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Sol Sanders | Follow the money No. 95 -- China may soon become the problem
Latest from Uncle Sol. A version of this article is probably going to run in the Washington Times on Monday -- Chris
Follow the money No. 95 | China may soon become the problem
By Sol Sanders solsanders@cox.net
Creeping up on the outer edges of Wall Street and The City soothsayers’ economic crystal ball, until now dominated by American and Euro crises, is growing concern about China.
The inane idea China [and India, which is also in trouble] would somehow rescue the world economy is now, finally, dismissed by the pundits -- without apologies. How a largely export-led, mercantilist economy was to save the world with its principle markets in the U.S. and the EU winnowing down was never explained. Continued wishful references to Chinese leadership’s equally improbable promises to boost domestic consumption are also falling away.
There is, in fact, a growing consensus the Chinese economy is spiraling down. One respected Hong Kong economist, Ms. Wang Tao of UBS, is predicting a gross domestic growth [GDP] rate toward 7% before yearend. That’s below the red line 8% long considered by the double-domes as the minimum to satisfy jobs for China’s growing population. Soon we can hope to hear an end to those straight-line projections – so wrong two decades ago in Japan predictions – which take China’s current world No. 2 GDP to soaring heights. Indeed, China is the classic example of inadequacies of GDP as an economic barometer. Even assuming official figures are reliable -- which is a far stretch -- China’s GDP has inflated with vast over expansion of infrastructure and massive corruption indicating enormous activity but not necessarily a basis for continued stability and growth. [Remember Euroland’s GDP/consumption figures before the fall!] Nor do we have more than a notional figure for huge military outlays.
Granted, some of us who have been predicting a China crash for years, arguing its miraculous transformation was jerrybuilt. But we have always said what would trip the fall, when, and how the Chinese would cope with it, is unpredictable – as so many things in life. Some fulltime observers are now turning to the banking structure as chief concern. Whether you look at inadequacies of Communist Party decision makers in their see-saw battle to maintain maximum growth but head off any hint of inflation, a traditional Chinese destroyer of dynasties, the outlook is grim. Larry Lang, a Hong Kong TV personality and Chinese University professor of finance, recently labeled provincial finances as “China’s many Greeces”. Beijing’s writ – as an old proverb goes – ends no longer at the village gate but increasingly at the provincial capital where regional authorities defy the center, desperate to meet growing resources demands. Local politicos have wheedled, persuaded, bribed and threatened local government banks into credit far beyond their capacity to repay. Add that to the huge stock of non-performing loans banks give their Party buddies in the huge inefficient government companies and you have what could be the mother of all financial fiascos.
Just as politics does not end at the banks’ doors, the Communist Party is moving into a generational leadership succession year. In theory, the new president and prime minister have been anointed. But there is a lot of shin-kicking with the usual Communist turn to so-called ideological arguments masking personality, regional and purely economic interests. A kind of neo-Maoism has surfaced. And it could take on new life as economic problems deepen because there has always been a strong Party constituency for preserving Soviet controls, planning and government ownership. Never mind that the fabled Chinese entrepreneurial spirit has taken hold with the partial liberalization of the past two decades. But much of this private sector with its disproportionately higher productivity was exports now hit hard with the downturn in the U.S. and Europe.
This has collapsed thousands of private businesses, particularly in South China’s clothing and gizmo assembly operations, leading to dramatic literal disappearances of owners and managers and growing unemployment. This, in turn, has fed already escalating unrest; Beijing has stopped reporting even the very suspect official figures. It’s early on, of course, to predict this would develop into the kind of provincial disintegration bringing down virtually every China ruling dynasty through its long history. Still….Meanwhile, China’s drop in demand for raw materials is already hitting world commodity markets – iron ore, for example, and soon to be coal and soya. That will have its effects on the overseas suppliers from Angola to Brazil to Australia [which has already seen a 10% drop in its high-flying dollar of a few weeks ago]
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People in the west seem to think China is like the western form of capitalism, if things start going south there China will just close it's doors and roll back capitalism decade or so.
Many people will be forced back to the subsistance farming life they had before, others will be taken into the army, while the balance will see little change as China has been active in opening other markets for their production.
So in other words there will be pain but only till the have replaced western demand with internal and new markets.
right
their bubble was our bubble, our crash will be their crash.
the UN says certain textile manufacturing will depart
mainland in the next five years for cheaper shores
i don't see any argument that the trillion dollar surpluses generated not just by China but the entirety of East Asia in general aren't going anywhere anytime soon. It's right up there with the retarded theory that "the USA doesn't make anything." Obviously they're buying our food...and using Americans to transport it to their ships if they can. Obviously they can't wait to get their hands on our new found oil, our new found natural gas horde, our vehicles made with their name-plate, our land, our women, our little boys and little girls. It's kinda scary when you think about it. What kind of name is Sol Sanders anyways? Doesn't sound 'merican....sounds defeatist to me.
Here is a good article on China and how it is over investing in everything (China Overinvesting). Interesting Read.
I do have to admit that China is overbuilding, that is a fact. Some of those "Ghost" cities are crazy.
In theory, it shouldn´t be so difficult for China to transform its economy from an economy that depends on exporting cheap junk to North America and Europe to an economy with higher productivity and higher wages. They got the technology, potential domestic economies of scale and also some capital.
It seems as if the central government has not had analysts that could point to the problem with malinvestment in real estate before it was too late. I suspect that the Chinese leaders either didn´t listen to economic experts or didn´t have any economic experts which informed the leaders about the state of the economy and potential problems ahead on a regular basis.
The question is how big the real estate malinvestment really is and how long it will take before the demand catches up with supply in the real estate market. Is the Chinese real estate malinvestment larger or smaller than in Spain compared to the GDP? It is hard to find sources which quantify the scale of this malinvestment. Furthermore, I haven´t even heard of a name of any Chinese real estate company that is in trouble in the media reports. So far, the only thing I have seen is articles saying "there are lots of ghost towns" and "this is a picture of a ghost town". My impression is that there actually is a real estate problem in China. But I would be happy if information on the scale of these problems would reach others than professional, large-scale global real estate investors and bankers. Ordinary media do not provide any high quality information on this subject. And nor does Sol Sanders article above.
Actually, this self-propogating myth about China shipping "Cheap crap" to the US is incorrect in several important regards:
So, as usual, the US Corporatocracy is misinforming the population via disinformation disseminated via the Corporate controlled MSM. Logically, it seems to me that the major issue here is globalisation as abused by US MN Corporations who ship jobs out of the US to the cheapest manufacturing centres and truly don't give a shit about US workers. China, actually, has nothing to do with the US problems.
As usual, this "Problem" is closer to home in the "United Corporatocracy of America"
PS. Sweden did have it right when it came to Bank Restructurings though. Let them fail, temporarily nationalsie them, wipe out the Equity holders, Bond Holders, Boards and Managements, then recap and IPO, taking ALL the proceeds back to the taxpayers. For reasons that the US did not do the same, please start again above. Rinse. Repeat.
philipat:
"PS. Sweden did have it right when it came to Bank Restructurings though. Let them fail, temporarily nationalsie them, wipe out the Equity holders, Bond Holders, Boards and Managements, then recap and IPO, taking ALL the proceeds back to the taxpayers. For reasons that the US did not do the same, please start again above. Rinse. Repeat."
The Swedish government took over two banks in the early 1990s, Nordbanken (the government already controlled 77 % of the stock at that point) and Gota Bank. The Swedish government paid SEK 2.1 billion for 23 % of Nordbanken and a symbolic SEK 1 for GOTA Bank, see (you will probably need a Google translation):
http://arc.hhs.se/download.aspx?MediumId=371
http://sv.wikipedia.org/wiki/Finanskrisen_1990%E2%80%931994_i_Sverige
The Gota Bank was created in 1990 by the financier Robert Weil and was sold the same year for SEK 4.5 billion to the pension fund SPP which managed pensions for Swedish white collar workers paid for by the employers. SPP was operated jointly by the employer organizations and the trade unions. Like I said above, the Swedish government bought Gota Bank for a symbolic SEK 1 (in 1992). That means a loss for SPP that amounted to SEK 4.5 billion.
The total net loss for the Swedish government amounted to approx. SEK 35 billion (about SEK 65 billion gross). Since the US has a population which is about 33 times larger than the Swedish population, this means that a similar bank crisis in the US would have cost the tax payers about $170 billion.
But there was NO moral hazard involved, implicit or expicit AND it was still less that the USD 780 BILLION total cost in the US, much of it now on the Fed's balance sheet. Oh, and mega bonuses were not paid to themselves by Swedish bankers after the event. Because they were no longer there. Which was, actually, my point.
That was a most excellent and concise summary there, philipat!
If it were mine, I would save it for future use. Word needs to get out about the real deal . . . and this is by far the best explanation I've seen.
Nice post, Philipat--pretty much sums things up.
Hey Gordon - those combine aren't going to kill themselves you know. It's been four years man - what, are you stuck in a portal? G-Man send you a pink slip?
If you have half an hour to spare, this is a very good, eye-opening lecture by Michael Pettis on China's situation:
http://paul.kedrosky.com/archives/2011/10/michael-pettis-talks-china.html
Tack ska du ha, Börjesson. Länken "Good talk by China skeptic Michael Pettis" funkade dock inte för mig. Skall pröva uppdatera Windows Media Player. Kollade du på den sändningen med Windows Media Player?
Länken innehåller en inbäddad Flash-spelare. Det är ett ljudklipp, inte video.
Men funkar inte det så prova med direktlänken till den bakomliggande mp3-filen:
http://cfapodcast.smartpros.com/AIC2011/AIC11_Pettis.mp3
We either deflate the debt or it will deflate humanity.
The real question is how do people and nations resolve the issue of hunger and security when systems collapse.
They ship their young once to war to bring home the food and gold.
It's called : LIEBENSRAUM!
Lebensraum, maybe --- "Liebensraum" sounds like a room in a bordello.
http://en.wikipedia.org/wiki/Lebensraum
I suspect that in the US, the ruling transnational corporate lords may have good news/bad news on the gold and food, respectively, however.
After all, somebody has to pay the bill for all that the banksters do for us.
Then--maybe--we'll be able to talk about food.
Unless we take these fuckers out, we're fucked.
[Citation needed]
Ah, the perfect economic armageddon storm: Europe, then China, then Japan.
Nuclear war wasn't the biggest threat after all... should have known the real threat was banksters all along.
Thomas Jefferson was right.
Sorry author, you totally discredited yourself a few days ago. You cannot be trusted. Period.
http://www.zerohedge.com/contributed/republicans-gingrich-only-choice ?
So someone fails to confirm your bias even one time and you banish them forever eh?
Good luck surviving genius.
Someone who calls Adolph Hitler a "libertarian" is either terminally insane, had a massive stroke that rendered them completely incapable of rational thought, or is an intentional blatant liar and intellectual fraud. In any of these cases, we cannot trust him any more.
Like many people noted, that is sad, because the guy did seem to be fairly knowledgeable on some topics. But it is what it is. Anyone who considers lying, elitist, fascist, war-monger predators to be "libertarians" cannot be trusted... ever.
Many things in reality and life are irreversible. For example, when you murder someone in cold blood for personal gain or dislike, you can never compensate the victims, and you can never be considered trustworthy again. The author murdered his own mind, reputation and trustworthiness.
that is pretty damning. how anyone could, at this date, admire newt is inexplicable. could there be anything to the idea of an accelerating chinese decline? possibly. newt? not happening.
ron paul '12. he may be old, he may be squirrelly. at this juncture he is our best hope for reform.
bushobama must not prevail.
How anyone could allow themselves admiration for any politician at this point is inexplicable.
It's the means by which our elections become popularity contests based on intensely marketed "personalities." The shit they say about positions on issues is mere filler . . . it's primarily about "Who's your Daddy?" As nice as it may feel to revisit those warm visions of childhood, I'm thinking it's time we collectively grew up as a species.
This would apply, of course, to our adulation for RP as the next and last Savior.
Eliminate Corporate Personhood. Implement direct representation as fully as possible.
When Ron comes out publicly for that, I'll be for--scratch that, vote for--RP.
Or anybody else who clearly lays out a credible plan for doing the job.
It won't be bushobama, of course.
I'm willing to bet that Ron Paul would come out against "corporate personhood" if he was aware of the issue. Maybe you should write a carefully worded letter to his campaign.
BTW, note that the problem is even worse than what you imply (that fictitious entities like "corporations" are given as many or more rights than individual human beings). What is worse is, the federal government of the USSA (and state and local governments as well) treat "individual human beings" as "persons", and "persons" are a type of corporation.
The entire artifice of "official fictions" must go, otherwise they'll just make up new fictions. There needs to be a constitutional ammendment that prohibits all fictions from acts, laws, statutes, regulations and all other government documents. Otherwise, there's no limit to the atrocities the predators-that-be and predator-class can practice.
Corporations work well to help small startups acquire funding, and protect smaller business owners. Unfortunately, corps get large they become a powerful force for the worst in human nature...
There has got to be a way to put a system in place that protects investors in startups (and small and medium business owners), facilitate the entrepreneurial spirit, and ends corporations.
If you want to define and understand that "corporation" is the same as "DBA" (doing business as), and the corporation has no status other than a partnership of real, individual human beings, that's fine. Otherwise "corporation" is nothing but an inherently fraudulant scam to allow predators to fleece and destroy producers. Note that the most fundamental law recognizes all organizations ("corporations", "government", "clubs", "societies", etc) as "fictitious entities"... which means they do not exist.
If a group of individuals wish to borrow money and operate a business (with a fully voluntary internal agreement between the partners stating how their activities work), that's fine. But in reality it remains nothing more than the real individuals and their voluntary agreement.
On that note, libertarianism works beautifully when it concerns its self with the rights and liberties of individual, natural persons. It runs off the rails when you concider the largest TBTF's as persons.
The reason why the owners of those companies disappear is because they fear being arrested for some trumped up charge (keep the workers working) and they run for home.
So it's kind of the opposite of the US where they don't disappear even in the face of real charges?
Just askin'
J. Corzine.
printing = bullion
I'm finally the first to post on an article. How exactly to play this shit and when? Long dated puts on FXI?
china is not the problem like people believe but in other ways. recient american social ideals are a much bigger problem.
http://expose2.wordpress.com
Averaging down on FXP during every Chinese easing announcement.
Just started doing the same last week.
Don't worry, it won't happen. EITHER China will deploy its reserves to support the domestic economy as necessary before the US has the chance to completely trash the Dollar, OR they will "Re-calculate" the data, a bit like the US CPI (Measure of inflation excluding everything that folks need like food and gas) and Employment data (The Birth/Death adjustment).
Bottom line, don't trust ANY Government anywhere to tell the truth.
Short glass, long iodine