The next bubble - Chinese Property & Construction Debt ?

If you haven't heard of it, try to get your hands on Project X. It is a movie about teenagers plotting to throw a house party while the parents are away. And what they actually pull off is beyond huge ... it is a party of epic proportions. The kind you wish you had, that turns you into an instant local hero in the eyes of your fellow party monsters for years to come. 

But so too is the fall out and hangovers afterwards - epic. Warning - if you have kids, you might decide to preemptively lock them up for good after seeing this. 

It seems like the party might soon be over for Chinese property developers too.   Available information seems to point out that until recently Chinese construction was like a Project X type house-party of epic proportions. Everybody has had a ball of a time, building ghosts cities and constructing new developments all over the place like there is no tomorrow. 

Source: http://www.ibtimes.co.uk/china-ghost-town-city-441932

Read more about it:

• here and watch the video clip
• here
• and here- and watch the video clip
• and here

But as with all good things in life, it seems like that part of the house party where everybody were having a blast, might be over. The party music is not pumping that loud anymore, the bottomless beer is starting to run out, the pretty people don't look that pretty anymore, and head aches are setting in. 

The first cracks in the wall started appearing. In the last 2 or so weeks the first debt defaults on Corporate Bonds started happening - sit tight and read the Bloomberg article here

It is interesting to note that during the previous (East) Asian collapse (which coincidentally also had an exceedingly optimistic construction growth spurt in places like Thailand), the first rumbles of collapse also started with default on bonds issued by construction companies - read more about that here. 

Read these two articles by Zerohedge for further information:

• Article 1 - Zerohedge
• Article 2 - Zerohedge

Obviously one cannot keep on kicking the can down the road and borrow money like there is no tomorrow. At some stage somebody has to pay the Pied Piper. 

And undoubtedly, other people would have made brave decisions on where to invest your money.  At this stage it is anybody's guess how much (international?) investment might be tied up in these bonds - and what exactly will be extent of contagion this time? How will it impact the economy? What about global markets?

But what is clear, is that barring a small miracle, the epic house-party just might be over.

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