China’s Market Rout Is a Double Threat

China’s Market Rout Is a Double Threat
nytimes.com

In the USA, we will probably have a major market corection to current "bubble-ism" soon, and in my opinion a 20 to 25% drop in prices would deflate bubbles and probably make things more stable. A good thing in the long term, I think.

The other good thing about the current problems like we see in China, Greece, etc. is that it will hopefully slow down the trend of the elites making massive amounts of money with financial transactions instead of BUILDING THINGS and other productive activities. When the elites make money by pulling it from the lower classes that is a bad thing; they need to go back to building infrastructure and becoming more decent world citizens who care about the world that their children and grandchildren will be living in.

The problems that China is facing are bad, but they do have high savings rates and an increasingly better educated population in their favor.

It will be really interesting to see how things shake out in the next few years. I am fairly optimistic, but we will see what happens.

China's stockmarket is sufficiently weird to defy most normal analysis though: there are heavy restrictions on who can list and who can invest, plus China in general has lots of money sloshing around looking for a decent place to invest, because the usual mainstays like bank deposits have zero to negative returns. So the bubbles and pops there (and this is far from the first) don't have a lot of correlation to the health of the overall economy.

Some observations:

- The luxury goods that the rich in China are looking for are much cheaper here in US. The international students I know at school go on insane shopping sprees at the Apple/Sony/Microsoft stores since how "cheap" all the products are compared to the 1.5-2+X markups they have to pay back home. I've seen some classmates fill their suitcases with luxury brand clothing, Apple computers, iPads, Playstations, Xbox, to all bring home and share with their families.

- Assets in the US are much more appealing options in terms of investments, especially real estate/property. There's been a lot of stuff written up in NYT about this. I've seen the same things here in South Bay (Mountain View, Cupertino) where brand new townhouses get snatched up instantly by wealthy families from China that can commit that much $ in such a short amount of time. Being able to pay for your house in cash moves you towards the front of the line.

- Avoiding the whole "corrupted officials with lots of $ in bribes" anecdote (despite it being somewhat true from the crazy stories that I've heard from friends in China), it is much easier to spend the money here without worry of alerting the Chinese government. Especially if you're paying for a lot of your things in cash. Spending money in a lavish manner in China raises a lot of eyebrows.

- Not too knowledgable on this aspect, but apparently there's the loophole where if you bring aging parents in China over to live in America, they can qualify for senior benefits from the US government. They come, despite never having worked in the US, and get monthly checks to cash that are substantial enough to live on. Don't know enough about this to elaborate and I'm a little skeptical about this, but have heard a lot about this.

- America is so much more attractive than China. A lot of the wealthy international students I met in college had very tracked and relatively stress-free lives growing up. They never had to study for or take the gaokao, which is the infamous college entrance exam, since they knew from early on that they would be coming to the US for their college education. A lot of them do try and swing for jobs here after graduation as well, since the pay is substantially higher than in China. Heard this sentiment from a lot of Hong Kong residents.

Curious if anyone has heard/observed similar.