china grinding to a halt, page-4

The ones buying our houses are the smart ones who know it can't go on forever and are buying their boltholes. Like the huge kerfuffle in Canada when they stopped the "bribe your way into Canada with a loan" scheme for them.

Why, you can even rent out your $1m house in Oz! That's a new experience for the Chinese. But I bet very few of them do.

Yes, China's wealth is an illusion, built upon multiple debts financed by the same asset. See, you can buy 500t of copper from a tax free zone, and import it into China using borrowed money. $3m borrowed for six months for working capital. Then a mate in the tax free zone buys it back from you. Or at least, the paperwork says so, but no money changes hands. Partly because the copper never physically left the tax free zone in the first place. Then you import 500t of copper into China by borrowing $3m for working capital purposes over six months ....

If you are quick enough you could raise finance on the same batch of copper 30 times over before you have to start making repayments, by which time copper has gone up, and you can now borrow even MORE money to repay the loan and interest. But in the meantime, because the copper has been exported 30 times, GDP has gone up $90m.And the only thing that has been created are sixty invoices.

This became such a problem that the government has managed to ban a lot of it. So people just started doing the same thing with piles of iron ore. And guess where many of the bond defaults are lining up from? Yep. iron ore companies who have rehypothecated the same stash of IO several times over, so that when someone tries to take delivery, seven other worms come out of the woodwork and say "Hey!! That's mine! Here's the paperwork to prove it."

The trouble is that the Chinese just aren't sophisticated enough with their financial instruments yet. Too new to the game. And as Scott says:

"Oh, what a tangled web we weave when first we practice to deceive."