Monday, January 17, 2011

A China Bubble?

Joshua's Army member Louie Louie sent me an article from the British Telegraph concerning the belief of a number of investment hedge funds that China is a bubble close to bursting.

He writes that to him, the article doesn't pass the smell test,because China is not a normal capitalist economy and comments, "If the Chinese Central Committee decides not to have a recession, bubble burst, it won't happen."

Actually, it's not totally up to them. China is a unique mixture of command economy and capitalist laissez faire state to a greater degree in some aspects than many western countries.

When you go on that road, you make more money but you also cease to have the ability to control all aspects of what your economy does.You're, in a word, connected.

China is vulnerable on several counts - first, it is a manufacturing society heavily dependent on exports for foreign capital and social stability. In a world wide recession, exports fall.

Second, it is still developing its infrastructure. Committing funds to that is something that has to be allocated in advance, especially with foreign firms doing much of the work as planners and subcontractors.And as the article points out, a lot of the development of China's infrastructure has been poorly planned, erected for a population that is unable to take advantage of it.

Third, China lacks the honest and relatively transparent financial and governmental infrastructure to handle the foreign capital coming in...which is why the money you spend for cheap Chinese goods at WalMart mostly ends up in Europe and the US as debt purchase, or to call it by its real name, investment. If governments start repudiating or 'restructuring' their debts, it's the creditor that loses out.

And fourth, China is an aging society with low birthrates and no appreciable immigration or prospect of it.

Is China headed for a bust? Possibly. It's definitely not out of the question.

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louielouie said...

one of the reasons i am cynical about this, is because in the "telegraph" article, it lists numerous "investors" that have started hedge funds speculating on the china bubble bursting.
it sort of gives me the impression of short selling a hedge fund.....
is that possible?
maybe trying to make their firms look good by drawing in a gamble?
time will tell........

Puzzled is my middle name said...

Louie, bubbles have a way of lasting much longer than anyone expects. However, sooner or later China's export machine is going to run into resistance from Western nations, especially the USA. That's when everything will fall apart for China and us.

B.Poster said...

Regardless of whether China is headed for a bust or not, they and their leaders no doubt wake up every day thankful that while they may have issues and problems to contend with the issues and problems they face are no where near as acute or as severe as those faced by America. Among all the major world powers the problems faced by America are by far and away the more severe than those faced by any other major power.

For America to get out of its current mess, it and its businesses must start to make money in vast quantities and we need to make it NOW. In order to do this, we are going to need to loosen regulations that businesses face. As it is right now, American businesses are literally being strangled by a myriad of regulations that no one can keep up with or comply with. These regulations must be lifted NOW.

Once this is done, perhaps we can compete. Right now, even if American workers could work for free, manufacturing interests couldn't hire them to manufacture in America. The regulatory cost of doing business in America is simply to great.

Lose the regs and lose them NOW!! If we are serious, that should be our theme for the coming year.