Debunking bubble economies - China pt1

I've already written a lot about China and why I think it's going to crash, hard. You can read those posts from this link.

Here are some newer stuff though:

(Bloomberg) [2010-07-02] Bank of China Ltd., Asia’s third- largest lender by market value, plans to raise as much as 60 billion yuan ($8.9 billion) in a rights offer to replenish capital.

The lender will sell 1.1 shares for every 10 held, or as many as 19.56 billion shares in Shanghai and 8.36 billion in Hong Kong, a statement to the Hong Kong stock exchange showed today. Beijing-based Bank of China, which made more loans than any local rival last year, in June completed the sale of 40 billion yuan of six-year bonds that can be converted into shares.

The new sale adds to as much as $45.6 billion in fundraising announced by China’s five biggest state-controlled banks after they extended record loans last year to support a government-led stimulus plan. Agricultural Bank of China Ltd., the nation’s largest lender by customers, is in the midst of a $20.1 billion initial public offering in Shanghai and Hong Kong.
[...]
Beijing-based Construction Bank, the world’s second-largest by market value, last week won shareholder approval to raise as much as 75 billion yuan in a rights offer.

July 29 (Bloomberg) -- Industrial and Commercial Bank of China Ltd. plans to raise as much as 45 billion yuan ($6.6 billion) to replenish capital, adding to share sales by Agricultural Bank of China Ltd. and China Everbright Bank Co.
[...]
Agricultural Bank today said an option to expand the share sale in Hong Kong was exercised with the issue of 3.81 billion H shares at HK$3.20 apiece, according to a statement to the Hong Kong exchange. The additional sale generated net proceeds of HK$11.96 billion ($1.54 billion), it said.

ICBC completed its record $21.9 billion IPO in October 2006.

Everbright Bank, which has been planning an IPO since 2008, said last week it plans to sell as many as 6.1 billion shares in Shanghai in an initial public offering that analysts estimate may rise as much as 18 billion yuan.

July 29 (Bloomberg) -- Agricultural Bank of China Ltd. boosted the size of its initial public offering to about $20.8 billion after selling more stock in Hong Kong, taking it one step closer to becoming the largest ever first-time share sale.

An additional 3.81 billion H shares were sold at the IPO price or HK$3.20, raising HK$12.2 billion ($1.57 billion), the Beijing-based company said in a statement to the Hong Kong stock exchange today. The IPO raised $19.2 billion in Shanghai and Hong Kong before the over-allotment option was exercised.

So there's a real bubble in the banking sector, and far little capital to support all the loans made during 2009, which are now going sour anyway. It's going to be ugly, but here comes the last, which is definitely not the least:

(NYT - 2010-08-01) The Anhui Salt Industry Corporation is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.

Now it has swaggered into a new line of business: real estate.

The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.

Anhui Salt is hardly alone among big state-owned companies. The China Railway Group is developing residential complexes in Beijing after winning the auction for a huge piece of land there.

Likewise, the China Ordnance Group, a state-led military manufacturer best known for amphibious assault weapons, paid $260 million for Beijing property where it plans to build luxury residences and retail outlets.

And in one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid $1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.

All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.

“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble — like the one that devastated Western financial markets when it burst two years ago.

Land records show that 82 percent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers — up from 59 percent in 2008.

Now that the first signs of this bubble popping have appeared, you can be sure that the collapse of this society is going to as epic as its rise. Looks like the real estate bubble was similar to Japan's, although economically the two societies are very different, Japan was far more developed (and still is) than China...