Posted on 07/23/2010 11:00:00 AM PDT by SeekAndFind
The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely democracy and capitalism. But the grass on China’s side of the fence is not as green as it appears.
In fact, China’s defiance of the global recession is not a miracle – it’s a superbubble. When it deflates, it will spell big trouble for all of us.
To understand the Chinese economy, consider three distinct periods: “Late-stage growth obesity” (the decade prior to 2008); “You lie!” (the time of the financial crisis); and finally, “Steroids ’R’ Us” (from the end of the financial crisis to today).
Late-stage growth obesity
About a decade ago, the Chinese government chose a policy of growth at any cost. China’s leaders see strong gross domestic product (GDP) growth not just as bragging rights, but as essential for political survival and national stability.
Because China lacks the social safety net of the developed world, unemployed people aren’t just inconvenienced by the loss of their jobs, they starve; and hungry people don’t complain, they riot and cause political unrest.
(Excerpt) Read more at csmonitor.com ...
Companies and countries that grow at very high rates for a long time will inevitably suffer from late-stage growth obesity. Consider Starbucks: In 1999, it had 2,000 stores and was adding 1.8 stores a day. In 2007, when it had 10,000 stores, it had to open 5.5 stores a day in a desperate bid to keep growth rates up. This resulted in poor decisions and poor quality – a recipe for disaster.
In China, political pressure for full employment has led to similar late-stage growth obesity. In 2005, China built the largest shopping mall in the world, the New South China Mall: Today it’s 99 percent vacant. China also built up a lavish district in a city called Ordos: Today, it’s a ghost town.
You lie!
All good things come to an end, and great things come to an end with a bang. When the financial meltdown erupted in 2008, US and global banks started dropping like flies. Countries everywhere suffered contraction.
Even China.
During the crisis, Chinese exports were down more than 25 percent, tonnage of goods shipped through railroads was down by double digits, and electricity use plummeted.
Yet Beijing insisted that China had magically sustained 6 to 8 percent growth.
China lies. It goes to great lengths to maintain appearances, including censoring media and jailing those who write antigovernment articles. That’s why we have to rely on hard data instead.
To maintain high employment, China has poured money into infrastructure and real estate projects. This explains why, in 2009, new floor space doubled and residential real estate prices surged 25 percent. This also explains why the Chinese keep building new skyscrapers even though existing ones are still vacant.
The enormous stimulus has exacerbated problems that already existed, threatening to turn China into a less shiny but more drastic version of debt-riddled Dubai, United Arab Emirates.
What happens in China doesn’t stay in China. A meltdown there – or even a slowdown – would have severe consequences for the rest of the world.
It will tank the commodity markets. Demand for industrial goods will fall off the cliff. Finally, Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbi and boosting our interest rates higher. No more 5 percent mortgages and 6 percent car loans.
On the positive side, it probably will significantly reduce the costs of the new nuke plants we are getting ready to start building in Texas, Georgia, and South Carolina.
I have been to China 6 times in the past 5 years. I think this guy has them pegged exactly.
Shanghai is FULL of gleaming apartment buildings that stand empty.... yet, they are building more and more.
In the rural Western cities, populations are booming as more and more farmer move to town... and, need work. Beggars are everywhere...
This bubble too shall pop. And, it’s going to be painful for everyone.
Cut the budget (ours) in 1/2. Taxes in 1/2. Get rid of private debt by paying it off, settling it, or bankrupting out. Then who cares about interest rates? Let the bubble pop.
They get only one chance and also have to present hard evidence for any allegations. No more throwing up tons of mud hoping something will stick.
The only upside is that Americans who SAVE will finally get something for their deposits.
If the China bubble collapses, the countries that sell commodities to her ( whose economies are booming now ) like Australia, Brazil ( which sells close to 20% of her commodities to China ) and Canada are going to be hurt badly.
Seven fat years are often followed by 7 lean years.
To Summarize: China is a Debt Ridden Builder of Bridges to Nowhere?
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