Asia's Bubble

(1) From Shanghai to Toronto. (2) Canada’s condo bubble is leaking. (3) China’s balance of payments math shows capital outflows. (4) Are manufacturers outshoring from China? (5) Capital inflows invading China’s neighbors. (6) US business sales growth held up well last year. (7) Retail sales are not so weak. (8) Investors remain bullish on retailers, and so do analysts. China. The Chinese bubble is bursting! It isn’t doing so in Shanghai’s stock market, which has soared 31% since late last year, but rather in Toronto’s condo market, which has been inflated by lots of Chinese money. Nevertheless, China’s foreign exchange reserves and merchandise trade data suggest that money is pouring out of China, and probably inflating bubbles elsewhere and closer to home. Let’s have a look at the latest developments: (1) Toronto’s condo mania. Last year, on Monday, April 23, I wrote: “Toronto is experiencing a condominium bubble, with 132 or so high-rises under construction. I learned that on Friday, when I visited our accounts in that fast growing cosmopolitan city. It is attracting 500,000 new residents a year. It Is also attracting lots of hot money from Chinese buyers, some of whom are reportedly buying entire floors in the new condo developments. Vancouver has also been hit with condo mania. Last week, Bank of Canada Governor Mark Carney said that higher interest rates ‘may become appropriate.’” Yesterday’s WSJ reported, “The once red-hot condominium market here [in Toronto] is suddenly teetering, as sales plummet and prices ease.” Currently, about 150 high-rise buildings are going up in the city. The glut of new units has been exacerbated by a 23% y/y drop in sales during Q4-2012. After increasing 119% since early 2000, the average price of a Toronto condo unit fell 1% y/y. That’s not much, but it could be the beginning of the end for Toronto’s bubble. The Chinese might be looking for other places to invest their money abroad, thus setting the stage for more bubbles. (2) A new imbalance in China’s balance of payments. China doesn’t provide monthly data on its international balance of payments, but there are enough clues in the monthly merchandise trade and foreign exchange reserves to conclude that something big is happening in China. Capital stopped pouring into China last year, and started to leave. Official data show that the merchandise trade surplus, on a 12-month sum basis, has widened by $70 billion y/y through January, when it totaled $235 billion, the highest since October 2009 (Fig. 1). Yet China’s non-gold international reserves, as tallied by the IMF, have been flat since early 2011 following many years of gains (Fig. 2). There are lots of missing data that I need to assess China’s balance of payments properly. In addition,