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China Won’t Save the Day For Europe… or Anyone Else... It Will Collapse Just as the USSR Did
The world continues to believe that China is somehow this economic juggernaut that will not only push through any recession but will even bail out those less solvent countries and save the world.
My view is quite the opposite. China hides its federal debts by dumping them into its state-owned-entities. The REAL Chinese Debt to GDP ratio is north of 200%. And the country is witnessing a property bubble in several of its major cities that will do what all property bubbles do: burst and wipe out millions in its citizens’ capital.
Aside from this, China has two major problems from an economic standpoint: unemployment and inflation.
Regarding #1, China cannot risk a severe economic slowdown. There are already over 30 million Chinese who have lost their jobs, left the coastal cities, and are moving back to the countryside. These are hungry mouths looking for food.
Moreover, during times of economic turmoil, civil unrest grows. Since 2006, China has averaged 90,000+ "mass incidents" (riots and protests) per year. In 1993, during the boom years, this number was less than 10,000.
Suffice to say, an economic slowdown is a MAJOR problem for China's Government. And it brings with it civil unrest.
This is most recently clear in the village of Wukan, which in September began a series of protests based on the fact that the Government took away the villagers' farmland and fishing rights (thereby removing their primary means of earning a living).
Wukan began a mass sit-in/ protest. The tiny village of 13,000 has since become such a headache (thanks to the international press) that China's Government actually let the villagers vote on who should be their local officials.
This is absolutely unbelievable. China... a totalitarian regime… letting a village vote on its leadership. This should give you some idea of just how tenuous the Chinese Government's control over the general population is.
China’s other economic problem is inflation.
China’s inflation rebounds in January, renewing pressure to control living costs
China’s inflation rebounded in January as food prices soared, renewing pressure on Beijing to control surging living costs as it tries to boost slowing growth in the world’s second-largest economy amid warnings of a global downturn.
Consumer prices rose by an unexpectedly strong 4.5 percent over a year earlier, up from December’s 4.1 percent, data showed Thursday. Food prices jumped 10.5 percent, accelerating from the previous month’s 9.1 percent.
China has a major inflation problem on its hands. With over one third of its population living off $2 a day, these price increases are a recipe for major civil unrest.
Finally, China has a third problem that is more social than economic in nature: the Chinese population is beginning to realize that the Government is losing control. People are willing to go along with a regime as long as they can “get by” under it. But as soon as it becomes impossible to survive… then situations like Wukan happen.
There will be a LOT of Wukans in the coming months and years in China. Whether it’s by inflation or an economic contraction brought about by Europe’s collapse (Europe is China’s largest trading partner), civil unrest and “mass incidents” will be on the rise in the People’s Republic as the Chinese realize that the current system and the supposed wealth it will create for them are in fact a giant fraud.
Indeed, I personally believe China is much less an economic juggernaut and much more akin to the Soviet Union during the Cold War: everyone from the outside thought it was this unstoppable force… then the whole thing collapsed in a matter of a few years. What followed was an oligarchic state. We’ll likely see the same thing in China in the next few years.
I realize that my analysis flies against reports that a Chinese economist just claimed China might invest as much as $100 billion in Europe. However, this claim comes from an academic economist who holds no Government or Central Banking position by the way. On top of this, China completely pulled out of buying European bonds back in October and only hinted at providing more capital if Europe agreed to major concessions.
My question then is as follows: is Greece any more likely to take orders from China than it is from Germany?
Also, the following news story doesn’t exactly indicate that China and Europe are the best of friends:
China Carriers Won't Pay Fees For Emissions
China on Monday said it prohibited its airlines from paying for carbon emissions under the European Union's new system to limit greenhouse emissions, in an escalation of Beijing's opposition to the plan.
http://online.wsj.com/article/SB10001424052970204369404577206613592210638.html
So let’s just say the “China will save the day” thesis is delusional at best. And with Germany getting closer and closer to leaving the Euro every day… sooner or later, Europe is going to have to “take the hit.” When it does, we’re talking about numerous sovereign defaults, hundreds of banks going under, and more. It will be worse than 2008. Guaranteed.
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Yup soo right...
China will collapse cuz they're building too many! They made terrible mistakes for not faithfully investing in the sacrosanct UST.
And worse, making the capital sin for not allowing the financiers to take control of the nation in the holy name of democrazy!
Just see the highlights of China's giant infrastructure projects in embracing the 21st Century!
HOW COULD they build so many the PHYSICAL things? They should have invested much more fund in the sophisticated and advanced FINANCIAL products instead!!
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Wage and environmental arbitrage plus empty cities built to make GDP numbers plus huge wealth gaps between country mice and city mice plus slave-like working/living conditions - what could possibly go wrong?
i remember all of the crap about turning japanese during the 1980s - look where japan is today.....china is actually in a stronger position but its negatives overwhelm...besides chinese macro data is as farcical as the usa government statistics with the added insult that production rather than sales measure gdp - maybe say would be proud....
Could anybody send the author of this report to mental hospital. It's really fucking retarded and I cannot bear with it
I was going to read your free report, but instead decided I'll use that time to take a great big shit.
It doesn't matter whether it is China, the Usa oe Europe that is the weakest or the first to collapse. What is almost certain is that a collapse of one will lead to the collapse of the others.
China has a number of inflation problems taking place at the same time:
- Its trading partners have ZIRP/moral hazard economic policies, there is a big carry trade to China (this is where all those bullish China stories come from, BTW).
- China has to some unknown degree privatized its internal foreign exchange: China exporters sell their F/X to private 'fixers' rather than to the central bank. How does one know this? If exporters sold all of their dollars and euros to the PBOC the yuan would rise just like the yen does. It doesn't so they don't.
- China uses its F/X hoard to buy fuel, its internal exchange rate works 'backward' to push fuel prices higher at the pump for Chinese consumers. China CAN afford to pay more for crude, therefore it DOES pay more for crude.
- F/X pays for China crude: China is levered into a hopeless euro position that it dare not unwind. If China was to sell euros: euro flash-crash!
Meanwhile, the euro could flash crash anyway! If Greece defaults next week and Germany decides the euro costs too much to defend! Then what? Anyone holding euros as 'reserves' would be wiped out, China would lose a trillion in 'hard' overnight.
How much purchasing power does each cash euro represent? How much is each euro leveraged within the euro ambit? That is how much the 'cash crash' would cost: twenty trillion or more in purchasing power!
A loss that size would be enough by itself to destroy the China economy. If nothing else it would become China's 'trade hole': ten years worth of European export revenue: POOF!
Excuse me while I run out and buy more beans ...
Further, China does not have "capitalism", it has mercantilism. Chinese business can do anything they want as long as they don't call the Party into question or embarrass them. The Party has found that this system gives their functionaries far more opportunities for graft than the Marxist economy ever did.
The Party is being forced to sow the seeds of its own defeat, for the more prosperous that citizens become, the more they will demand a voice in how government spends the money that it extracts from them. And just a few days ago, the Party announced it will seek higher domestic incomes so as to boost domestic consumption.
Whichever way you look at it, they are toast. Their communistic oligarchically directed socialistic capitalist system is corrupted and degenerate beyond repair. They will fracture into Muslim East, North and South as these areas are ethnically diversed; perhaps as diversed culturally and ethnically as Korean or Vietnamese are from other Han Chinese.
Not only that Tibet would surely benefit and perhaps will survive the Chinese catastrophy. Heck the whole world would benefit from China fracturing, including Han Chinese whether they realize it or not is another question.
Free Tibet, Free Wei Wei.
Don't bet on it, China has been more or less one nation - with immense internal diversity - for a very, very long time.
The US should learn from this example. If we will cling to, or claw back, free market capitalism where there is no TBTF, we will survive and thrive after China implodes.
If we try to follow the path of Europe, we will fail too.
No more giving the hungry fish, let's give them nets and teach them to feed themselves.
You wrote that like there's a choice in the matter...?
can anyone here point me to at least 3 calls that graham summers of phoenix capital made here on zh and was correct in the last 18 months? Was there at least one time when this guy would say: this will happen by such and such time and be correct? I think he's full of shit about everything.
He has been ultra bear. So he 'll be right eventually, but the wait can be excruciatingly long.
Beside it's fun to read and see how these guys can come up with different angles to the same problem.
And governmental bankruptcy, as is the major point in my book, New American Revolution, is revolution. China is farther into stage I than Europe, and Europe is farther into stage I than the United States, but most every government in the world is bankrupt, and therefore, will eventually enter into revolution. And revolutions never go backwards and everyone is forced to participate.
Egypt and Libya are into stage II, Syria has just gone to stage II. Most of the Middle East is well into stage I, and this war we are planning with Iran will pretty much determine if the dollar survives. But even if we win, I think we'll lose as we will be more bankrupt than we are today.
A bit of a sticky wicket, wouldn't you say?
Not sure about all this China bashing. Sure, they have massive bubbles in their economy, corrupt politicians, a crony class of successful 'capitalists', and little real representation in terms of real democracy.
I'd say the USSA is as bad at all of the above, if not worse, and will also be a fairly dodgy place to be when the ponzi collapses if the wheels really did fall off the whole economy. Might not be 1 billion pissed off Amerikans but 100m+ of them have guns.
Haven't read the free report, but I think Iceland and the Scandanavian countries might be the best play if you are looking for a safe haven to wait for these stormy times to pass?
ICELAND as a safe-haven???
No way! In addition to the bloody coolness,
ICELAND is solemnly contemplating to become SLAVE voluntarily !!!
if seems that their politicians will be succeeding in selling out the Icelandic at last... a sweet revenge for the past vote-downs.
They just don't know what they want... :)
according to Bomber:
Iceland will adopt Euro or other currency, PM says (2012.03.11)
Iceland will either adopt the euro after joining the European Union or drop the krona and unilaterally adopt another currency as “the situation can’t remain unchanged,” said Prime Minister Johanna Sigurdardottir.
“The choice is between SURRENDERING THE SOVEREIGNTY of Iceland in monetary policy by unilaterally adopting the currency of another country or become a member of the EU,” Sigurdardottir said in a speech delivered at a Social Democrat Alliance party convention today in Reykjavik, the capital. EU membership will allow Iceland to “cooperate with EU countries as a sovereign nation, which has a say in the decision and policy making in all fields of cooperation.”
Iceland could fix the krona’s exchange to the euro and be sheltered by the European Central Bank “as early as by the middle of next election term” in 2015, said Sigurdardottir.
You're wrong. I would pick the rural USA over any other place on earth. Independant thinking people that know how to work and believe in owning guns.
I once walked into the den of a friend and saw his arsenal. I said, "are you expecting trouble?"
His answer - "No, but if we get any I'll handle it."
Didn't see the bashing, but whatever. And
That's what makes me glad to be HERE, as the chances of serious reform of the USSA Inc. is much more likely with a citizenry that can defend itself.
Not to mention we have a lot more arable farmland with water than China. When you get down to it, it's all about food production.
If Americans switched to more traditional non-European, non-factory farming techniques, production would drop but sustainability (real sustainability, as in using the same plot of land for many generations by shifting crops and letting fields recover - without massive amounts of synthetic fertilizers and pesticides) would be acheived.
If industrial application of the Haber process is ever interrupted, there will hardly be any choice.
arable? your aquifers are draining, your soil is a dead husk which requires tons of chemicals to make it do anything. the entire midwest is on its way to being the desert it was considered to be before.
china? you idiots don't know anything past the eastern cities and a handful of overblown human interest pieces that the media jams down your necks like it matters.
it really is quite cute though, trying to judge an apple by orange standards and thinking you have any damned idea what you are talking about... and you have never actually seen the apple firsthand to begin with.
Lol, we have these things called "rainfall", and "great lakes". Google it.
You know not of what you speak. I've seen rural China. Been to rural factories that were turning the river red with dyes. Have been told by misionaries that know, how the rural factoires keep production high.
When the factory falls behind the plant manager calls a meeting in the yard. One worker is pulled out of the crowd and his or her legs are broken. The worker lays in the yard crying in pain while the rest finish their shift.
The USA ain't perfect, but I'll take my chances here after we vote out Husein.
"What followed was an oligarchic state. We’ll likely see the same thing in China in the next few years."
Chinese History : 3 Kingdoms
http://en.wikipedia.org/wiki/Three_Kingdoms
"... a rebellion against the government that was called the Yellow Turban Rebellion. Their movement quickly attracted followers and soon numbered several hundred thousands and received support from many parts of China. They had 36 bases throughout China, with large bases having 10,000 or more followers and minor bases having 6,000 to 7,000, similar to Han armies. Their motto was: "The firmament[3] has perished, the Yellow Sky[4] will soon rise; in this year of jiazi, let there be prosperity in the world!""
but also
Ming dynasty
http://en.wikipedia.org/wiki/Economy_of_the_Ming_Dynasty
"...The economy of the Ming Dynasty (1368-1662) of China was the largest in the world during that period. It is regarded as one of China's three golden ages (the other two being the Han and Song periods).
...
Ming agriculture was much changed from the earlier areas; firstly, gigantic areas, devoting and specializing in cash crops, sprung up to demand from the new market economy. Secondly, agricultural tools and carts, some water-powered, help to create a gigantic agricultural surplus which formed the basis of the rural economy. Besides rice, other crops were grown on a large scale."
While many coastal migrant workers are moving back to the interior, they are setting up businesses when they re-patriate. The Chinese don't sit around on stoops all day loitering, unless they are retired old men playing chess or nanna sitting the kids.
It will be interesting to see what happens to all of the multinational corporations who put their factories in China. When unrest appears on a mass scale, it is kind of hard to produce products when the town is engulfed in fire and chaos.
I bet that any company who put the majority of their manufacturing in China will be bankrupt by 2013.
The whole shitty place needs to go up in flames.
When China has unrest historically millions die. Happens with regularity. In the past nobody knew or carred that wasn't there. It's different now.
Millions will die because the population is at a billion and a half! How far did they think they could take this experiment?
our bubble was their bubble, our contraction will be their contraction.
only we dont have a billion and a half people to keep happy.
Here's a line from a movie that I always think about when people talk about China:
Col. Andy Tanner: ...The Russians need to take us in one piece, and that's why they're here. That's why they won't use nukes anymore; and we won't either, not on our own soil. The whole damn thing's pretty conventional now. Who knows? Maybe next week will be swords.
Darryl Bates: What started it?
Col. Andy Tanner: I don't know. Two toughest kids on the block, I guess. Sooner or later, they're gonna fight.
Jed Eckert: That simple, is it?
Col. Andy Tanner: Or maybe somebody just forget what it was like.
Jed Eckert: ...Well, who *is* on our side?
Col. Andy Tanner: Six hundred million screaming Chinamen.
Darryl Bates: Last I heard, there were a billion screaming Chinamen.
Col. Andy Tanner: There *were*.
Nothing new in this "report".
Except that it confirms earlier trends are continuing, and that China is bucking the NWO carbon-credit control system (a very, very good thing).
However, I wish this:
Was more clear though. I can't imagine that food inflation is ~10% PER MONTH... Because that means the whole show (globally) is over in 4-5 months. Perhaps someone can enlighten us.
I believe they are referring to the change in the annualised rate from one month to the next.
http://financial-dictionary.thefreedictionary.com/Annualized
It gets cumbersome as hell to repeat "on an annualized basis" for every "monthly" statistic.
It's hard to say exactly what China's real rate of inflation is (the government lies) but a good guess would put it at 100% per year.
This would be in line with what the Chinese loan sharks charge for real estate (collateralized) loans, which are published @ 120% - 180% per year.
Loan shark has got to make money too, right?