More Signs of China’s Bubble: Deserted Fake Disneyland

From Reuters Blog (hat tip Bob Wenzel)

Along the road to one of China’s most famous tourist landmarks – the Great Wall of China – sits what could potentially have been another such tourist destination, but now stands as an example of modern-day China and the problems facing it.

Situated on an area of around 100 acres, and 45 minutes drive from the center of Beijing, are the ruins of ‘Wonderland’. Construction stopped more than a decade ago, with developers promoting it as ‘the largest amusement park in Asia’. Funds were withdrawn due to disagreements over property prices with the local government and farmers. So what is left are the skeletal remains of a palace, a castle, and the steel beams of what could have been an indoor playground in the middle of a corn field.

It’s sad to see vast amounts of capital wasted on grand projects.

Yet the above is just one of the many other symptoms (ghost cities, empty malls, vacant apartments) of failed government policies in promoting permanent quasi booms. Phony boom always ends up in a bust.

I am not sure if current market conditions in China have been exhibiting a systemic bust.

But China’s stock market and capital flows suggest that this could be happening. (commodity markets may also partly reflect this) The Shanghai index has forged a new 2 year+ low.

Hot money may also have began their exodus (chart from Danske Bank), although this has yet to be reflected on China's currency, the yuan.

Nevertheless, given today’s policy activism practiced by central banks (and backed by governments), we have to watch the PBoC's (as well as China's government) next moves and how markets will react on them.

As I have been saying a China crash is likely to surprise the global financial markets more than the events in the Eurozone, as everyone seems to have been fixated on the latter.

So we should keep constant vigil over the developments in China.

Has San Miguel's Shifting Business Model Been Linked To The Philippine Presidential Elections? Lessons

In San Miguel’s Shifting Business Model: Risks and Opportunity Costs, we opined that San Miguel's drastic "overnight" overhaul of its business model could have possibly been partly motivated by tactical political developments than just strategic financial or economic goals.

Here is what I wrote, `` the company’s chairman Eduardo Cojuangco Jr., who is founder of the National People’s Coalition and has ran against Fidel V Ramos for the 1992 presidency but lost, could possibly have politically associated strings to these acquisitions with the 2010 elections only a year away."

And this from today's headlines at the Inquirer.net...

``Defense Secretary Gilbert Teodoro could be the “dark horse” in the ruling Lakas-CMD party’s short list of presidential aspirants, Senate Majority Leader Juan Miguel Zubiri said Thursday.

``The other day, Teodoro, a member of the Nationalist People’s Coalition (NPC) founded by his uncle, San Miguel Corp. chair Eduardo “Danding” Cojuangco, announced that he would run for president in 2010.

Including the fracas over the management control of Meralco, [see Beware Of The Brewing Meralco Bubble!], these actions appear to reinforce the connections of the corporate makeover to the corporate takeover to the political spectrum or the 2010 Philippine presidential elections.

What seems apparent is the solidifying alliance of the PGMA- San Miguel's Danding Cojuangco and possibly Imelda Marcos, wife of ex-President Ferdinand Marcos in preparation for 2010.

But this seems not limited to politics but likewise in the economic arena as the collaboration appears to work on securing economic rent from government imposed monopolies or heavily regulated industries.

Of course we maintain the previously risks enumerated from the San Miguel's business reconfiguration.

Nonetheless all these goes to show how the Philippine political economy functions- operating under the Keynesian framework, political elites battle for control over government ordained economic and political privileges.

And of course the only way to secure such bounty is to assume command of the Philippine government, with the affiliates or political constituents gaining control of the said institutions- we describe this as our "crony capitalist" paradigm.

Hence, the moral is that the belief in "virtuous" leadership to emancipate the Philippines from poverty bondage seems like an eternal fantasy-an impossible dream which almost everyone seem to fail to grasp.

The dismantling of the Keynesian political economic structures and a broader adaptation of economic freedom is required more than just an "honest" bureaucracy, whose underlying incentive is driven primarily by politics than by virtuous.

Global Market Crash: Accelerating The Mises Moment!

``Maybe only a friendly foreigner could say this. But America needs to realize that not everyone can own a home. The American Dream of home ownership for all is a fraud. Politicians who pimped this dream created an unsustainable mortgage industry whose collapse is only surprising because it didn't happen earlier. America's mortgage industry will not recover, nor deserve to recover, unless it is prepared to challenge this politically unpalatable reality.”-Janet Albrechtsen, Columnist The Australian, in Not Everyone Should Own a Home published at the Wall Street Journal

Let us leave the melodramatic chronicling of the market events to the media. Inane comments like “darkest days” and “no idea what will help the market” doesn’t take into account why this event ever occurred. The sun still shines and the market doesn’t need help. In fact, all the help thrown to the market has only worsened the situation by preventing the necessary adjustments.

A humorous depiction of today’s events was poignantly captured by Kal’s Cartoon of the Economist magazine via a caricature which I posted at my blog post Cartoon of the Day: Too Big To Rescue!

As we have repeatedly quoted the warnings of Ludwig von Mises who presciently wrote in 1940s in his magnum opus the Human Action, ``The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

This has never changed and will be an ongoing dynamic.

Yet it’s not the end of the world as we know it.

In fact, this crisis will unmask the illusions and charades of Keynesian Capitalism-the consumption and paper shuffling economy, -consuming what you don’t produce, spending more than you can afford, taking on debt more than you can pay for, “current account deficits are good” -prompted for by loose monetary policies, the overconfidence from the invincibility of central bank printing press, exports of financial claims in return for real goods or services (paper money standard), government pump priming policies, government’s tweaking with the public’s incentives via the cartelization of the banking system which has led to cronyism and its oligarchic structure which only concentrated risks, the fractional reserve banking system which became paradigm for profiting from credit expansion, and all forms of price control measures to the point of suggesting to suspend the markets. Oh yes, we might not see markets operating next week as this is being discussed as part of the measures to “rescue” the market.

If the ban on short selling only intensified the market’s unraveling, no amount of suspending the market will correct the fundamental imbalances generated by policies meant to perpetuate an eternal boom. Besides, since most of the academe and liberal authorities has pinned the blame on market’s alleged “Greed” (who he/she?), we should then ask our leaders to legislate on controlling human emotions. (e.g. thou shalt not greed!) (hahaha!)

To quote Warren Buffett, ``It's only when the tide goes out that you learn who's been swimming naked." Yes sir, the Emperor has no clothes!

On the hand, we shall see how distinct economies survive this ordeal or the validation or falsification of the new paradigms of: an emerging multipolar world anchored on Emerging Markets (BRIC) and Asia-Emerging Asia (via support from reserve foreign exchange surpluses held or by the shift in demand-supply and saving-investment structures-perhaps via exchange rate policies or by the development phase of financial markets or by increasing regional trade and financial integration and or collaboration)

And this should also test how monetary policy based instruments as interest rates used to cushion today’s market stress will impact distinct economies from which will define each nation’s cost structures as Arthur Middleton Hughes, The recession of 1990: An Austrian explanation of the Austrian School of Economics posits,

``Because of these dissimilarities, changes in the cost of capital result in very different investment patterns. For a lower-stage industry (such as a retailer, wholesaler, or food producer), the cost of capital is not as important, because the interest charges do not have to be carried very long before the payout begins. For a higher-stage industry, increases in the cost of capital often mean the difference between undertaking a new project or not doing it at all… [p.108]

``What this tells us is that the market rate of interest means different things to different segments of the structure of production. When rates go down, a great many higher stage projects that were uneconomic at high interest rates become at once feasible. When rates go up, many higher-stage long-term projects have to be scrapped. These simple rules do not apply to lower-stages of production, simply because their payoff times are much shorter. They don't have to pay as much interest on their typical project. A lower stage producer is less likely to embark on an investment project.” [p110]

Given today’s massive interest rate cutting action conducted jointly by major central banks; particularly the US, ECB, UK, Canada, Sweden, UK, Switzerland, China, Hong Kong and Taiwan, South Korea, what this means is that manufacturing economies stand to benefit from lower interest rates than “consumer related” economies.

So while today’s market has almost gutted most of the global financial markets (equities, commodities, bonds and currencies-yes newspapers focus on stocks but contagion has been across the board) as a result of massive deleveraging and stress in the global banking system, once such policies sink in or diffuse, we are likely to see divergent economic performances that should be reflected on the markets once the panic subsides.