China fact of the day

by on September 24, 2015 at 2:54 pm in Current Affairs, Economics | Permalink

The country’s stocks listed in Hong Kong are trading below book value…

The full FT story by James Mackintosh is here.

1 Thomas September 24, 2015 at 3:11 pm


2 spencer September 24, 2015 at 3:58 pm

MacKintosh said Europe and US manufacturing rose in September. But the Fed reports that US industrial production fell in September and has been down five of the last six months.

3 TallDave September 24, 2015 at 4:03 pm

Having created trillions in added value, the Chinese can now experience the markets’ great unlearned lesson of our time, from Piketty to Xi Jinping: how easily value can also be destroyed.

4 mulp September 24, 2015 at 4:34 pm

Yep, with a stock market move, the train suddenly takes you only half as far at half the speed.

The rent on your Trump real estate apartment tower is cut in half.

Or is the train fare that’s cut in half and the apartment that suddenly becomes half the size?

What is “value” to economists these days? It sure seems to be totally different from what I was taught was economic value in the 60s in high school in Indiana. Was Indiana radically leftist socialist in the 60s compared to today’s norm?

5 TallDave September 24, 2015 at 5:43 pm

Stock markets do not create or destroy value, they estimate the value of future cash flows.

6 WalterBob September 24, 2015 at 7:08 pm

Estimates integrated with human herding biases with a dash or random poop stirred in.

7 Alain September 24, 2015 at 7:56 pm

Well then you should show them how smart you are. Are you gonna take it? Are you man enough to take it?

8 carlolspln September 24, 2015 at 11:08 pm

‘Stock markets do not create or destroy value, they estimate the value of future cash flows’

Riiiiight! Barry Ritholtz in 2009:

“One of the collective fallacies our culture operates under is the delusion that the market is some kind of astute forecasting machine. It is not — it represents the collective wisdom of 10 million panicked monkeys. That millions of slightly clever, pants wearing primates can combine their collective ignorance, their intellectual foibles, biases and false beliefs somehow into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.)”.

Thanks, Dave.

Its 2015.

9 ChrisA September 25, 2015 at 1:13 am

No doubt Ritholtz is a multi-billionaire thanks to his ability to easily outguess the panicked monkeys.

10 MOFO. September 25, 2015 at 9:22 am

And we should care what this clown thinks why, exactly? You can get this level of writing from an above average teenager. This level of elitism, too.

11 TallDave September 25, 2015 at 9:52 am

I gave no assurances as to the accuracy of the estimates, but as others have noted, few of these critics seem to be trillionaires.

12 Ricardo September 25, 2015 at 11:36 am

“I gave no assurances as to the accuracy of the estimates, but as others have noted, few of these critics seem to be trillionaires.”

Nor, it would seem, are many of the people who went long on Chinese stocks over the past 12 months.

Ritholtz never claimed to have superior forecasting skills.

13 TallDave September 25, 2015 at 1:17 pm

So Ritholz’ claim is that the market is not an “astute forecasting machine” but neither is Ritholz? Or anyone else? If the markets are not astute, who is?

Is there some “astute forecasting machine” somewhere, perhaps hidden in a volcano lair accumulating capital?

14 Nathan W September 25, 2015 at 4:39 am

Theoretically, yes.

I think this is the right place to remind you of the joke about the economist who walks past a $100 bill, asserting that it couldn’t possibly have been real, since if it was real someone else would already have picked it up.

I would argue that stock markets should be expected to trend towards estimated NPV of future profits, most of the time, but for various reasons will quite often be far off the mark. As for whether or not “value” is created or destroyed in the process would depend somewhat on how exactly you define “value”.

15 TallDave September 25, 2015 at 9:54 am

There is certainly some value to being able to trade estimated future cash flows, but if “the stock market” rises or falls 50% that’s not because the value of being able to do so has changed, it’s because the estimates have changed.

And again, I offer no assurances as to accuracy of the estimates. If we knew what future cash flows were, they wouldn’t be estimates.

16 Floccina September 26, 2015 at 10:10 pm

I think one could say markets re wrong in that they have always undervalued stocks.

17 facts September 24, 2015 at 4:56 pm

Forgotten in all the hype: The CSI 300 is *still* up 35% over the last twelve months.

18 Tom Warner September 24, 2015 at 5:51 pm

Also from the same article: “How much of China’s investment binge of the past six years was wasted? And how much political trouble will be created as those misplaced assets are reallocated, with all the turmoil of job losses and business shutdowns?”

Nope, no believers in Austrian theory ’round here.

19 TallDave September 24, 2015 at 5:53 pm

Additional awesome China fact: they built the world’s most awesome skate park. You may have heard of it.

You took the train trip across China with Mike O’Meally. How was that?
Oh, it was super sick. We followed the Silk Road basically that goes all the way from Shanghai into Europe. We only did the China portion, but it was so crazy because I’ve been to China a few times. I’ve been to Shanghai, Guangzhou, and Shenzhen on filming missions, but we went to the other side of China—the Western side—and it felt like you weren’t even in the same China. It felt like you were in one of the “Stans,” like Pakistan or Afghanistan. Everyone there eats lamb; that’s pretty much all they eat.

Sounds like a good adventure.
We also went to check out Ordos with Patrik Wallner. It’s basically this massive ghost town. They built this city expecting a few million people to move there and basically nobody did. So it’s this huge city in inner Mongolia that’s like half built and abandoned.

Probably perfect for skating.
Yeah, exactly. You never get kicked out. There’ll be like an amazing front entrance to a building with all this marble, and then halfway up the main structure they just stopped building it. It’s pretty crazy.

Seriously, didn’t we all think Ordos would be teeming by now? Looks like it’s been famously empty for five years now. Bet that wasn’t in the official ChiCom 5YP!

20 Tom Warner September 24, 2015 at 7:31 pm

Well at least somebody gets some use out it now, without having to wait for the ages to turn it into a museum.

If Shanghai already gets to be considered part of the ancient Silk Road then Korea can’t be far behind.

21 Ray Lopez September 24, 2015 at 10:48 pm

@TallDave – Sumner schooled you about the fact no serious commentator on China talks about the ghost towns, and here you are spewing your nonsense! 😉

The counterargument is that in Greece and the Philippines (you should be familiar with this place TallDave), two countries I am very familiar with, there is lots of half-finished and/or built but unlived in real estate. The people in Greece use real estate as a sort of piggy bank, trusting a half-finished building will appreciate faster than money in a Greek bank (which may be lost). The people in the Philippines often work overseas, and they use the money earned to buy real estate, which they don’t live in nor even rent out, as an investment; hence ‘ghost towns’ (I lived in a few when I was in Manila, now I’m in the eastern PH where $8k will buy you a hectare of rice field, and $25k will buy you a nice house).

That said, I feel China is doomed, since it’s not the people making these decisions, but it’s top-down coming from the government. House of cards.

22 TallDave September 25, 2015 at 9:55 am

It’s very hard to reconcile a ghost city with 7% growth.

23 Steko September 24, 2015 at 11:04 pm

Ordos’ new town population is up from under 30K a few years ago to around 100K. While the quote above says the city was built for a “few million” and 1 million was the original goal it seems what’s actually built would support a population of 300K which it might reach in another few years.

24 Minority Bolshevism September 24, 2015 at 6:06 pm

Nobody in his right mind would trust those book values.
The ones who still do, will learn the hard way.

The ghost cities mentioned above by TallDave were built on credit.
The empty buildings are the collateral.

If they couldn’t sell or even rent those buildings during boom times, what will the creditors get when they try to liquidate them?

The mother of all bank runs is just around the corner.

25 Sean Brown September 24, 2015 at 6:11 pm

It’s mostly because of the mix of stocks listed on the SEHK. It’s a lot of property developers and other asset-heavy companies (cement, paper, airlines, etc.). On the other hand, high-ROIC companies like online are mostly listed in the U.S., and many other sexy high-ROIC tech companies are listed domestically (e.g. Hikvision).

26 Jan September 24, 2015 at 9:25 pm

Here’s the other fact of the day for China. They are going to do cap and trade system to limit greenhouse emissions. I am assuming people here will say they will never really do it, so we can’t either. But I’ll let those people prove it first.

27 TallDave September 24, 2015 at 10:41 pm

On the contrary, I’m quite sure they China really do exactly what they are promising to do: nothing.

For the first time, China will confirm that 2017 is its launch date for a national carbon market to help meet its goals of reducing emissions after they peak around 2030.

This is the same agreement to do nothing they already agreed to. But if you want the United States to also agree to cap emissions at 2030 levels, I’m sure that won’t be difficult.

Of course, by 2030 even the IPCC may have to admit the world is no longer doomed, which is probably what China’s betting on.

28 Ray Lopez September 24, 2015 at 10:57 pm

TallDave: “Of course, by 2030 even the IPCC may have to admit the world is no longer doomed, which is probably what China’s betting on” – not to make this into a Anthropogenic Global Warming (AGW) thread, which posits man-made greenhouse gases are making the world hotter, but your claim is ignorant. Analogy: you have borderline high-blood pressure. The doctor says that by taking some small steps now, that will not impact your lifestyle much, you can avoid high-blood pressure. However, should you wait until you actually have high-blood pressure, nothing you do will enable your body to go back to normal blood pressure. At best, you’ll have to take anti-high-blood pressure drugs for the rest of your life. What do you do? This analogy is based on actual medical facts BTW. That’s why if you have borderline high blood pressure you must decrease salt and increase exercise, etc, while it’s still borderline. Same with the ‘precautionary principle’ of AGW. The world can cut back on finite liquid fossil fuels now, by keeping the price of fossil fuels high via a carbon tax, which will both account for the Precautionary Principle, and conserve finite liquid fossil fuels. Finite, unless you believe in Clean Coal (sic), and abiogenic petroleum.

29 TallDave September 25, 2015 at 12:11 am

Al Gore had fun medical analogies too.

There is little reason to think the models have any predictive accuracy yet (the naive forecast has been better and is probably a better bet, i.e. the same .14 degree per decade warming trend of the satellite era), and even the IPCC has been forced to revise their estimates to the point they no longer even rule out cooling at the 95% level, let alone imbue any certainty to achieving levels of warming that would be “dangerous.” Exercise left to the reader: extrapolate the falling IPCC trends to what they’d be claiming in 2030.

The precautionary principle says we should warm the planet as much as possible,because reglaciation dwarfs any other climatic threat imaginable, and this is after all just an interglacial during an Ice Age cycle of tens of milions of years that probably began with the isolation.of Antarctica (relevantly, the largest desert on Earth).

30 anon September 25, 2015 at 2:19 am

Dave, get real. Reglaciation isn’t going to suddenly begin seriously damaging the world economy in the next 100 years. If you’re really worried about it, keep in mind that if we act with caution on altering the climate now, we can still fight an ice age hundreds or thousands of years from now when that might actually be a real concern.

31 Nathan W September 25, 2015 at 4:45 am

So …. are you denying AGW or saying we should embrace it? It seems like you’re saying both at the same time, which is contradictory.

32 Lord Action September 25, 2015 at 9:09 am

I think he’s saying a small level of warming might be good, but we don’t have a lot of reason to trust our models, and we do have a lot of reason to expect they overestimate warming.

It’s hard to be a scientifically literate person and not (1) believe AGW is a real thing; and, (2) believe it’s not turning out to be quite the problem people thought it might be (or at least argued; they may not have been arguing in good faith); and, (3) worry that the models are obviously primitive at this point.

I think TallDave is being coherent. But I don’t really agree with him. Personally, I’m a lot less worried about another ice age than I am about global warming. But right now, the biggest fear I have with either is that people are going to significantly impair the economy fighting phantoms.

33 Lord Action September 25, 2015 at 9:19 am

A double-negative might have made that confusing.

Basically, the smart money is on AGW being real, but less than originally feared. The apparent error bars on the models are really large.

Keep an eye out, do some research, put more money into nuclear power and new reactor designs just in case this becomes necessary:

34 TallDave September 25, 2015 at 10:08 am

Reglaciation isn’t going to suddenly begin seriously damaging the world economy in the next 100 year

Neither is a couple degrees of warming. But look at 1812, or the LIA. Even a small cooling trend is much worse for humanity than a small warming trend.

What is the ideal temperature of the Earth? I would argue its the stable equilibrium that appears to exist at the peak temperatures in geologic time. This maximizes bio-productivity and is much more stable than teetering on the edge of a civilizational collapse event.

Our best bet in the medium term is to begin building solar collectors around L1. Eventually the array can be powerful enough to affect terrestrial climate in whatever direction seems necessary, as well as powering near-earth and/or interplanetary colonization.

In the long run the ice caps will be melted when we terraform Antarctica and raise global temperature to optimal levels. In the short run, there’s not a lot of reason to worry about sea level rise because the interiors of Greenland and Antarctica are way too cold for the average temperature of the Earth to matter much.

35 TallDave September 25, 2015 at 10:43 am

Also, dangerous to assume the next reglaciation cycle can’t begin suddenly. Sagan’s “nuclear winter” models have been largely debunked, but there are unpredictable natural phenomena that could result in a massive global cooling event featuring multiple years’ snow cover accumulation (insolation at 65°N), and we don’t really how many years is enough to kick off the cycle.

Remember, in geologic time we’re in an Ice Age now. The current warmth our civilization depends on is just an short, unstable interglacial.

36 Jan September 25, 2015 at 6:28 am

I don’t understand how you read that as doing nothing.

37 TallDave September 25, 2015 at 10:12 am

On its current trajectory China will triple emissions by 2030. So they’ve agreed to limit their emissions roughly twice what the entire world produces today.

38 Jan September 25, 2015 at 12:31 pm

Even with the massive slowdown in their growth, which Steve doesn’t account for?

Also, to be clear, this is not doing nothing. So, it is doing something, the opposite of doing nothing.

39 TallDave September 25, 2015 at 1:25 pm

The graph is from 2014. I believe China is forecasting 7% growth, so they, at least, don’t appears to expect a drop off. I’m fairly sure they’re wrong about their growth, I’m much less sure they know that.

Even commenting on an article about global warming is doing “something.” Congratulations, you are doing almost as much as China.

40 Jan September 26, 2015 at 9:38 am

You are wrong wrong wrong. Now that China has committed to doing something real and concrete we need to show them that we are also going to step up our game, so that we can push them to commit to do more. It is a great first step and I applaud China for taking it. And I boo-hiss at US conservatives such as yourself who are going to be nothing more than a barrier to solving this huge, huge problem,

41 TallDave September 26, 2015 at 10:58 pm

If this agreement such a tremendous achievement, perhaps the US should also agree to cap emissions at 2030 levels.

42 TallDave September 24, 2015 at 10:42 pm

*On the contrary, I’m quite sure China will really do exactly what they are promising to do: nothing.

43 September 24, 2015 at 11:17 pm

China stock markets are different. The last count I have is that there are only 3882 listed companies in Shanghai and Shenzen, not sure about double listing. There is also a difference between ‘market capitals’ and ‘negotiatiable capitals’, the ‘negotiable capital’ is that represented by the stocks and the ‘market capital’ the total inferred values. BBC claimed that the ‘negotiable capital’ is about 35% of ‘market capital’. My data of that for individual companies on Shenzhen stock exchange range from 6% to 100%, average of 48%. There is little chance of a take-over offer to jack up the stock price. The non-‘negotiable capital’ are mostly held by SOEs, not available as stocks. If the BBC 35% figure is true then it is virtually a storm in a ‘China tea cup’.

44 September 25, 2015 at 1:35 am

Sorry, fat fingers. 2882 listed companies.

45 honkie please September 24, 2015 at 11:39 pm

However real the value may or not may not have been, some non-trivial amount was parlayed into US citizenships, real estate, and business interests. The housing in Beverly Hills and the gaming tables in Vegas, for instance, do not look the same as they looked fifteen years ago.

46 honkie please September 24, 2015 at 11:44 pm

pardon the typo

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