China is the next crisis, not the future
Posted on 07 October 2009 with no comments from readers
It is a fundamental error on the part of most global economists to assume that Chinese hegemony is somehow guaranteed. A similar error was made about the might of Japan in the 1980s.
Which country in the world has suffered the biggest loss of business from the most profound collapse of global trade since the 1930s? Probably Japan, but followed closely by its smaller neighbor China.
China crisis
Which country has taken the most desperate measures to bail out and stimulate its economy? Not the United States, actually by far the biggest stimulus has been in China with roughly half of total GDP injected into the economy in the first half of 2009.
This has created a massive bubble in Chinese stocks and especially property. It has been necessary due to a 25 per cent collapse in exports which account for 40 per cent of GDP. If you are the most export dependent economy in the Great Recession how can you possibly emerge as a winner? It defies common sense.
The Chinese bubbles are the next crisis waiting to happen, just like the Japanese stock market and real estate burst and condemned that nation to 20 years in oblivion. China might be able to pick itself up again.
But the capitalist cycles of emerging markets are vicious, merciless and very deep. Anybody buying into the Chinese bubble needs their head testing. The brighter Chinese are buying gold and silver as the asset bubble scares them stiff, and of course diversification is always wise for the wealthy.
How long will it take before this bubble bursts? That is always a difficult question, and riding a boom upwards can be highly profitable.
China correction coming
However, when over-blown developed stock markets finally correct back to something more appropriate for the true economic outlook then it might be reasonable to expect an overcorrection in emerging markets.
Perhaps China will experience the kind of stock market meltdown seen in the Gulf States in 2006 and a real estate implosion to match. But investors in China should beware the investment cycle of an emerging market, especially one where economic fundamentals have been so sharply reversed.
Would you make an investment now that depended on the recovery of the US consumer? For that is what you do if you put money into China now.
no Comments posted by readers:
Good point, Peter.
The entire world seems to be focused on the imminent fall of the USD; perhaps that’s because the world knows about all the economic problems within the USA. Dollar devaluation will certainly happen over time, albeit a “continuous erosion over time”, rather than a precipitous drop, in my opinion.
The economic situation in China, in Japan, and in the UK are more severe than that in the USA, yet no one seems to be writing commentaries on their massive problems.
China is a autocratic capitalist- think an unlisted country as opposed to the “transparency” of a listed country…for all their faults. The info is managed,manipulated and massaged all all levels to protect the party and the wealthy elite – often the same thing.
Buy FXP and hang on tight!
may bounce along the bottom for a little while but these things go parabolic when it hits the fan!
In response to Obewon..
That is because all commentaries are censored these days unless they are out of that country that they are writing about. You will notice that no one does much writing about the country that they are in but instead write about others.