Friday's Top 10 with NZ Mint: Chinese steel prices crash to 1994 levels; Why China's coal-driven Ordos is even more ghostly; Wall St planning to securitise rents; Clarke and Dawe on Australia's mining boom

Here's my Top 10 links from around the Internet at 9.30 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

I've been traveling to Christchurch today, so I'm late. My must read today is #3 about what's actually happening in China's ghost city of Ordos.

1. Chinese steel price collapse - Morningwhistle.com reports China's domestic steel composite price index (CISA) has slumped more than 100 points in the last week to levels last seen in 1994.

It's time to call China's domestic investment slump the catalyst for a hard landing that will affect Australia and New Zealand.

We were cushioned from the impact of the 2008 Lehman crisis by a 4 trillion yuan surge in investment in China.

It looks like China is failing to repeat the magic this time around, despite attempts to prime the pump again.

Local governments are either too indebted or too scared to invest, in case they lose their jobs Bo Xilai style and end up the unlucky recipient of a lead implant.

The best way to watch China is the more reliable secondary indicators of activity, such as raw commodity prices and even electricity output. All are now pointing to a hard, hard landing.

Here's the detail on steel prices, which of course is the background to Solid Energy's problems.

Absolute consumption of crude steel has decreased, which means that the industry is ongoing a more serious situation than expected, said one of the experts of CISA, which forecast that the domestic steel demand will be at least "slow increase".

Not only steel and iron, market of iron ore has also stepped into downturn.According to TSI iron ore index, price of 62 percent grade imported iron ore has been under $100 per ton for a week, and may dropped to $90 per ton, decreasing 50 percent compared to the high position of last year.

"More 50 million tons of iron ore will be added to the global market compared to the supply in H1, but the demand will remain the same or even decrease", said Zhang Dianbo, general secretary of Baosteel Group Co.(600019.SH), iron ore supply will will step in "a balanced or slightly excessive situation", he added.

2. Get ready for next year -  Nouriel Roubini is in the 2013 catastrophe camp. Now a senior Chinese economist is arguing behind closed doors in China that mid to late 2013 could be ugly, Chinascope reports.

Li Zuojun, an economist at the Development Research Center of the State Council, recently delivered a speech on China's economy, apparently at an internal meeting. According to reports, he stated that an economic crisis in China is on the way, and will possibly commence in July or August of 2013. A key feature of the crisis will be that small to medium sized businesses, banks, and local governments will declare bankruptcy, causing social conflicts to intensify even further.

Li based his prediction on four reasons: the first is economic: the burst of the bubble in the housing market and local financial crisis; the second is international: the withdrawal of foreign investment from China; the third is political: the change in the control of the Communist Party; the fourth is the “triple witching”: the short, intermediate, and long term economic cycles all bottoming out at the same time.

3. The problems of Ordos - Ordos is the 'ghost' city in China where thousands of apartments sit empty, testament to China's own version of Japan's 'Bridges to Nowhere'. Now 'Caixin', a daily must-read has some useful reporting on what's (not) going  on in the city.

There is a coal connection for those interested in the Solid Energy story.

During the build-up between 2003 and last year – a period marked by high coal prices – Ordos recorded blistering growth. The city's GDP rose 15 percent year-on-year to 322 billion yuan in 2011. But companies, jobs and people never arrived to fill Kangbashi's industrial parks and apartment complexes. In addition, central government real estate controls in 2010 curtailed the speculative investment that encouraged development. And mining enterprises at the foundation of the local economy have watched revenues dwindle in the face of overseas competition and a slowing domestic economy.

Today, the local economy is suffering and the city government is struggling to arrange banks loans, issue bonds and attract private investors to continue growth. The government has fueled the boom through borrowing schemes and by attracting investment, betting that any public money spent on building projects would yield handsome returns in the future in the form of tax receipts.

Here's the killer section:

Dragging down market sentiment is the government's lack of capital, highlighted by payment delays for some public projects. These delays are apparently well-known among investors and other players in the local financial community. Indeed, as of August, the government owed some 5 billion yuan to construction companies for vacant and incomplete buildings in Kangbashi.

Efforts to pay off debt have been complicated by falling demand for undeveloped land, which the Ordos government – like counterparts across China – auctions to property developers. City revenues from land transfers declined 80 percent in the first half from the same period 2011.

And the city has found it increasingly difficult to pay off creditors with land in lieu of cash. "In the past, the government used land for repaying debt," said a project manager for a local road contractor. "But land is losing value now, and companies are unwilling to accept it."

4. China doubles down on mercantilism - Gordon Chang at Fortune reckons the Chinese leadership is doubling down on its mercantilist approach to economic management, which involves suppressing the currency to boost exports and growth.

5. Poor should have less fun and work harder - So says Fairfax Media's largest shareholder Gina Rinehart.

She wants to control the editorial policy of Australia's most politically influential newspapers.

Why are people poor? Rinehart blamed what she described as "socialist," anti-business government policies, and urged Australian officials to lower the minimum wage and cut taxes.

"The millionaires and billionaires who choose to invest in Australia are actually those who most help the poor and our young," she said. "This secret needs to be spread widely."

6. Well lookee here - Yves Smith points out Wall St bankers, fresh from blowing up the securitised mortgage market, are now looking to securitise rental streams...

This can only end well...

Fitch is already thinking of giving this new form of toxic dreck an A rating.

It’s simply incredible that, even with so many variables involved, Fitch would give these deals something even as high as single-A. You need data on default rates, vacancy periods, the impact of local economic forces on rentals, the various property managers and operators who would be handling the rental units in the deal, etc., etc…

There’s just no reason to believe that hedge funds and PE firms with no history of being landlords will be able to ensure a steady stream of revenue out of this. Moreover, one economic shock could blow up this market as easily as the housing bubble popped. We already know that the US economy is due to take a step back in 2013 at best, if not a full-blown recession as a result of the fiscal cliff. Add that into the mix with 9% unemployment or above (the expected range in the event of a recession), and suddenly hundreds of thousands if not millions of Americans fall behind on their rent. The securities start to sour. And this could become a full-blown financial crisis just like in 2007-2008.

7. Here's how these 'bonds' would work - Reuters has the story. Read it and wail and gnash what is left of your teeth.

This is of course what happens when interest rates are held at 0% for 7 years and banks are unreformed.

In the planned deals, real estate and private equity investors would buy up blocks of foreclosed properties and rent them out to borrowers who have been displaced due to their unpaid mortgages. The rental payment streams - and possibly the proceeds from an eventual sale of the properties - would provide payments to bond investors. Securitization specialists say that Jefferies and Wells Fargo, among other banks, are interested in an early rollout of the product.

Interest in these transactions is rising because the housing market depression has left financial institutions with a large inventory of single-family foreclosed properties. At the same time, demand for family rental homes is rising because mortgage underwriting is tight and many potential buyers do not qualify for mortgages. Other buyers have stayed on the sidelines, waiting for home prices to stabilize.

In the planned deals, real estate and private equity investors would buy up blocks of foreclosed properties and rent them out to borrowers who have been displaced due to their unpaid mortgages. The rental payment streams - and possibly the proceeds from an eventual sale of the properties - would provide payments to bond investors.

"Large numbers of displaced homeowners who have defaulted on their mortgages have no choice but to rent," Muni said.

8. The tipping point for Australia's mining boom - Here's Greg McKenna at Macrobusiness musing on a 'tipping point' of views about Australia's mining boom.

Over the past few weeks sentiment toward Australia and the sustainability of the mining boom has been changing. We’ve been talking about the fall in the prices of our bulk commodities for a long time and the impact this is going to have on our national income and it seems that the global financial press has now taken up the cudgels. Everywhere from Financial Times to the Sacramento Bee the talk is that the mining boom is over, that China is not going to stimulate in the manner it did last time that the forward looking indicators of global growth are parlous.

But here at home we see business leaders, commentators and politicians in a tizz, either denying there ever was a mining boom, saying it never mattered anyway, or saying it will endure for another 20 years. And just to add to the confusion, the Australian government has distracted the electorate by removing the carbon price floor of $15 a tonne and offering a big new dental package.

9. Learn about the Hukou system - China has an unusual set of rules called that the 'Hukou' system of categorising residents by where their parents were born. It turns internal migrants into second class citizens.

Here's FTAlphaville challenging the accepted wisdom about how the teeming masses in China will migrate from the farms to the towns, which in the process will make them magically richer and more likely to buy lots of stuff, including New Zealand grown meat and dairy products.

The Hukou system is crucial in the thinking. It means plenty of Chinese people migrate into the towns and are thought to be middle class by Western observers, but actually receive much lower wages and benefits because they are categorised as second class 'non-urban' citizens.

Chan’s research suggests China’s urbanisation to date hasn’t created a booming middle class, and it won’t unless there are major reforms to the hukou system.

So we’ve seen a surge of Chinese growth driven by export-focused manufacturing, followed by a surge of Chinese growth driven by infrastructure boom with its attendant financially repressive policies. Neither of these have created a surge in the number of “middle class” — in fact, although China hasn’t published its Gini coefficient for 11 years, inequality is widely believed to have become more extreme in that time.

10, Totally Clarke and Dawe on the end of Australia's mining boom.

It's not a mining boom. It's not over. Even if it was boom, it's definitely not over.

It isn't.

Whatever it is.