Stratfor: Anyone Exporting Commodities To China Is About To Get Creamed

Stratfor Video via The Business Insider ^ | January 30, 2010 | Lawrence Delevingne

[blam]

Stratfor: Anyone Exporting Commodities To China Is About To Get Creamed

Lawrence Delevingne
Feb. 1, 2010, 12:01 PM

Global intelligence firm Stratfor has a video analysis explaining the risks of a Chinese economic slow-down:

"Both investors and countries whose economies are dependent on China start February increasingly worried about the direction of the Chinese economy. Monetary tightening and allocations of resources mean that present growth expectations are unsustainable," says Stratfor.

Major points of the report:

* Asian investors are worried about the impact of monetary tightening in China on a fragile world economy
* There are conflicting reports from China about lending -- slow the bubble, or is economy not ready for cuts to government subsidies?
* Chinese banks are curbing lending
* Big infrastructure projects will require continued lending despite pressure to cut spending
* Exports to the U.S. and Europe are faltering
* Chinese growth figures unreliable -- likely inflated --and unsustainable.
* Suppliers to China (raw materials, commodities) could suffer

Here's the full video:

[snip]

[Cicero]

Not really surprising. Quite some time ago, before this economic downturn hit, Chinese national banks (the only kind they have) admitted to half a trillion dollars in bad debt. More likely the full amount was a trillion. This is what happens in a centralized, command economy.

I would imagine things are probably a lot worse now.

On the other hand, China has, or had, a trillion dollars in US monetary instruments, which they may or may not want to lighten up on. Until recently, they were trading some of that for storable commodities, such as gold, silver, copper, and rare metals. These would be useful for future growth and possibly better than the dollar as a store of value.

But I have always thought that China is likely to collapse at some point, because their economy is about a rational as Stalin’s was, a product of central command.

[b4its2late]

I’m just waiting till the Chinese government decides it wants to seize the assets of all foreign companies.

[mo]

I’m not an economist...but somehow I would expect that the magnitude of debt is a measure of how centrally controlled an economy is..as the the usual checks and balances on the accumulation of such debt are broken or bypassed.

[556x45]

I wondered about that myself. It seems a real gutsy move but one they might just be able to pull off. Consider that other industrialized nations (most) have/are allowed China to become their manufacturing base. I don’t think there’s much they could do about an asset seizure.

[b4its2late]

I know. I have said it for years. We know the US government isn’t going to go to their rescue. They may pitch a hissy fit, but that’s where it’ll end.

[greeneyes]

This has been my thought ever since American companies started building in China, that some day their property would be seized.

The enthusiasm for China some times reminds me how enthusiastic some business men were for doing business with Hitler's Germany before the war.

[nathanbedford]

The true state of the Chinese economy is the key question upon which virtually every other economic question will turn. In this video we see one side of the argument and it is one that is well known. The provincial banks are profligately in making loans based on cronyism often to former Communist Party officials. Bad loans are simply fraudulently posted and the central bank has very incomplete knowledge much less control over the flow money. The growth rate is either bogus and overstated or it is true but too good to be true and is therefore unsustainable. The critics never tell me exactly which one they pick.

The obverse of the story is that the government is hiking interest rates and holding back on building permits because the stated GDP growth of 11% is in fact real and the government sniffs the first waftings of inflation. The manufacturing muscle of the country remains intact and the Chinese miracle is real. Take your pick.

Goldman Sachs has taken its pick and they declare the story to be genuine and forecast that the Chinese economy will lead the world in 2010. As much as I am politically opposed to Goldman Sachs and believe that they and Warren Buffet have exploited the American economy, I like to think of myself as a Jimmy Rogers libertarian when it comes to identifying reality in the world of economics. Accordingly, I will put my money with Goldman Sachs who are probably the best in their business rather than with Stratfore who have so often been wrong in the past.

China is scheduled to become the number two economy this year or next and it will become the world's superpower in a generation. I can remember as few as seven years ago here on Free Republic being berated for making such a statement. Now, it is more than plausible.

[556x45]

Its the ‘then what’ Im most curious about. How on earth will they be able to write off such large losses? Like it or not the Fed has a dog in that fight and will have to deal w/ it just as private business does.

[b4its2late]

I really think because the Fed has the dog in backwards, the government can’t do anything. Look how Timmy kowtowed to the Chinese when he was over there last year. We are giving them the rope to hang us with and have been for years. It’s just that we are running out of rope.

[Matchett-PI]

bttt

[Cicero]

Yes, you are right. Predicting what will happen in China is a difficult business.

As for Goldman Sachs, I would agree that they are the ultimate insiders, and certainly know what they are doing. On the other hand, you have to consider WHY they say something. Are they plugging China because they really believe it, or are they plugging China because they have some investments to unload? It’s usually difficult to know without some sort of inside knowledge.

[Razzz42]

No matter who controls the central bank in China it’s still fiat based debt using compounding interest and we all know how that turns out.
(Thanks a lot Nixon)