:

    The housing recovery in the USA was based on the 150,000 Chinese Immigration visas these past couple years. That wave has ended…

    As far as the Ores Piles, they can be used for military ships, have you heard about the new plans for the islands over the past few years? they will use these ships to monitor this area as they rebuild to maintain seas all the way to the chilean coast.

    I do think they will increase Gold deposits by 100 percent minimum over the next couple years driving Gold to new highs

    Overall, bet on infrastructure GCH, FXI, CHIX

    1/16/2013

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