The changes in the South China/Pearl Delta manufacturing region, and China, in general, continue to accelerate.
Sinking in a perfect storm of more consistent government regulation, increasing labor and material costs, the export burden of the appreciating RMB, is this really the middle phase of the end of the South China export manufacturing region and that part of the China miracle of the past 25 years?
The answer is a qualified "yes". It seems relatively recently (within the past four months) that the external capital sources for the region are drying up rapidly. From the traditional asset based lenders in Hong Kong to the private lenders in the mainland (the money lenders who are Mainlanders who keep muscle-bond fellow Mainlanders in your factory parking lot to be sure you don't run away with "their" assets in the middle of the night because you can't pay the 45% interest anymore).
Much of the cash vaporization is due to the instability in the property markets and a Chinese government that wants to cap that property market. In cities such as Shanghai, the decline is easily apparent with the always high vacancy rates on big $ condos (the ones that have been torn down twice and never occupied because the whole idea was to create an investment to flip, not to live in). This was never an issue as long as the fantasy held that demand never meant actually needing a place to live. Like a multi-level marketing plan (the kind where you make money when you get in at the bottom and keeping adding wealth because the new investors coming in behind you keep bringing in new money as you keep trading up your property value to the next level). The problem is the that the laws of supply eventually are driven by demand, which is driven, at least for those just entering the market, by affordability.
When the luxury property market values increase in Hong Kong by 45% in less than two years, but you have four families living in a 650 sq ft apartment subdivided in four units with one shared bathroom because no one can afford the rent for a single 650 sq ft apartment, something eventually has to change.
And, perhaps, those fundamental laws of economics, driven part by the inflated property markets in HK and the Mainland, plus a weak global demand base, plus higher costs to produce everything, are more than just lines in the sand, but cracks in the concrete (which never did have enough steel to keep it from cracking).
Or, maybe, this is just a slight bumb in the road that will be offset by Mainland consumer demand. Or, maybe not.
The Takeaways: it's a complex world right now that still gets driven by simple supply and demand (and the jobs needed to buy that supply and create that demand); a bumpy road ahead for all on the global economic highway (with a couple of exceptions).
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