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Veteran Advisor

The future for China

As a new year aproaches many will try to look into the future so here is an article that will give everyone something else to consider.

Will China continue to gobble up commodities and what if they cut back, way back maybe? Read the whole article but here is a teaser......

Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.

The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows. Citigroup’s Minggao Shen said it now takes a rise of ¥1.84 in the M2 money supply to generate just one yuan of GDP growth, up from ¥1.30 earlier this decade.

The froth is going into property. Experts argue heatedly over whether or not China has managed to outdo America’s subprime bubble, or even match the Tokyo frenzy of late 1980s. The IMF straddles the two.

It concluded in a report last week that there was no nationwide bubble but that home prices in Shenzen, Shanghai, Beijing, and Nanjing seem "increasingly disconnected from fundamentals".

Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8182605/Chinas-credit-bubble-on-bo...

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15 Replies
Advisor

Re: The future for China

You know, we had better hope they have a handle on it.  If they crash, we are all in for a rough patch.

I read the abstract you posted here, but I am so damned sick of worrying about what the Chinese will or will not do.  What would happen if we just decided as a nation to start quietly rebuilding our manufacturing base?  What if we could buy some domestically-made shoes or underwear?  A printer cartridge or two, some cell phones...you know, start small and sneak it past them that we are making do without them? 

I think I lived forty years or more without thinking about China once, except for their food, and I did not eat any of that until I was nearly forty.  I may have been ignorant of them, but it was bliss....

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Veteran Advisor

Re: The future for China

There is a reason why manufacturing has moved out of the USA and Canada too. Atually there are several reasons but until those things change the economic reality is that China and a number of other countries can produce so many things cheaper than us.

Throwing up tariffs to change those factors is what many countries tried in the 1930ies and we all know how that worked out.

The whole world's economy is so linked, tied together and connected that we really are all in it together and I think that is the underlying concept of that article that China thought they were 'above' the economic downturn over the last couple years BUT the truth is finally coming to bear on them too.

Yes if they crash and burn we will all get scalded.

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Veteran Advisor

Re: The future for China

If one thinks they can move raw products 3/4 the around the world and back and "CONTINUE" to do it "CHEAPER"----run the transportation numbers----build enormous debt and credit multiples=====unsustainable 

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Advisor

Re: The future for China

I guess after I think about it that the rest of the world has gotten seriously fatigued with hearing about what the US wants, need and does, too.   I am not so much suggesting tariffs...just someone figure out a way to make something here, so we have a choice.

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Veteran Advisor

Re: The future for China


@k-289 wrote:

If one thinks they can move raw products 3/4 the around the world and back and "CONTINUE" to do it "CHEAPER"----run the transportation numbers----build enormous debt and credit multiples=====unsustainable 


We will find out as the future unfolds.

Cheap energy is an underlying factor in moving things around the world.

What might change if we actually paid the true value (whatever that really is) of burning/using up resources in a few decades that can never be replaced only over millions of years.

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Advisor

Re: The future for China

I have read where the American worker could work for free and it would still be cheaper for manufacturers to produce items in China due to the cost of doing business here.  Taxes, EPA requirements, lawsuits, utilities, etc.  Recently I bought new seed discs and no-till openers for my JD planter at a JD dealer.  They were made in Spain.  I would think the weight of items like this would make it cheaper to make them here but evidently it isn't.

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Veteran Advisor

Re: The future for China

A couple of decades ago the fear was Japan was going to financially  control everything in the US- world----didn't play out to well for them--example Toyota and their countries stagflation economy--  

Veteran Advisor

Re: The future for China


@k-289 wrote:

A couple of decades ago the fear was Japan was going to financially  control everything in the US- world----didn't play out to well for them--example Toyota and their countries stagflation economy--  


Good point k-289. I had forgotten about that.

Always seems to be a 'pebble' to trip on when it looks like a country is about to 'corner the market'.

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Advisor

Re: The future for China

Excellent post on Japan.  Just when it seems some thing is invincible or at the top of the game something happens to trip them up.  There's a lot of ground changing hands these days.  Almost reminds me of '79-'80..........

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