Alibaba's 24-Hour Online Promotion Results in $9.3 Billion in Sales!

Tuesday's  24-hour “Singles Day” online shopping festival hosted by China-based Alibaba resulted in $9.3 billion in orders.

A record number of 278 million orders were placed, nearly twice last year’s amount. 42.6% of the gross merchandise volume were generated on mobile devices, significantly higher than the 15% in 2013.

This is the sixth year that Alibaba hosted the 24-hour sale, which always begins at midnight on November 11th and takes place mainly on its branded products retail site Tmall and Taobao market place. The amount of transaction recorded has grown exponentially, a result of the strength of China’s internal consumption demand and Alibaba’s ever-larger clout within China’s e-commerce space, reports Forbes.

“The key thing you are seeing is the unleashing of the consumption power of the chinese consumers,” said Joe Tsai, the executive vice chairman of Alibaba Group at a media briefing today. “China has been an economy that’s driven by exports and investments. We are really seeing the shift of the economy from one that focused on the state sector to consumption [by] everybody on the street.”

The Beginning of the End of Dominance for the U.S. Dollar

By Andrew Topf

Recent trade deals and high-level cooperation between Russia and China have set off alarm bells in the West as policymakers and oil and gas executives watch the balance of power in global energy markets shift to the East.

The reasons for the cozier relationship between the two giant powers are, of course, rooted in the Ukraine crisis and subsequent Western sanctions against Russia, combined with China's need to secure long-term energy supplies. However, a consequence of closer economic ties between Russia and China could also mean the beginning of the end of dominance for the U.S. dollar, and that could

China GDP Growth Rate Is Slowest in Five Years

China’s very government manipulated economy showed slow growth in the third quarter.

The results released today make it increasingly likely that China will miss its annual growth target for the first time since 1998,

Although the absolute slowed growth number of 7.3% may appear strong on a relative global basis, that number itself reflects much phony growth in the form of buildings and infrastructure built that will never be used. Despite massive growth after the lifting of chains of Mao type totalitarianism from much of the economy, the central planning instinct in China remains.

The slowdown in the centrally planned growth is an indication that China's central bank, the People's Bank of China, now fears additional money printing. That is, the PBOC believes it will lead to significant price inflation and civil unrest.

This is not going to end well for China. It is quite possible that it may result in the greatest economic crisis in history.

Peter Schiff: China's Boom and Lust for Gold

Highlights from the clip:

0:20 – The dollar has rallied on the false premise that the United States is the only major central bank in the world that will be ending its quantitative easing.
1:53 – The US economy is weaker than the economies of Europe and Japan. When investors realize this, they will return to gold.
2:30 – China is the world’s largest holder of US dollars. In preparation for a devaluation of the dollar, the Chinese have been moving their reserves into gold.
3:09 – The launch of the iPhone 6 highlights the difference between the US and Chinese economies.
5:02 – China’s official gold holdings are unknown, because the Chinese don’t want the world to know how much more gold they intend to buy.
6:00 – There will be support for gold at the $1200 level, because there are big buyers for the metal in emerging markets across the world, not just China.
6:32 – When confidence in the US dollar disappears, people will turn to gold. When that happens, $1200 per ounce gold will seem cheap.

The Developing Housing Crash in China

In China, prices of new homes fell on average for the fourth consecutive month in August, down 1.1 per cent from the previous month. The amount of floor space sold fell 12.4 per cent in August from the same month a year earlier, reports FT.

There has been spectacular growth in China as a result of the movement away from true communist regu;ation. However, in many ways, the Chinese economy is still heavily is interfered with by the government. And, tragically, the Chinese central bank has adopted the western manipulations of money supply and interest rates as its model.

This has led to spectacular distortions in the capital structure of China. We are only starting to see the early stages of what will become the Great Unwind. China could be facing one of the greatest financial collapses in history.

China Bans Gold Exchanges

Here's another indication that the price inflation in China is much greater than the official reports of around 4.0%.

Gold exchanges in China outside of two in Shanghai have been banned, according to a statement from the the People's Bank of China, the Ministry of Public Security and other regulators. This is a clear sign of panic among government officials. Chinese people were protecting themselves against the inflation by buying gold.

Until this order, gold exchanges operated throughout China.

"No local authority, institution or individual is allowed to set up gold exchanges," said the notice dated December 20.

The statement also said that the Shanghai Gold Exchange and the Shanghai Futures Exchange are enough to meet domestic investor demand for spot gold and futures trading.

The PBOC said it would lead a team to insure that gold exchanges will be closed, banks will stop providing clearing services to them; and some people will be put under police investigation for possible irregularities at exchanges.

Another Way Chinese GDP is Distorted Upward

From the comments, Shevtar writes:

Some detail on how the private companies in China are also engaged in balloning the GDP. I recently imported from China goods for 4300 USD and then found out that my Chinese supplier declared in his export declaration 10.300 This amount will go in the official Chinese statistics and here in this small example we see the export encrease more than twice. And I am sure that many Chinese companies engage in such things as there is a clear motive - they can increase their VAT reimbursement in such a way. On the other hand I am sure that it is not unique to China, in any country that has VAT some companies will be doing similar things.

More Proof of Economic Madness in China: China Public Debt is 80% of GDP, Not Official 17%

The very tied in Nouriel Roubini tweets:

RGE estimate of China public debt is 80% of GDP. Official # = 17%

Here's the latest via Bloomberg on the insanity going on in China:

A copy of Manhattan, complete with Rockefeller and Lincoln centers and what passes for the Hudson River, is under construction an hour’s train ride from Beijing. And like New York City in the 1970s, it may need a bailout.

Debt accumulated by companies financing local governments such as Tianjin, home to the New York lookalike project, is rising, a survey of Chinese-language bond prospectuses issued this year indicates. It also suggests the total owed by all such entities likely dwarfs the count by China’s national auditor and figures disclosed by banks.

Bloomberg News tallied the debt disclosed by all 231 local government financing companies that sold bonds, notes or commercial paper through Dec. 10 this year. The total amounted to 3.96 trillion yuan ($622 billion), mostly in bank loans, more than the current size of the European bailout fund.

There are 6,576 of such entities across China, according to a June count by the National Audit Office, which put their total debt at 4.97 trillion yuan. That means the 231 borrowers studied by Bloomberg have alone amassed more than three-quarters of the overall debt...

Fraser Howie, the Singapore-based managing director of CLSA Asia-Pacific Markets who has written two books on China’s financial system.

“You should be more worried than you think,” he said of Bloomberg’s findings. “Certainly more worried than the banks will tell you.

“You know how this story ends -- badly,” he said.

The centrally planned manipulation of the Chinese economy, including massive amounts of money printing, could result in the greatest economic crash of all time.

On the Crisis in China and Developing Unrest

Soaring price inflation in China, caused by vast money printing by the People's Bank of China is intensifying unrest in the country.

The number of protests, riots and strikes has doubled in five years to almost 500 a day last year, according to Sun Liping, a professor at Beijing’s Tsinghua University.

This is why China will not be able to inflate its way out of the developing economic crisis, unrest in China would explode if price inflation got any worse.

A Report From Hong Kong on the Developing Crisis in China

Joe Nelson, a graduate student at NYU's Leonard N. Stern School of Business, emails:

Nice work! It’s great to see EPJ, Mises.org and Austrians of all stripes are now too big to ignore even by those in the most rarified of ivory towers [such as Paul Krugman]....

-Joe

P.S. I was in Hong Kong, Shenzhen and Macau a little over a week ago. While I was in Hong Kong I had dinner with a gold trader at a very large bank in HK. We got to talking about China, the ghost cities, empty airports and bridges to nowhere. I asked about what his view given he was much closer to the action than I am. He told me, point blank, that while there is a real functioning economy in China, there is a tremendous amount of hot air and we’re about to find out how much. His sentiment pretty much echoed that of everyone else I spoke with and the business papers and TV stations are swimming in stories about the impending collapse.

If any of your readers are interested in moving to Hong Kong (and it is an absolutely amazing place; NYC looks like a town full of pikers in comparison), they may get a break on real estate prices as a result of the Chinese collapse. For kicks, I popped in on a few brokers and was told the mainlanders have been the primary bidders in the SARs of southern China and as a result property in Hong Kong has been bid to the moon. That’s easing and was evident even during my trip. A year from now, there could be some real bargains.

Update: Joe adds about gold in Hong Kong:

I forgot to add one thing EPJ readers might like. Physical gold in HK can be bought for as little as 0.25% over spot. I'm sure some EPJ readers have seen Simon Black's reports about how cheap gold is in HK. I'm pleased to confirm his report.

Unrest in South China

FT has a video report on unrest in a sector of South China.

A Chinese man accused of participating in a riot over land claims has died in police custody, fanning tensions.

This unrest should not be viewed in isolation. There has been much unrest in China, particularly because of climbing prices. Which suggests the price inflation in China is much higher than the official reported rate of around 5%.

Many believe that China will again begin to increase the money supply in an effort to halt the declining economy, however, the unrest over climbing prices makes it very dangerous for the People's Bank of China to print aggressively and risk fanning price inflation even more.

The FT clip is here. Although the FT report doesn't deal directly with the unrest over prices, it does provide a sense for the tensions and willingness of Chinese citizens to confront the police in the overall price inflationary climate. Note at the end of the clip, the villagers pick up sticks and beat back police attempting to arrest one man.

China’s Deserted Fake Disneyland

I am not making things up when I say a good chunk of China's GDP is fake.  Things have been built in China, through government planning that register as part of the phenomenal GDP, but have no real value, like 30 to 50  million vacant apartments.

Here's the latest. China has a fake deserted Disneyland-type amusement park. David Gray writes at Reuters:

Along the road to one of China’s most famous tourist landmarks – the Great Wall of China – sits what could potentially have been another such tourist destination, but now stands as an example of modern-day China and the problems facing it.

Situated on an area of around 100 acres, and 45 minutes drive from the center of Beijing, are the ruins of ‘Wonderland’. Construction stopped more than a decade ago, with developers promoting it as ‘the largest amusement park in Asia’. Funds were withdrawn due to disagreements over property prices with the local government and farmers. So what is left are the skeletal remains of a palace, a castle, and the steel beams of what could have been an indoor playground in the middle of a corn field.

Pulling off the expressway and into the car park, I expected to be stopped by the usual confrontational security guards. But there was absolutely no one to be seen. I walked through one of the few entrances not boarded up, and instantly started coughing. In front of me were large empty rooms and discarded furniture, all covered in a thick layer of dust, along with an eerie silence that gave the place a haunted feeling – an emotion not normally associated with a children’s playground...

All these structures of rusting steel and decaying cement, are another sad example of property development in China involving wasted money, wasted resources and the uprooting of farmers and their families...

Click here for pics of the deserted "Disneyland"

The Chinese crash that is going to hit the stock market is going to be very loud. Not only are there empty apartments, children's amusement parks, but also train stations, airports and super trains.

House Prices Plunge in Chinese Ghost Town

Even Joe Biden knows that the Chinese have 30 million plus in vacant apartments. Only neo-con Jonah Goldberg and Obama-crony Andy Stern seem to be completely clueless and buy into the fake Chinese boom. Here's Reuters with the latest report on cracks that will lead to a massive crash.

Is WSJ Reading EPJ?

A WSJ editorial nails the China situation and even mentions Austrian Business Cycle Theory as the only explanation for what is going on in China:

The People's Bank of China's surprise announcement Wednesday of a half percentage point cut in banks' required reserve ratio is an admission that the economy is facing stiff headwinds. Consumer price inflation remains relatively high at 5.5%, and the true level of inflation as reflected in the GDP deflator is probably closer to 10%.

Most analysts expected monetary easing to start next year when inflation had subsided further. But then most China analysts were predicting a "soft landing" for the economy. The data in recent days suggest the stagflation trend will continue and the landing may be bumpy.

Property prices have fallen for three consecutive months and the trend is accelerating. HSBC's and the government's own purchasers managers' indices of corporate sentiment took a big tumble in November, falling into negative territory for the first time since early 2009. This time China can't export its way out of its domestic problems, since external demand is shrinking.

China is a poster child for the Austrian school of economics' theory of the business cycle. After undertaking the biggest stimulus program the world has ever seen in response to the global financial crisis, the country is drowning in unproductive investments financed with credit.

The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S.

Now comes the hangover. The public works projects are winding down, unleashing a wave of unemployment and an uptick in social unrest. The banks' nonperforming loans are rising, and local governments are insolvent. The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere.

One effect of negative real interest rates was a nationwide bubble in private housing, with the average price of an urban apartment reaching eight times the average annual income. Real estate is the most popular investment for the wealthy, according to a central bank survey in September. Millions of luxury apartments are vacant, even as there is a shortage of affordable housing for the poor...

There is no easy way to avoid the bust that is coming. The silver lining is that China's increasingly state-led growth model will be discredited, and a debate will begin on restarting the reforms that stalled in the mid-2000s. A financial sector that allocates credit based on politics rather than price signals led China into this mess. Popular pressure to dismantle crony capitalism is building, and the Communist Party would be wise to get in front of it while it can.

Clueless Goldberg Attacks Clueless Stern

American Enterprise Institute's Jonah Goldberg is out with an absurd attack on an Andrew Stern op-ed commentary.

It's a Stern commentary that I have already plowed into the grave. But Goldberg's attack on Stern deserves comment, also. He writes regarding Stern's attack on free markets and hailing of Chinese planning:

Stern sees the Chinese government’s allegedly keen ability to “plan” its way to prosperity as the new model for America. It is an argument of profound asininity. China had five-year plans before it started getting rich. Under the old five-year plans, China killed tens of millions of its own people and remained mired in poverty. What made China rich wasn’t planning, it was the decision to switch to markets (albeit corrupt ones). The planners were merely in charge of distributing the wealth that markets created.

Indeed, rapid economic growth always makes government planners look like geniuses when the reality is that the planners are more like self-proclaimed rainmakers who started dancing only after it started raining. When the rain stops, which it will, they’ll have much to answer for...

To the extent that China’s economic planning “works,” it does so because China is an authoritarian country...You can hit your building quota a lot more easily when you can shoot inconvenient people and trample property rights at will...

If you want to copy China because its authoritarian capitalism is better than our democratic capitalism, it seems pretty obvious that what you envy is the authoritarianism.

What's wrong with Goldberg's take? His assumption that

A. Planners can successfully distribute "the wealth that markets created."

and

B. "rapid economic growth always makes government planners look like geniuses."

This means that Goldberg is buying into the great fiction that China is having huge magical growth in the first place. It is not, the GDP numbers are basically a fraud. I repeat from earlier posts, even Joe Biden stated that China has 30 to 50 million vacant apartments.

Goldberg's argument is, if I may use a Goldberg phrase, "an argument of profound asininity".

Free markets mean just that--there are no central planners. Somehow, Goldberg has taken the view that there are free markets and authoritarians both functioning on the same sectors of the Chinese economy at the same time. That wealth has been created and that the planners are just "distributing the wealth." An important key to free markets is the distribution that is directed by price signals and profit and loss statements. Where the hell is there room for central planning?

The fact of the matter is that there are pockets of free market activity in China, but a good part of the country is a disaster because of the centrally planned distribution that Goldberg somehow believes can successfully occur.

As for his statement that:

 "rapid economic growth always makes government planners look like geniuses."

Again,  "an argument of profound asininity". There is never rapid economic growth when there is significant amounts of government planners. There is no deus ex machina by which growth soars in a country, whereby government planners can then distribute it. If you have the government planners, the growth doesn't occur in the first place.

The coming massive Chinese economic crash will make fools out of both Goldberg and Stern.

Why Jim Chanos is Short China

It's well known that Jim Chanos, president of the hedge fund, Kynikos Associates, is bearish on Chinese real estate. In a recent interview with FT, he explains why.

What is curious about Chanos' view is that he doesn't seem to take any business cycle view as to a bubble in China. He just looks at the huge amount of money flow into real estate, and is apparently then only considering the supply and demand factors. That's one way to do it, but it is going to cause terrible problems on the timing for you, since the bubble will burst only once China stops the money printing that is supporting the bubble.

Fortunately for Chanos, China appears to be slowing money growth. They are not stopping their money printing, just slowing it, which means stagflation is the likely outcome. It will be inflation at the consumer level but a crash of the Chinese stock market and real estate. 

The FT interview  with Chanos is here.

China's Leadership as Economic Ignoramuses

In early November, the average price of 18 staple vegetables rose 62.4% y/y, according to the Ministry of Commerce, reports Roubini Global Economics.

This is, of course, the result of China propping up the dollar against the renminbi. There is only one way the Chinese were able to do this, by printing huge quantities of renminbi. Now they pay the price.

Bottom line (and EPJ is already blocked in China, so it is easy for me to say) you are really dealing with a Chinese leadership that is a bunch of economic ignoramuses.

Think about it. Domestically they have out-of-control inflation. Their global finance is a mess, since they are stuck with trillions in U.S. Treasury security paper, which Bernanke is, literally, devaluing by the minute.

Just to prove they are clueless, they are about to institute price controls, which suffocate the economy. Since this is China, expect executions of smugglers, who try to get food to the people via the black market once the price controls kick in and cause shortages.

The QE2 End Game

Is QE2 all about forcing China into the waiting arms of a “rescuing” clan of global governors who desperately need China to join them?

It is beyond doubt that the the money printing of QE2 will devalue the worth of the trillions in U.S. debt held by China. QE2 must have China in a panic. Steve Horesting, a Washington D.C. insider, questions whether QE2 is a scheme, promoted by Kissinger and Soros, to drive China into a global currrency plan that will ultimately dilute the economic power of the Chinese.

Horesting, who was  Chief Counsel to FEC Vice Chairman Bradley A. Smith  (2000-2003), General Counsel to the National Republican Senatorial Committee (2003-2004) and Co-founder, Center for Competitive Politics (2005) emails me his full argument which can be found here.

Gerithner and Wang Qishan Talk

For the record.

Xinhua news reports that on Friday October 15, Special Representative of Chinese President Hu Jintao, Vice Premier Wang Qishan, who is a long time buddy of Treasury Secretary Geithner's, spoke with the Treasury Secretary on the issue of Sino-US economic relations.

China's Demographic Inflection Point

Roubini Global Economics analyst Adam Wolfe writes:

China's population will reach an inflection point in 2011: The increase in retirees will start to outpace that in the labor pool. When the “demographic dividend” of a declining dependency ratio stops paying out, the relative price of labor will rise, the household savings rate will begin to decline and Chinese investment will decelerate.

More here.