April 21 (Bloomberg) — China’s “excessive” credit expansion and surging real estate prices are “danger signals” that growth is peaking, investor Marc Faber said. “There are some symptoms of a bubble building in China, with the increase in foreign exchange reserves, rapidly rising property prices,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview today. “From here on, the China economy will slow down regardless. Whether it will crash this year or later, I don’t know.”
China, the world’s third-biggest economy, yesterday ordered developers not to take deposits for sales of uncompleted flats without proper approval. This adds to curbs on loans for third- home purchases, increased down-payment requirements and higher mortgage rates announced in the past week, after property prices in 70 cities jumped a record 11.7 percent in March. China’s economy grew 11.9 percent in the first quarter, the most in almost three years, fanning concern that record lending is creating asset bubbles. The government has twice this year told banks to set aside more reserves and pace credit growth. “If you believe the government can steer the economy like a car, that’s not my view,” said Faber, who oversees $300 million at Hong Kong-based Marc Faber Ltd. Government measures “always lead to unintended consequences.” Faber spoke on the sidelines of the Asian Public Real Estate Association Forum in Singapore.
Chinese banks in March extended 510.7 billion yuan ($74.8 billion) of new loans, compared with 700 billion yuan in February. First-quarter new lending was 35 percent of the government’s full-year target of 7.5 trillion yuan. Last year, Chinese banks advanced a record 9.59 trillion yuan of new loans. “Excessive credit growth in January, and 11.7 percent increase in property prices in one month alone” are “danger signals,” Faber said. “The lending rate in China should be at least twice as high as it is now.” A slowdown in China would hurt the Hong Kong property market as well, particularly the luxury segment, he said. “I’d rather think that with a clampdown, they will have a lot of losses in China, and less funds for Hong Kong,” Faber said. “If you have a crash in China property prices, the high- end sector in Hong Kong property will get hit very hard.”
China will allow the yuan to appreciate by June 30 to curb inflation, a survey of analysts showed last week. “It’s good for China to have a strong currency, but I don’t think it will be good for the property and stock markets, because in the short term, China is less competitive,” Faber said. This year, the Chinese currency could appreciate between 5 percent and 10 percent against the dollar, he said. “The yuan should be twice the current level, it should appreciate by 100 percent over the next 10 years,” Faber said. Faber advised investors to buy U.S. stocks on March 9, when the Standard & Poor’s 500 Index reached its lowest level since 1996. The measure subsequently rallied 77 percent. He also predicted in May 2005 that stocks would make little headway that year, with the S&P 500 gaining 3 percent. Faber was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 climbed 10 percent between then and its record of 1,565.15 seven months later.
Goldman Fraud Case
The U.S. fraud case against Goldman Sachs Group Inc. is “purely for show, to appease the public and not to hurt Wall Street,” Faber said. “The people of America, say the middle class and working class, are basically angry that Wall Street, after being bailed out, are making record profit,” he said. “And a government that has its popularity eroded is prepared to take desperate measures of attacking the minority, which is Wall Street.” Goldman Sachs said yesterday the case against the firm hinges on the actions of the employee it placed on paid leave this week. The U.S. Securities and Exchange Commission sued Goldman Sachs on April 16, alleging that the New York-based company misled investors in a collateralized debt obligation, called Abacus 2007-AC1. U.K. Prime Minister Gordon Brown has asked Britain’s Financial Services Authority to start an inquiry, as the ramifications of the suit affect the company globally. The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold the CDO, which was linked to subprime mortgages, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle. The hedge fund wasn’t sued by the SEC.