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Posts Tagged ‘Economy’

The Socionomics of China


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I have to apologize that I have not been updating my blog regularly the past few months. Quite frankly though, I haven’t been feeling the urge to share my thoughts about the economy because nothing has really changed. We are still stuck with sovereign debt issues in Europe and the effect of the jobless recovery in the US.

More on that later, but right now I would like to focus my discussion on China. Recently, I was on vacation in China and I was truly amazed by its pace of progress in different areas of the country. The country has definitely come a long way on the road to Capitalism.

One thing that is quite visible in China is the many Commercial and Residential projects, which are fueled by the credit boom due to rising demand. This was not intentional by the government. The credit ease measure was meant to help out businesses and factories to coup with the downturn due to the financial crisis. A lot of the money ended up being used in speculating the property and the stock market. As a result, property values have gone up dramatically especially in the most economically vibrant cities, such as Shanghai and Beijing.

Not all the money is being put in unproductive areas though, many entrepreneurs are putting good use of the money to fuel their innovative ideas. One industry that is leading the way is the automotive industry. The Chongqing province is one of the major automotive regions in China. All majors domestic players such as ChangAn(Chana), DongFeng and HenTong as well import brands that we are familiar with have presence there. China recently announced a massive infrastructure-spending project for Western regions to boost domestic demand. A total of RMB 682 billion in 23 new development projects ranging from transportation to power grids. This should further help the domestic automotive brands to build their presence globally.

However it’s not all rosy in the road of Capitalism in China, it is creating many social issues. Historically, China has always had the “One-Child policy” and because the Chinese culture favors boys over girls, this has led to an imbalance in the gender ratio. In 2005, the ratio for newborn babies was 118 boys for every 100 girls. This imbalance is making it difficult for men to find partners. To make things worse, the widening gap between the rich and the poor is further forcing many men out of the “eligibility” pool for marriage. This has led to the rise of the “Concubine Culture” that was popular in HK in the 90s because the competition for “eligible” men is getting more fierce amongst women. Many women would rather be mistresses than marry “ineligible” men. To be considered “eligible” in the pool, a man needs to have financial stability and the indicator that most women and their family look for is the ability to own properties. In fact, if you ever have a chance to walk around the People’s Park in Shanghai, which becomes an outdoor marriage agency on a Saturday morning, you will notice that this is a common criterion being posted. There is no doubt that the role of women in China is on a rise because they know that they are in demand and they have choices. In fact, women initiate most divorces in China, which are becoming quite common. As their role in the society rises, many women, especially the ones in major cities, are becoming very name brand conscious; they are willing to spend a large majority of their salaries on high–fashion goods by Louis Vuitton, Gucci or Prada just to make themselves stand out from the crowd and to be able to compete for the top “eligible” men.

Some women are so aggressive that they have recruited their family members to help in the hunt. Every Saturday morning in the People’s Park in Shanghai, you can see parents doing recruitments for eligible husbands for their daughters. They are all looking for someone who can be financially independent, which means owning one or multiple debt free properties in China.

If you are a bachelor who is looking for a mate, you definitely have a lot of opportunities in China. Just remember though there is a price to pay.

Creature from Jeckyll Island


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Ben Bernanke has been on the hot seat lately because the US senates were debating on whether to support him for a second term as the Federal Reserve Chairman.  He eventually got enough support but there were clearly a lot of senators who oppose the idea.  One of whom was Senator Bunning.

In his remark, he used some very strong words.  I am not going to discuss whether I agree with what he said.  I will leave that to your own judgement.  One thing that is interesting about what he said was at the very end where he described the Fed as the creature from Jeckyll Island.  I took the liberty to do some more additional research and here is what I found out.

Jeckyll Island is a little private island off Georgia.  It is known as the birthplace of the Federal Reserve.  The island itself used to be a vacation spot for the most powerful and the wealthiest in America.  The list included powerful bankers from JP Morgan and First National Bank of NY.

The concept of Federal Reserve was to form a new central bank.  It was to be controlled by the Congress but a majority of its members had to be selected by the private banks that would own its stock.   The board and chairman were to be selected by the President but the board would have full control of its policy which included the power to expand or contract credit.

Now I know what you are thinking.  I thought the Fed is supposed to represent the interest of the government and the people.  They do in a way but it seems like there is also a hidden agenda which is to represent the interest of the private banks that own it.   No wonder all the big banks were deemed too big to fail.

Asianconomics


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Today I finally set foot in a shopping mall hoping to finish my Christmas shopping.  I definitely picked the wrong time.  The mall was jam packed with shoppers loaded with money/credit.  There were long line ups at cashiers.  Some high end retailers even have line ups outside their stores and it’s not even Boxing Day yet.  This begs some questions.  Are we back in the good old days?  What has changed since the financial crisis?  Our manufacturing sector is still in a limbo.  The financial industry, although has stabilized, has not really return to its hiring spree.   There are still 1.5 million unemployed Canadians out there which is a historically high number.

As I look closer though, I realize that many of these people in the mall are Asians.  Can this be the reason why Canada has been doing a lot better than our neighbour?  As a kid growing up in a traditional Chinese family, I have always been taught to save money for the rainy days and not to spend more than I can afford.  This believe is deeply rooted in the Asian culture and it is the main reason why the savings rate of Asian countries is generally higher than that of Western Countries.

Asians also like tangible hard assets such as gold, oil and commodities.  In fact in the past several months, Chinese farmers have been mimicking the action of their government and have been stockpiling on copper, nickel and other scrap metals.  They are taking the cheap credits offered as part of the government stimulus package and are speculating on metals.

Some of this cheap money has also spilled over into the Real Estate market.  Asians have always had a very special bond with the real estate market.  In the Asian culture, home ownership is a symbol of one’s ability to support the family and this is why Asians are strong believers of the real estate market.

I have no doubt that some of this cheap money has made it into Canada.  Otherwise, how else can you explain the red hot Canadian real estate market?  If you were recently in the market selling your house and you received multiple offers.  Most likely, they are coming from Asians.

Are we in danger of anther bubble created by Asians? It‘s way too early to tell but just remember there is always a bubble somewhere.