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Four Reasons China is Betting On Europe (And Will Lose)
China has
begun stepping in to buy up European sovereign bonds because allowing a default
in Europe will trigger a global systemic collapse that will destroy China’s
economy.
The EU
accounts for roughly $400 billion of China’s exports, making it China’s single
largest export market. So if Europe collapses, China’s economy takes a BIG hit.
Remember, China is a centrally controlled economy, NOT a dynamic open market
economy.
Put another
way, the entire China “economic miracle” is based on the current system
continuing to operate in some form (China can continue to export, rip off
intellectual property that is developed elsewhere, throw its weight around,
etc).
But… if
Europe collapses:
1) China
loses its largest export market (Chinese economy breaks down)
2) China
unemployment skyrockets along with civil unrest
3) The
US Dollar rallies evaporating profit margins at Chinese export companies (Yuan
is pegged to the US Dollar and so will strengthen) which results in even more
unemployment
4) China’s
$700 billion or so in Euro-based assets implodes
With
inflation erupting in the People’s Republic and civil unrest growing, China
NEEDS to keep its economy on track by whatever means possible, even if it means
throwing money away to prop up bankrupt Europe.
Remember,
China’s unemployment numbers are based only on surveys in urban areas; they
completely ignore the hundreds of millions of migrant workers who come to the
cities to find work. I’ve seen some estimates of China’s true unemployment rate
that are north of 20%.
That’s a
heck of a big problem for China’s totalitarian government to manage. This is
why China is stepping in to prop up the European bond market. However, even
this intervention will prove to be only a temporary support.
Indeed, it’s
clear at this point that Europe will be breaking up within the next 12 months.
While Greece could be temporarily papered over by the ECB, there is NO WAY it
can handle Spain or Italy.
In plain
terms, the European debt crisis is not over by a long shot. And the very issues
occurring in Europe today (debt defaults, civil unrest, etc) will be coming to
the US’s shores in short order as the debt contagion spreads.
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China's real problems are internal...a ticking time bomb that it has swallowed. I see the collapse of communism followed by periods of turmoil as they reorganise. Religion will come back in a big way..it is a genie bottled up waiting for 'Alladin' to do the rubbing act.
People want freedom. In China as well as in Tibet. They want to be free & happy & ...prosperous.
China's sudden entry on the international stage is an indication that reform was desperately needed. They have created an economic safety net on the outside as a pain reduction strategy to tide over the ensuing chaos and outright exposure to foreign & internal (Tibetans backed by Germans) attacks to destabilise the region. The Germans are arm-twisting the chinese with this tibetan threat and so you see them (China) appear as the 'white knight' to save 'europe'. The Chinese will also give in to the religious demands of the Dalai Lama & his people in exchange for continued 'exploitation' of Tibet's natural resources. The Chinese may go so far as to embrace an amalgam of tibetan & chan buddhism. Chan - for those who are not familiar - was exported to China from India. Communism will disappear.
So why is Tibet important?
The himalayas are rich in minerals & other natural resources, gold being one of them. The Germans knew this back in the days of Hitler, the Chinese have known this for many centuries, the Japanese also knew it & now...the US is also slowly discovering this fact, but they are a bit late to the party.
Phoenix Capital
You usually write some decent articles but this is quite alot of rubbish. The 'misunderstandings' are a result of the 'Statist' mind-set:
"The EU accounts for roughly $400 billion of China’s exports.. if Europe collapses, China’s economy takes a BIG hit."
You make the cardinal mistake of mixing Govt and private sector. If the Euro Govt collapses so what for Chinese exporters? They sell into retailers and distributors who sell to Euro consumers, not Euro Govts (although Euro.gov does try to consume everything not tied down in Socialist-Wonderland!). Chinese private sector exports will continue unabated to European consumers only exception being large numbers of wasters (Govt workers) coming out of the markets
"Remember, China is a centrally controlled economy, NOT a dynamic open market economy."
Nope. The Chinese Govt is a centrally controlled sack of garbage. The private sector is dynamic, that's what created the Chinese mriacle. The 'miracle' was the inept control-freeks of Govt that ruined and bankrupted China getting out of the way of the private sector.
"Put another way, the entire China economic miracle is based on the current system continuing to operate in some form."
Total bollocks. The entire economic miracle was simply based on the Chinese Govt getting out of the way of the private sector. The private sector is self-sustaining and self-sufficient, it is the Govt that is dependent and being the reverse of a "miracle" a total bloody nightmare.
Business does not need Govt to operate nor do they give a monkies what system or policy Govt is following up its own blind alley because nobody pays any attention to any political policies or directives.
Nor will the private sector be impacted by the Chinese Govt collapsing or its domestic and foreign loans imploding. No business is dependent on Govt (it's absolutely the reverse as a matter of all economic facts) except those crony enterprises selling into Govt. The private sector will actually strengthen with Govt out of the way and become more dynamic, not less, without profits being sucked out by Govt parasites
I would dispute your first 6 words (ex salutation)
Mr Summers/Pheonix has two parts to his articles, Part 1 being a general round-up of the economic woes of our times which are in the main spot on and Part 2, plugging his 'solution' ...i think in truth you and most people object to Part 2, not Part 1
i can see why people kick off at the feeling Mr S/Phx is cynically using an economic outlook (hook) we're all tuned into and like to hear to sell his services (i've berrated him myself on it) but he ignores any such discourse and just keeps 'plugging' away. But so what? So long as you never get hooked into following the lead (and i never will) he's no threat at all ..so just have a read, kick off if you want as i did today, Mr S/Phx isn't listening we're just a 'view' but not a 'click through' on his daily web report ..i'm happy with that :)
no economy will collapse, quit drinking the cool-aid, PCR. How long have you been calling for the collapse? two years? and markets are up what 100%? are yoiu still gonna call for the collapse when sp 2000? dont fight it, ride the wave!
God, what facile crap. China is betting on Europe for the same reason I am: they think long term, and Europe, not the Eurozone, is far more resistant to total collapse than the US. The US is, unfortunately, like a farm planted with a monoculture crop, for example GM corn. Vulnerable to sudden, catastrophic failure. Europe is a patchwork of old microcultures, comparitively inefficient in the aggregate, but capable of surviving very harsh circumstances. Forget the Eurozone, the ridiculous wannabe attempt at aping the US, that is finished, it's just a matter of a year or two. When the real SHTF, the US will undergo a collapse far worse than the USSR. The Chinese understand that, and they will win.
if you trade in the markets...you want to watch shanghai indexes.
Do the Chinese have a Rothschild central bank issuing their national currency? Everything... Explains everythiiing. :) What's a few digits on a monitor between family members? Besides, they're doing a good deed, preventing all-out mayhem on the streets of Europe: blood, guts, ropes, soap, lampposts - we, Europeans have been through all of that, it's time for Asians (and the US) to fight the good fight. :)
Today it was announced a Chinese investment group will buyout a Canadian tar sands energy producer that is undergoing bankrupcy. Right under our noses. Where are our entepreneurs, oil companies, banks and polititians?
The Chinese Dragon has awoke and has been seen in Europe and Canada on his way to bankrupt USA
We will need more than a paper Survival Kit
+100 "we will need more than a paper Survival Kit"--sounds right to me.
China is being remarkably benevolent... if that doesnt set off big fscking alarm bells in your head then you've obviously never travelled to mainland/HK.
Presume they are waiting for a last fear-bounce on USTs that they'll exchange as collateral to unsuspecting resource nations to lock them into perm servitude.
I can't help but admire the irony that they'll use the USTs (basically dollars) to play the USA's game of debt servitude and this will ultimately collapse the dollar as those nations then try to sell off USTs to buy things cause they can't sell resources for cash - given that it is all promised to China. Then China unpegs RMB and it's off to the races.
game, set, and match. Again, extra points for style with the Chinese using the USTs as weapons of financial mass destruction to get resource lock.
I'd just like to remind everyone that the Chinese have a big cultural Jones for the Silver. Their currency was silver for a long time and their people love the stuff; and there's a lot of them!
Very interesting string of thought, Nage.
Can I email you for your FREE downloadable report? ;- )
The one thing these last-minute Chinese investments indicate is that the situation in Europe must be really desperate, for China to be called in as a white knight.
Once again GS insults the intelligence of ZH folks with another ludicrous post that totally misses the target.
China's primary reason for building monetary ties with Euro-nations is to get much of the developed world away from the US dollar eventually.
Contrary to GS's assertion China's motives are trade related, they're actually currency related, which GS completely misses.
No, it's not a losing bet for China. It's a carefully planned move to get Europe off the US dollar eventually, as China's quietly doing with other nations.
China, Russia, Euro-nations, OPEC nations too most likely, off the US dollar.
Then where will America be?
Americans can't see past the end of their nose. They don't see the big picture.
They don't see how the rest of the world hates America and wants to get off the US dollar.
China's merely helping them do that.
Jeeze, I'm a red, white and blue 'merican, and I'd like to be off the dollar also.
>rip off intellectual property
Impossible.
Watch this short cartoon "Copying Is Not Theft": http://www.youtube.com/watch?v=Fw-MFeR8Frw
Also see Stephen Kinsella, "The Case Against IP: A Concise Guide" http://mises.org/daily/3682
On the one hand, there is a reasonable argument for intellectual property. It takes time and effort to create stuff, so it's not right for China, or anyone else, to rip you off right away. Few would create anything if all they had to do was lay around and wait for someone else to do it for them.
On the other hand, IP _law_ has been beyond insane since the 1970s at least. It's illegal to copy stuff that has been out of print for 100 years or never available at all on your side of the world. We have Monsanto suing farmers over "copyrighted" seeds that blow from one farmer's field to another and software companies fighting for control of the while loop and doubleclick! How long until doing anything at all for yourself is in violation of someone else's IP?
At this point, I'd almost rather China steal MORE and market their junk WITHOUT the western middlemen hoping to profit from global labor arbitrage, finally putting some of the cost of global labor arbitrage on them for a change, on the outside chance that just maybe some production would move back to the US.
Hmmm, China invests within and exports to the same continent. That doesn't exactly sound like a loosing proposition, unless of course they follow the same path as the CPE of the USSA.
Haven't we sold off our assets... in our own fiat?
Geez
Did you say Free for the first page and I can pay for the next five with my Credit Card on a monthly basis ? What a deal ---too bad Iam maxed out on Survival offers.
Dammit! DoChen got in before me. I tip my hat to you, sir.
I completely agree. And you can read more in my FREE 6 page booklet, 'Ping explains the obvious'. I slip copies into the books at the public library sometimes, so you may be able to get a copy. Also, I sticky tape it onto packets of cereal, but those bitches at the store have been really unreasonable about it recently.
Europe does not have a modern printing press with Benny at the "start" switch and no "stop" switch. All Europe has is Germany which will sooner or later "march to its own tune". China will therefore play ping pong with the US until default time or the US military machine under the direction of Bank Generals decides they have a better solution to keep China under control in "Our Global Economy".
Is the "survival kit" also printed in German and Mandarin?
Of course you could just buy gold and be done with it.
Unless you are extra careful (paranoid?) and buy guns & ammo, food & water, medical supplies, etc.
I discuss these topics and more at my blog, nothing to download! Just send me a gmail at my name, promise to behave (I write under my own name) and I'll send you the link. 170 ZH readers can't be wrong! See pretty pictures from my Peru trip last week.
I'd suggest that the United States of Europe are not as totally fubar as the United States of America and that China have taken sides early and correctly backing Europe and the Euro.
Europe won't survive because they can't possibly bailout Spain and Italy and guess what, many of the other European countries are interconnected financially with Spain and Italy.
this sounds vaguely familiar....oh yeah werent they the biggest buyers of US debt who in turn was one of thier biggest export markets....it will be different this time..cough cough
Despite what they say. China appears to have a hedgeamoney strategy and invest in emerging mineral rich markets as well...Brazil, Africa, etc.
Irony is that they could have one of the biggest consumption markets in the world if they increased the purchasing power of thier citizens
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There's some SERIOUS shit coming down shortley, re: Iran. That could easily be the 'trigger mechanism' that sets everything off by involving China (who's directly warned the US vs. Pakistan, but not Iran...hmmmmm) as well.
yes, Jim Rogers also think Euro will survive
Very unlikely, at least in the present form, unless the Euro can take a cascading series of bankruptcies.
I often wonder if ZH is a tool to rationalize a single global currency,
It makes a lot of sense in so many ways,
Globo-dollars.
End the confusion, Biblical tower of Babel stuff.
http://fofoa.blogspot.com/2011/07/euro-gold.html
"You see, there are two fundamental differences between the euro and the dollar that most Westerners simply can't grasp, no matter how many times you try to explain their significance. Wim Duisenberg, the first ECB president, stated them pretty clearly in this 2002 speech:
"The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."
There's a lot in that one paragraph, but the two fundamental differences with the dollar are the severed links to gold and the nation-state. Hopefully I have sufficiently addressed the former above. I will now try to explain the significance of the latter....."
"rip off intellectual property that is developed elsewhere" lulz +1