China’s real estate market

The Economic Health of BRICS – Part 7/7

January 17, 2012

The CIA Factbook [where I found the data used in this post] says China’s GDP [Purchasing Power Parity or PPP] was more than $10 trillion and its real GDP growth rate was 10.3% in 2010, foreign exchange and gold reserves were about $2.9 trillion and its external debt was $529 billion. The current account balance was a positive $305.4 billion (2010 est.) Public debt was 16.3% of GDP (2010 est.).

India’s GDP [PPP] was $4 trillion with a growth rate of 10.4%, reserves were $287.1 billion and its external debt was $316.9 billion. The current account balance was a negative – $51.78 billion. Public debt was 50.6%.

Brazil’s GDP [PPP] was about $2.2 trillion with a growth rate of 7.5%, reserves were $288.6 billion and its external debt was $396.2 billion. The current account balance was listed as a negative – $47.36 billion. Public debt was 54.7%.

Russia’s GDP [PPP] was a bit more than $2.2 trillion with a growth rate of 4%, reserves were $479.4 billion and its external debt was $538.6 billion. The current account balance was a $71.13 billion. Public debt was 9%.

South Africa’s GDP [PPP] was $524 billion with a growth rate of 2.8%, reserves were $43.84 billion, and its external debt was $109.4 billion. The current account balance was a negative – $9.987 billion. Public debt was 33.4%.

Summary for the BRICS

The BRICS combined GDP [PPP] for 2010 was $18.9 trillion, overall growth of GDP was 7%, foreign exchange and gold reserves were about $3.99 trillion and its external debt was almost $1.9 trillion so the BRICS had more than twice the reserves than it did external debt. The current account balance was a positive $168.263 billion

The WEST

The Economic Health [or should I say Illness] of the United States

Meanwhile the United States GDP [PPP] was more than $14.6 trillion with a GDP growth rate of 2.8%, reserves were $132.4 billion and its external debt was $14.71 trillion, which means debt is more than 111 (one-hundred-and-eleven) times that of reserves. The current account balance was a negative – $470.2 billion and public debt was 62.9% of GDP.

The Economic Health [or should I say Illness] of Canada

Canada’s GDP [PPP] for 2010 was $1.33 trillion with a GDP real growth rate of 3.1%, reserves of foreign exchange and gold were $57.15 billion, and its external debt was $1.181 trillion in June 2011. The current account balance was a negative – $48.5 billion (2010 est.) and public debt was 84% of GDP (2010 est.)

The Economic Health [or should I say Illness] of the European Union

Member states of the EU (year of entry) — Austria (1995), Belgium (1952), Bulgaria (2007), Cyprus (2004), Czech Republic (2004), Denmark (1973), Estonia (2004), Finland (1995), France (1952), Germany (1952), Greece (1981), Hungry (2004), Ireland (1973), Italy (1952), Latvia (2004), Lithuania (2004), Luxembourg (1952), Malta (2004), Netherlands (1952), Poland (2004), Portugal (1986), Romania (2007), Slovakia (2004), Slovenia (2004), Spain (1986), Sweden (1995), United Kingdom (1973)

The CIA reported that in 2010, the European Union had a GDP [PPP] of $14.82 trillion with a GDP growth rate of 1.8%, there is no listing for foreign exchange and gold reserves. However, the current account balance was a negative -$11.07 trillion with external debt of $16.08 trillion as of June 2011. Public debt is listed for each member country but not for the European Union. For example: Germany’s public debt was 83.4% of GDP, the United Kingdom was 76.1% and Greece was 142.7%. Source: CIA Factbook

Summary for the WEST

The WEST’s GDP [PPP] was $30.75 trillion, the average GDP growth rate was 2.56%, external debt was $31.971 trillion and the current account balance was a negative – $11.525 trillion.

As of 2011, the five countries that make up the BRICS were among the fastest growing emerging markets.

Return to The Economic Health of BRICS – Part 6 or Start with Part 1

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Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 6/7

January 16, 2012

When you read something disparaging or criticizing another individual or a country such as China or one of its BRICS partners, you may see something like the question Troy Parfitt recently asked in a comment on this blog: “What about China’s debt problem?” The immediate thought after reading Parfitt’s entire comment might be that China has a debt problem that will slow or stop its economic progress leading to a crises.

In fact, few readers dropping by for the average thirty seconds to read a blog post will take the time to find out the facts to see if the claims of critics are as bad as they sound.

The result is that individuals motivated by cultural biases that resort to using confirmation bias in what they write will often leave behind a negative image of the subject they have criticized.

A cultural bias is the phenomenon of interpreting and judging phenomena by standards inherent to one’s own culture, and confirmation bias is a method used to support this.

Confirmation bias (also called confirmatory bias, my side bias or verification bias) is a tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true. As a result, people gather evidence and recall information from memory selectively, and interpret it in a biased way.

Another example of country’s economic health may be found in the spending and saving habits of its households. Canada’s household savings rate in 2008 was 3.8%, the United States was 2.7%, the EU total was 5.8%, the Russian Federation was 12.6% in 2005, Germany’s household saving rate was 11.2%, Greece was a minus -7.3% in 2006, and the United Kingdom was a minus – 4.5%. Source: Global Finance magazine

For a comparison between China and the WEST, I discovered a paper from the Congressional Budget Office, Washington D.C. titled, “Why Is China’s Saving Rate so High? A Comparative Study of Cross-Country Panel (November 2010)

On page 45, Table 1, the GDP per Capita and National Saving Rate (annual average) for China was 54.4% up from 35.6% in 1980-1990. Wow! More than fifty-four percent saved (annual average) out of what a family earns!

On page 43, Figure 6, there was a chart comparing the saving rates of China with the United States. In 1980, the US saving rate was about 12.4% but by 2008, it was down to almost 5%. By comparison, China’s household saving rate was closer to 15% in 1980 and climbed from there to about 30% by 2008. After the 2008 global financial crises rolled across the globe from New York, the household saving rate in China jumped allmost 20%. Talk about saving for a rainy day!

If a financial crises is coming to China, that household saving rate tells us that the average Chinese family is getting ready to survive it.

Before ending this series, there are more economic facts and comparisons to consider in The Economic Health of BRICS – Part 7 on January 17, 2012, or Return to Part 5

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 5/7

January 15, 2012

It may be no secret that China’s economic health will have an impact on the rest of the BRICS countries in addition to America and Europe. India and China need the resources of Brazil, Russia and South Africa and those three countries prosper due to the business from India and China.

For a better understanding of the BRICS, I turned to Investopedia for a definition, which said, “The BRIC thesis posits that China and India will become the world’s dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials.

“It is important to note that the Goldman Sachs thesis isn’t that these countries are a political alliance (like the European Union) or a formal trading association – but they have the potential to form a powerful economic bloc…”

Due to lower labor and production costs, many companies also see the BRICS as a source of foreign expansion opportunities.

In addition, what was once only an acronym has become something else.

Although the BRIC acronym came into existence in 2001 when there was no real political organization among the four original countries, on June 16, 2009, due to the 2008 global financial crises, the leaders of the four BRIC countries held their first summit in Yekaterinburg, Russia, and issued a joint declaration. Since then, they met in Brasilia in 2010 and again in Sanya, China in 2011.

In 2010, South Africa launched efforts to join the BRIC group, and the process of its formal admission began in August. Later in 2010, the BRIC countries expanded to include South Africa, becoming the BRICS.

The next meeting of the BRICS is scheduled in New Delhi, India, March 2012.

Continued on January 16, 2012 in The Economic Health of BRICS – Part 6 or Return to Part 4

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 4/7

January 14, 2012

Because of the structure of China’s land ownership and banking system, the risk of losing money is much less than in the West and when the government resells property that lost value the first or second time around, the government banks collect another 30% to 60% down payment and also makes money off the interest of the new loans, and the property still belongs to the government—it is only leased for 70 years with an option to extend the lease.

In America, private property seldom belongs to the government. Even when the government repossesses property for any reason, it is usually sold at auction for very low prices with little to no chance to make up for what was lost.

In China, however, the government recycles the money mostly in a loop while the US government is not part of the loop—except when baling out private sector banks, and the money flows in one direction toward the private sector while adding to the national debt.

In addition, in China, Bloomberg reported in December 2011, that China’s property sector equals about 12 percent of China’s GDP and then Bloomberg goes on to discuss property values in China dropping 10, 25, 40 and even 50 percent or more—something that is still devastating the economy in America.

To learn more about property values dropping in China, I suggest reading More on Property Downturn at Patrick Chovanec’s An American Perspective from China

Chovanec wrote, “The revenue shortfall is making it hard for some cities to pay for basic services like police and hospitals, much less repay the massive amount of debt they borrowed for stimulus projects – which, according to this report from Bloomberg, may be much larger than official statistics suggest.”

However, before I move on with more about the BRICS countries, let’s not forget what caused China to borrow for stimulus projects in the first place—the 2008 global economic crises, which led to about 20 million Chinese losing jobs. Is it possible that the 2008 economic tsunami from New York is finally being felt in China?

Interestingly, Global Issues.org says, “While Europe and the US consider more socialist-like policies, such as some form of nationalization, China seems to be contemplating more capitalist ideas, such as some notion of land reform, to stimulate and develop its internal market…”

Continued on January 15, 2012 in The Economic Health of BRICS – Part 5 or Return to Part 3

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 3/7

January 13, 2012

In China, where do you think most or all of the money from those 30% to 60% down payments mentioned in Part 2 go? For a first-time property sale, the government owned banks loan the money to private citizens or businesses to buy property owned by the government. Once the loan is complete, the down payment and the amount of the loan flows to the same or another government owned bank and then the buyers make payments with interest to the government owned bank that holds the loan.

When re-sales of these properties take place, the first mortgage on the leased property is paid off and the second loan is either 70% (for a buyer’s first home) or 40% (for a second home).

Thirty percent of property in China is bought with cash.

Due to the high required down payment, the risk to China’s government owned banks is much less than the risk in the US private sector banking system, which really has no risk, since the government often steps in to make up for the losses in the private sector while ending up increasing the national debt.

In China, even when property values drop, the bank, which the government owns, may repossess the property (that the government always owned) and resell it. This means after a property has dropped 50% of its value in China, the government may lose either 30% or 10% of the value of the loan. In the US, if a bank cannot re-sell the house at the current value, then it losses all of the value of the loan.

However, when the same property that was repossessed is sold again, the down payment will be between 30% to 60% in addition to the fact that 30% of property sold in China is bought with cash.

In the long run, will the government owned banks in China make a profit or a loss?

Continued on January 14, 2012 in The Economic Health of BRICS – Part 4 or Return to Part 2

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Posted by Lloyd Lofthouse

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The Economic Health of BRICS – Part 7/7

The Economic Health of BRICS – Part 6/7

The Economic Health of BRICS – Part 5/7

The Economic Health of BRICS – Part 4/7

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The Economic Health of BRICS – Part 7/7

The Economic Health of BRICS – Part 6/7

The Economic Health of BRICS – Part 5/7

The Economic Health of BRICS – Part 4/7

The Economic Health of BRICS – Part 3/7

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