Friday, August 04, 2006

China headed for economic crash?

aug 3rd, 2006

china's most recent quarter shows a growth rate of 11.3% or something like that. i was reading an issue of the economist (i think the one with 'globalization is dead' or something like that on the cover with a big beached ship as the picture) and this fact was mentioned no less than *four* times in that issue, in four different articles!

conclusion: the atlanticists are peeing in their pants about china's growth. for, apart from the increasing irrelevance of NATO and the EU, this also means that more and of america's attention will turn towards the pacific and asia. which means britain will soon cease to be even a blip on the world's radar screen. sorry, economist, sorry, john kerry, sorry new england, sorry limeys of the world!

to be a contrarian (which, come to think of it, i have been for a long time regarding china), as this writer is, red-hot growth simply means more and more unproductive investment into white elephants in china. more and more bad loans into manufacturing operations that should never have been built.

good. that means china's fall, when it comes, will be even bigger; and it will probably drag the us down with it. hurray for insularity. this is one reason it's good that india continues to avoid freeing the rupee altogether.

thanks to my good friend B for the pointer.

---------- Forwarded message ----------

From: B

China 's economy is out of control

China is growing so fast -- using cheap money to build steel mills, highways and textile factories it doesn't need – that the coming crash grows uglier by the day.

By Jim Jubak

http://articles.moneycentral.msn.com/Investing/JubaksJournal/China'sEconomyIsOutOfControl.aspx?page=all

 

In a train wreck, there comes the moment when it's no longer possible to avert disaster. Pull the brakes as hard as you can, the momentum of the train is so great that disaster is unavoidable.

I fear that China's economy passed that point of no return in the second quarter of 2006.

Today, I'm going to tell you why I think China's economy is headed for a train wreck. Not tomorrow, but in the reasonably near future. I'd say 2009.

And in my next column, I'll sketch out the likely effects of that train wreck on the rest of the global economy and the folks, like you and me, who invest in it.

If you've been following the debate in the U.S. about the likelihood that cheap money here has produced a bubble in housing prices, you're already familiar with the basic scenario for a train wreck in China. Cheap money makes it easy to borrow to buy assets. That produces an asset bubble -- in the United States, first in stocks and then in real estate. As the asset bubble grows, borrowers get in over their heads as their judgment is overwhelmed by the excitement of rising prices. And lenders under the influence of similar emotions make loans to unqualified borrowers.

When the asset bubble starts to deflate, overextended borrowers default on their loans, putting pressure on lenders, who respond by tightening their lending standards, reducing the amount of money available to all borrowers. That sends the economy into a slowdown or worse.

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