Ordos may be empty , but I'll bet London-to-a-brick that THEIR buildings don't leak . Happy to accommodate the world's driest mice .

Biggest elephant in NS's room - DEBT - DEBT - DEBT -
Without elaborating on this theme - bloggers here know the implications - or at least have an inkling what it all means.

Good one Brien..I thought it was a crap story too...oh and biggest Elephant in the room...not the gargantuan pile of debt folks....it's central govt and their mates in local govt...I see Key has made a start in Auckland on ridding us of this pest called democracy...keep it going John...we wanna see fewer pigs at the trough in wgtn too.

http://news.theage.com.au/breaking-news-business/portugal-adds-austerity...
Just have to insert these titbits:
"Portugal announced new austerity measures on Monday to avoid a debt crisis like the one engulfing Greece, cutting welfare benefits and government hiring as well as selling assets and raising taxes on the well-off.

The plan "rests, essentially, on a reduction in public spending," Teixeira dos Santos told a news conference.

Portugal's budget deficit is projected to have hit a record 9.3 per cent of gross domestic product last year,

Portugal's public debt is expected to climb to 85.4 per cent of GDP this year".....

Sorry...what are the projected NZ stats again????

The troubled PIGS of the EU - Portugal, Ireland, Greece, Spain.

Thanks BH...what a nice start to the day...we are leading at least of one of the PIIGS.

Good on you Brien, if your right the tide has gone out and there are a whole lot of people with no clothes on.

Good to see that city has been around for a few thousand years, shows our lack of wisdom and the me, now and here mentality which runs this country.

Well said Brien : I hauled Hickey over the coals one other time he ran the Ordos story , but he assured me that his source was impeccably reliable .

Biggest Elephant in the Room : Our government ! Too big , too stupid , too self-serving ! [ a plague upon your houses' , both National & Labour ]

Where the gosh-darn heck is SORE-LOSER : C'mon out of the shadows / putcha caps-lock on / and have a good rant . Missing your contributions !

I agree the government is not very efficient. I hope National and Act can bring on further reform!!

PS: Roger I am glad that you clarified National and Labour as "your" government, I wouldn't believe you have any connection to the Chinese government as BH alleged, anyway.

^o^

www.lyricscrawler.com/song/72414.html

[ for Brien & Trev . Enjoy ! ]

Nice spot Brien. I was skeptical on the story - especially when you see how many people live in China! Hell, if they do ever find a ghost city that looks that good I think I'd consider retiring!
On a similarly topic - great video at the end, Bernard. I would draw some parallels to NZ! House slaves! Gotta love that name..

I've just spend a month in Kunming. Great city. Fast growing with lots and lots of business happening. Doing business there I feel i had the whole of NZ's population with in a bus ride away. However the house prices there have risen by a lot in the last few year and all the chinese firend i have spoken to seem to thing prices are only going one way. Every one is telling you that it is 100% certain you will make money if you buy now. I have considered buying an apartment there but not so sure anymore.

@Jakub "Every one is telling you that it is 100% certain you will make money if you buy now"

Sounds like a good time to sell!

Dear Doubters on Chengong

I suggest you challenge the authority of the Financial Times and the reporter in question.
You could have a go at Al Jazeera, but I suspect the FT has a fairly high level of credibility.

Also have a look at this from Patrick Chovanec on this article. He is a closely watched a professor at Tsinghua University's School of Economics and Management in Beijing.

http://chovanec.wordpress.com/2010/03/02/bubble-in-shangri-la/

He describes the article as excellent and adds his own detail from on the ground there.

"Many real estate “bulls” in China will admit that stockpiling exists, but contend it is restricted to Beijing and Shanghai, which serve as magnets for wealth from all over the country. In second and third-tier cities, they argue, people are buying places to live, and the growth is sustainable. Putting statistics aside, just on the basis of what I’ve observed traveling around China, I’ve always been reluctant to credit this argument. I’ve seen plenty of places in the provinces, in second, third, or even fourth-tier cities like Ordos (in Inner Mongolia) and now Chenggong (in the remote southwest) where people – for better or worse — appear to be investing in residential real estate, not to live in, but as a store of wealth. If there’s an overhang in the residential real estate sector, it is happening across China, and is not confined to Beijing and Shanghai."

cheers
Bernard

Bernard --the way I read Chovanec's comments is that it is more to do with realestate speculation ( should sound very familiar to NZers ) than an empty city. We have to remember the Chinese do things on a much larger scale than NZ. Kunming before this development was not much bigger than Christchurch with 4-5 million people.
As an aside , they have just built ( in about 12 mths) one of the largest wind farms my brother -in law has seen ( he has travelled very widely)-- they don't muck around when they do something.

Hi BH,

I personally don't care about FT's creditability, but I believe copying & pasting such an article here will hurt interest.co.nz's creditability.

I didn't challenge the "property stockpiling" thing, what I am against is the statement that Chenggong is "almost completely empty" --- I don't think this statement is appropriate given the fact that Chenggong has 1 million population living in a area equivalent to 1/10 the size of Auckland.

If you could image a reporter who took a photo from the car-park of Sylvia Park shopping centre at 6:30 on Saturday morning, and set the camera focus on some "for lease" signs, and come up with the following story on today's newspaper:

"Citizens Evacuated to Tonga to Avoid Deadly H1N1 Virus Blow-out and the Country is Completely Dead"

----then you will know where I am coming from.

@Kevin

There will not be a rental shortage if investors sell, but should the population grow by a few percent and these extra people will be needing accomodation, not all can or want to buy. This will then lead to a situation where there will be a shortage of rental accomodation. Its all supply and demand, if the population doesn't grow then there won't be a problem.
Unfortunately this appears not to be the case and so there will need to be some investors to provide the housing for these extra people and should they decline this opportunity then there will be a shortage.
I have ignored the problem of skilled tradesman, lead times, housing being in the right areas etc but only focused on given the population growth forecasts there will be a shortage due to no investors buying/creatng housing for rent.

Housing will not create itself and not all these new people want to or can afford to buy.

Do you think it's wise to bring in 'all these new people' at the moment, John, with an unemployment rate of 7.3%, and rising at last call? If we bring in those that can afford to buy all these new houses you suggest, what will they do? Being rich; owning a house in a foreign land and doing nothing isn't much fun. Holidays only last for so long.

@ Johnny
Having lived in Japan, I agree with you that it has some major issues to address, most notably a febble and beaucratic political system unable to make the necessary changes. You are also correct about the reluctance for immigration. However, I would contend that its humongous population base may prove to be a benefit, rather than a curse. The Japanese are conformist and I think in a time of crisis, their humongous culture will stick together and look after each other for the greater good of the country. I suspect that to address the crisis, the democratic government structure that the US installed after WWII will be pushed aside in favour of a stronger form of leadership (such as that in Singapore) and the population will back them. Also, a declining population is likely to a benefit in a resource constrained world. Japan has a high-quality population base i.e. on the whole they are well educated, diciplined and hard working. While they are aging, they are healthly, and have advanced technology and infrastructure. I often came across people in their 70's and 80's doing voluntary work cleaning the parks etc.
I am much more concerned about the stability of those countries which have diverse individualist polulation bases with massive divides in wealth and quality and where the only thing holding them together is raw capitalism. What is more frightening is that their polulation growth is low quality. Remember, the polulation growth in our educated, skilled demographics is like that of Japan - declining (as people have fewer children and have them later). The polulation growth is actually the low social-economic demographic which are totally dependent on the govt welfare. When the government goes bankrupt and declining resources mean that the basics of food, water, energy and shelter become unaffordable for this polulation base, what do you think will happen. Do you think the higher-demographics will voluntary support them or do you think their could be a revolution?

Brien from Hamilton

This is the quote from the FT reporter.
"Chenggong is almost completely empty. Its wide streets are all but bereft of traffic, a bank branch has no customers and leaves collect in the foyers of the municipal offices."

I'll back that any day. I worked as an editor in Singapore handling copy from reporters in China and also spent some time reporting and editing copy from Beijing itself. I'd trust the FT any day over comments from others.

Patrick Chovanec is also no mug. He's been there and says this is an excellent report. Read the full report and Chovanec's comments. They are balanced and nuanced. They even agree there may be an aspect of 'build it and they will come' to this infrastructure spending.

But to simply deny that the credit explosion in China last year won't cause any problems is just head in the sand stuff.

cheers
Bernard

Bernard if you stump up the airfare im happy to go take a look and help put the matter to rest.

@Doubter: but the net amount of homes has not changed.

So if we have say 10,000 homes and 6000 are rentals and 4000 owner occupiers and the rental brigade sell 1000 then say 500 go back to rentals and 500 become owner occupiers then we end up with a 5500 / 4500 split, its still 10,000 houses all occupied.

Or if the present 6:1 ratio of income to cost stays I supposed that ratio of rentals to home owners stays, however if we get a 40% drop in the house value such that we are at 3:1 ratio then the ratio could change, more ppl could aford to buy and landlords would then have lower rents because the capital outlay is less to support...but those houses are still going to be occupied.

So when ppl say rents will rise that isnt a given IMHO....they could actually drop or more likely stay static as ppls wages are static, indeed if we get deflation and higher un-employment then ppls wages will drop and rents will have to drop.

Which begs the Q are the landlords selling at present because of the possible changes in May or are they thinking that rents could come under huge pressure and have to fall as we face dip MKII...all while interest might climb, ignoring what the OCR does...

regards

China isn't communist but its still a command economy with layers of central, regional and local bureaucracy, hardly a recipe I would have thought for efficient use of capitaland resources, especially when you throw in endemic corruption. Surely its like Nazi Germany in the 1930's. A repressive totalitarian government building impressive public works and a financial and business elite doing very nicely thank you. At first glance its admirable that so many low income people have been able to move to better paying work in the cities, and that the middle class has been able to grow, but there are not enough natural resources on this planet to give all Chinese the level of affluence of the west, let alone India and the rest of Asia. At some point when those expectations are not met, it has to implode into chaos, revolution and war. It always does.

Agree with From the Sidelines on Japan. They're a homogenous society that will pull together. China, Europe and the US will explode before they do. Ever thought what would happen if the US had to bring home millions of milllitary personnel to no jobs and a bankrupt veterans system. A hundred Timothy McVeigh's, damaged and bitter but well armed and trained. First state to leave the Union?

Steven / Dpoubter
I can't see many investment properties becoming owner occupied.
Not many people would want to be owner occupiers in many of these shoeboxes they call investment properties
Most of them will be bought by investors again, but at markedly lower prices

Bernie : As per Kojak & Rob Alloway , you need to " keep-your-hair-on " , so for stress relief , repeat after me : I like Chinese , they only come up to your knees ( ankles , in your case , Big Guy ) , yet they're always friendly , and ready to please ....................I like Chinese food , the waiters never are rude .....

Here's an interesitng question....

Has the boom in property prices in China been a result of excessive land use regulation, or speculative fervour

It says on the bottom lright of the google map (satelite image) - when the photo was taken.

"Light rail presently being put in which will also make a difference "

Wow, that is forward thinking. Could we borrow their Mayor and Council for Auckland?

@ Stevek
"Ever thought what would happen if the US had to bring home millions of milllitary personnel to no jobs and a bankrupt veterans system".

Very good point. I hadn;t thought about that. History does repeat - I seem to recall Rome faced a similar issue when it started to collaspe.

The biggest elephant in the room, is the failure of folk to understand the exponential function.

Interesting, that.....

Most folk are compound-confounded.

We should perhaps include Albert Bartlett's little lecture in economics 101.

Which is why productivity gains, efficiencies, even wiping govt. out completely, none of it is enough now. And won't be from here on.

So hard to get it across, eh?

If there was enough of everything, there would be no need to contemplate any of the above. No need for the NZX to eye off SOE's, no need for anyone to eye off anything. The mere fact that they have had to, indicated the proximity of the end-game.

And the old economics saw about scarcity forcing substitution at some elevated price, only worked while there was supply of resources or alternatives, such that they underwrote the 'doubling-times' involved. It failed - completely - to factor in a finite planet.

It's that simple. We're at the wall that Malthus described, now. He was never disproved (mathematically he can't be), just delayed.

Maybe the elephant could also be called "denial of reality".

The less clear question is what happens to the now unrepayable debt.

Regards Elephants in the room: We have many, and of more than one species - cause and consequence at least. A couple not so far mentioned as such are our leadership deficit, broad systemic failure, and the true state of the balance sheets of entities ranging from banks to SOEs to large corporates and the RBNZ.

@PDKiwi: you sound like a stuck record mate......but you know you can lead a horse to water but you cannot make it drink......hmmm I wonder how hard it is to ride a horse....guess I should learn....funny how the generation who's experience we will probably need the most is now almost past...

regards

@PeterR & et al, elephants in the room I would say are the bleeding obvious ones no one talks about.....we (as in its in the popular press as well) talk a lot about debt, BBs retiring and some AGW yet the biggest thing that is going to impact businesses and our lives is peak oil....

No other event is going to irreversably impact our lives yet I see very few ppl commenting on its effects to businesses and daily lives. ie risk and impact....like courier services unsustainable at >$2 a litre certianly $3...so why are ppl not getting out of such businesses? such prices are a few years away at most.....taxis? car mechanics? cars will be a luxury for the few.....the prius is what $45k? I couldnt afford 1/2 that, bought a house within 5min of public transport....tourism? flying will go back to as it was between the wars, something the very rich do on occasion...so why do we want to own Air NewZealand? sell it to the ozzies quick!

We have a lot of tallow, spare land for bio-fuels, we should have enough plant in place to meet a critical % of our needs, Labour had the right idea with insisting on a small % be biofuel and National scrapped it....like duh.....we need more hydro and more wind and tide, deal with the RMA and the NIMBIES. We need to re-invent how we work and um work (forget retirement and big holidays) to suit the energy supply and its cost...

Some of the right retards in the USA say "wind isnt suitable for our daily lives, just when we need it at 6pm it drops off"....so the choice is in the future use renewable and cheap (its all relative) power when its available or pay a horrendious cost for the limited fossil-fuel powered supply available at that time....if wind power is 25cents and fossil is 75cents ppl will change. Or the choice is what? a "not negoitiable lifestyle" can only be maintained with guns and lives in foreign lands, just who is going to be willing to pay in blood? bring back conscription maybe? for the poor of course.........hmm most interesting will the BBs with their voting block force the youngsters into the military to keep them in comfort? just how far can the democratic system be abused before it ceases? as the libertarians say tyranny of the masses (or some such)

regards

The elephant in our room has been there since the day NZ was settled by Europeans. We have not now nor ever had sufficient capital to take our economy beyond its agricultural/extraction/immigration driven roots.
We dont own our banks, the vast majority of succesful $50 mio businesses get sold off so we have a chronic shortage of $500/5000 mio businesses that you find in abundance here in Northern Europe, and we borrow like crazy from offshore to buy each others houses.
And I dont buy the tyranny of distance/we're so small excuse making - for decades we were one of the 5 richest economies in the world. Try and imagine how different NZ would be today if in that time we had been saving around 10% of our incomes as they do now in Oz, Singapore, Scandinavia. Our kids would be studying now to fill jobs at the NZ head offices of our local banks or high tech manufacturers or a global shipping company or some other industry we have hocked off. Instead now they will have to go to Sydney, HK or London.
If the NZ economy was a person you'd say its stuck in its 20's, moved out and bought its 1st (crappy) house with borrowed money and spending more than it earns, covered by borrowing from the grown-ups. It thinks enjoying life is more important than preparing for the future, prefers a job working out in the fresh air and not wearing a tie in an office and it doesn't spend much time thinking about coming generations.

@PeterR: Well BE also talks about more power cables, which I think are essential where more roads are a waste of time...given their expected life...like 10 at most 15years. Power cables cost energy to put in, doing it while energy isnt taht expensive will help us enormously.

"I am less concerned about peak oil than increasing government costs. The former we will in time adapt to."

Then you need to read more on peak oil...if there is one event in our future with the biggest impact and likeyhood of collapsing our society/civilisation this is it.....the biggest reason is we need a massive amount of fossil fuels to eat...

The issue you just flew over...."we will in time adapt to" the oil industry gives us 85mbpd....the entire system is huge...and cost many many billions...but the biggest point is we dont make oil, we refine it...so essentially the oil is free, its making it useful that counts and the cost of making it useful is about 15:1 ie 1 barrel of oil to make 15 into something useful, but to adapt we will need time and as aalude to something to adapt to...at least 10 years if not twenty....if we are onthe plataeu of peak oil which we are then we are 10 years too late to avoid severe disruption and for some death by starvation...

"The latter is relentless, hard to avoid and destroying the productive economy " what you describe is the drop in production after peak oil....Consider that for an economy to grow we need oil supply to grow...its linked at the hip...if it cant grow our entire ponzi finance scheme is doomed....

PDK says he realised this in the 1970s, I wish I had in at least the nineties because I would be doing things significantly different than I am today, but Im locked in now.

regards

Bernard prefers some FT reporter's personal feeling to solid stats number, which is interesting.

@Ross,

Very helpful information, thank you!

PeterR - true - but do you not think the fiscal system relies on energy to do things? If those things are discretionary, does it make any difference to the barrel-to-$ underwriting?

If not, then economic growth has hit it's straps, apart from efficiencies. From here on in, the strong devour the weak, but no grow.

My question has always been: Can loans, debt and interest repayment be continured beyond the peak supply of energy?

Seems to me the question is valid regardless of whether the loan is for business plant, or an overseas trip.

powerdownkiwi,

I think we broadly agree on the destructiveness of compounding anything. Debt and wealth being a couple of the few things we as a culture expect to grow exponentially.

Those with wealth (countries, corporates or individuals) assume wealth should compound. That requires compounding growth - something that worked (from the perspective of the wealthy) so long as there were new colonies, populations, or resources to exploit. Which there were for a few centuries up till the early 1970's.

But there are limits to compounding growth and they were for all practical purposes reached.

From there growth became increasingly notional. Currencies were debased. Inflation grew. Credit expanded. "New" wealth was created in anything from personalised plates to radio spectrum to IP. For the last 10 years growth came largely through asset bubbles, government spending and drawing down consumption from the future.

Much of that notional "growth" is now collapsing with deflation as it must - the event only ever being a question of timing. We have already arrived at the point where debt cannot be repaid - irrespective of the availability and price of oil or the efforts of governments and central banks.

If peak oil had occurred before now then it may well have forced the deflationary collapse to occur earlier. Whether loans, debt and interest repayment could be continured beyond the peak supply of energy is now a moot point because we got there before we reached peak oil.

Andrewj,

The leadership deficit I mentioned earlier appears to keep building its claim to be the biggest elephant in the room.

heya! I believe the data posted on your site is key, I have favorited you =D