is china on the edge??

China is in trouble. The economy and the financial markets there appear to be not just overheating but entirely unsustainable. China’s economic figures are also so dodgy that the majority provinces are reporting above-average growth … Beijing has, meanwhile, responded with a propaganda campaign including these gems: ‘I’m proud to be a brick in the statistical building of the republic’, and ‘I can rearrange the stars in the sky because I have statistics’. If that’s not an indicator to Sell we don’t know what is. Either way, Andy Xie, the former star China analyst from Morgan Stanley, predicts that China’s bubble will burst in the fourth quarter and the results could be likened to the Asian Financial Crisis in 1997. And that’s not all: China’s US dollar reserves are keeping America’s currency (and economy) from hyperinflation. The consequences of a major shift could be devastating. And on that topic, today’s graph and video should give further food for thought.


The trouble with China … “Although they remain bullish on long-run prospects, two veteran optimists on China recently turned pessimistic on the country’s short-term prospects. One is investing legend Jim Rogers. With the Shanghai Stock Exchange Composite Index having doubled since the low of last fall, he told a reporter in July he hasn’t bought any Chinese stocks in months because the market has gotten ahead of itself. The other is Stephen Roach, chairman of Morgan Stanley Asia … expressing concerns about the unbalanced growth sparked by China’s massive stimulus package. Roach says the government’s spending package on infrastructure accounts for nearly 90% of Chinese GDP growth in 2009. Unless private sector investment and personal consumption step up, there is a risk of GDP growth faltering. Also, bank lending is beginning to look bubble-like. Urged on by government officials last fall, the credit expansion over the first half of 2009 is now proceeding at record levels (three times the rate of last year) … [And] little is being done to address the accumulating side-effects of China’s strategy of promoting exports by suppressing its currency – which requires purchasing US dollars and other currencies. This has led to a growing mountain of foreign exchange reserves, as highlighted by the $US178 billion jump in the second quarter to $US2.1 trillion. To buy up US dollars and other currencies, Chinese officials have to print up a lot of renminbi. The longer the currency suppression goes on, the harder it gets to keep the printed money from over-inflating the domestic money supply. Breakingviews.com columnist Ian Campbell reports that the Chinese money supply is currently expanding at annual rates of 25% or more. This may offset the impact of the world recession for the moment but the typical result is the creation of unsustainable bubbles, as appears to be happening now in the Chinese real estate and stock markets.” (Canadian Business Online, August 4)

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