I don’t know exactly what to make of Andy Xie’s quote near the end of this first CNBC video below. He says "It’s not crashing like I expected in 2012," referring to the Chinese housing market.
Is Xie saying:
A. The crash is not going to happen yet. Wait until 2012.
Or is he saying
B. He was too bearish on the Chinese property market.
So, unless we hear otherwise, Xie is walking his bearish call on the Chinese housing market back. To my mind, this puts Xie more in line with Jim Chanos who was quoted as saying China is "Dubai times 1,000" when the Dubai crisis broke out last November. In January, Chanos walked that comment back, saying "We’re not calling for an impending crash of China ." He maintains that he was speaking tongue fully in cheek.
Nevertheless, Chanos is bearish on sectors like building materials which are exposed to the Chinese property market because he still sees property prices falling significantly. These are the same sectors Chanos sees overexposed to excess capital investment in China. Similarly, Xie still sees the Chinese property market falling, but not crashing.
Don’t miss China Market Research Group head Shaun Rein’s comments on U.S. politics in the same video. Rein, a noted China bull, echoes my thinking earlier today regarding anti-Chinese populist rhetoric in the U.S. He says American politicians of both parties will need scapegoats in the run-up to mid-term elections due to the soft economy. China is the natural target.
As far as Chinese domestic politics, both Rein and Xie recommend more low-income housing for China. But Rein believes China needs even more infrastructure spending because "this is not Japan." He sees the infrastructure play in China as similar to the American infrastructure build under Eisenhower in the 1950s.
Video clip below.
P.S. – I tend to see Michael Pettis’ view – namely that the government will socialize the losses by fleecing savers to re-capitalize any banks in the event of a rise in non-performing loans – as the most solid. See my post on this here.
Update: Seth, a reader at Seeking Alpha pointed me to a recent piece in Caijing by Andy Xie which demonstrates that Xie probably hasn’t changed tack and that explanation number one is the more likely.
Here’s the relevant quote:
China’s biggest macroeconomic challenge is a dangerous property market. Prices are 100 percent above sustainable levels. In some provinces, land prices may fall up to 90 percent when the bubble bursts. Despite government tightening policies, sentiments for property are still bullish. But the market headwinds are multiplying. And changes in yuan appreciation expectations are a major factor with possibly more serious implications than property-specific tightening measures.
China’s interest rates are rising quickly, too. When land prices begin falling, yuan expectations will decline further and lead to an outflow of capital from China. The resulting liquidity shortage would cause land prices to fall further. This spiral may have already begun, although slowly. It may become a torrent in the second half of next year.