China ….. The Slow-Motion Train Wreck

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I really wish I had more time for this stuff.  But, in terms of world events and economy, this is something which people should note.  News from China continues to worsen, as I’ve repeatedly stated it would.  I’m sad about this, but, it was/is inevitable.  Soon, they’ll be at a crossroad, and the path they choose will cause, not ripples, but, huge waves around the world. 

Here’s the latest news from China ….

China’s trade shrinks in sign of economic weakness

BEIJING (AP) — China’s trade contracted in March by an unexpectedly wide margin, adding to expectations that Beijing will launch new stimulus to shore up weakening growth in the world’s second-largest economy.

Exports fell 15 percent compared with a year earlier to $144.6 billion following a 20.5 percent contraction the previous month, customs data showed Monday. Imports declined 12.7 percent to $141.5 billion.

The decline fueled fears that economic growth in the first three months of this year, due to be reported this week, fell further after declining to 7.3 percent in the final quarter of 2015.

The weakness “represents not only monthly volatility but also further weakness in foreign trade, adding uncertainties to economic recovery,” Citigroup economist Minggao Shen said in a report.

The economy has cooled steadily as communist leaders try to steer China to more sustainable growth based on domestic consumption and reduce reliance on trade and investment. Last year’s full-year growth of 7.4 percent was the lowest in two decades.

The decline has deepened since mid-2014, feeding concern that growth might be falling too sharply and raising the risk of politically dangerous job losses.

To spur growth, Beijing has cut interest rates twice since November. China’s top economic official, Premier Li Keqiang, said in March that Beijing might intervene to stimulate growth if employment weakens too much.

Also in March, the central bank governor, Zhou Xiaochuan, said economic growth had fallen “too sharply.” He said inflation has fallen so low that the country should be alert to the possibility of deflation, or a damaging overall decline in prices.

Total imports and exports in the first three months of the year fell 6.3 percent from a year earlier, making it unlikely China can meet the Communist Party’s official target of 6 percent growth for the year.

That “dismal performance” increases the chances Beijing might roll out more help for Chinese exporters following the announcement of export rebates in March, economist Brian Jackson of IHS Global Insight said in a report.

The problem is, China never got there.  Sure, it’s the 2nd largest economy in the world, but, they have 3-4 times more people than the largest economy.  Sadly, they seem to have embraced Keynesian economics …. that would be the same economic model which has taken Europe to where they are today, and where the US is heading.  I say sadly because if/when China’s economy stalls, the odds of very bad things happening go up exponentially. 

A few things to note: 

China has always over-inflated their numbers.  If the communist party dictates your numbers will be X,Y, or Z, then that’s what you’ll report.  It’s changed somewhat, recently, mostly because they’ve a huge amount of foreign investors.  Some of the bean counters have a thing for actual numbers. 

Look at the import/export numbers.  They both went down significantly, and the margin between being an export vs import nation has considerably shrank compared to where it was just a few years ago. 

You can never spend yourself to wealth.  

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7 Responses to China ….. The Slow-Motion Train Wreck

  1. Latitude says:

    It’s changed somewhat, recently, ………………The decline has deepened since mid-2014

    It’s like selling widgets to Cuba…..

  2. leftinflagstaff says:

    There’s always selling nukes to Tehran. And/or the means to deliver them.

  3. DirkH says:

    Wait a moment.
    First of all, the VALUE of the Chinese exports has NOT diminished, as the USD (and with it the Yuan) have SURGED.

    Now why has it surged? There’s a kind of virial theorem in the market – there is no such thing as a free lunch. So, when everyone rushes to one side of the boat, there NEEDS to be punishment.

    What did people do? EVERYONE went into a ZIRP induced carry trade – borrowing interest free Dollars and buying treasuries, stocks and NYC appartments with it (or your own stocks, as IBM etc did). And they all profited handsomely, or so it seemed, until the inevitable reaction occurs – and it must be, that in the absence of interest payments, the only punishment can be that the VALUE of your debt (and the USA’s public debt) RISES by a surging value of the currency.

    So congrats! Your interest-free debt has risen by20+% in value! While the value of China Inc’s HOLDINGS has risen by 20+% in value as well!

    AND: this seems to have more knock-on effects: Credit application rejections have surged the most ever with the rise of the USD!

    from
    http://www.zerohedge.com/news/2015-04-13/unseen-recession-shocker-crushing-economy-revealed-credit-rejections-soar-most-ever

    See, the post Lehman spike in credit application rejections also coincided with a surging USD. The USD is in short supply because too many players now hold on to it. So they won’t loan it to ya.

    Can we say liquidity crisis in the CONUS? Yes we can! Not only China will QE – the Fed will as well in 3..2..1.. ! And with it goes any semblance of the USA not being the Greater Zimbabwe.

    • suyts says:

      Oh, I’ve no doubt the US is fixing to have some serious problems, once again, but, that’s not the point. While, yes, the Yuan has surged along with the USD, I’m not sure it surged as much as the the 20-15% decline in it’s exports month to year like it has the last two months. Further, look at the narrow trade balance they now have. They’re one hiccup away (QE) from being an import nation, rather than and export nation. And, still, their response is going to be exactly like the westerns world’s response …. QE.

      • DirkH says:

        They could alternatively decouple the Yuan from the surging USD.

        Becoming a nation with a balanced trade would not be catastrophic. China was self-sufficient for a thousand years, til the Brits forced the opening of the ports – for their drug trade.

      • suyts says:

        Dirk, I’ve think they’ve gone too far for that. And, I don’t believe they’ll have even a balanced trade in 3 years. Even though most Chinese are still poor by our standards, they’re extremely wealthy by other Asian nation standards. Why would I open a plant in China when I could cut my payroll in half if I opened it up in Malaysia??

        China is going the way of Japan ….. except much faster.

        Decoupling from the USD won’t matter a bit. The only reason the Yuan and the USD is surging is because of the flailing of the Euro, Russia’s low oil prices, and Brazil’s socialists. Well, Japan, as well. For the currency traders, there’s no where else to go … this is why the dollar is surging, and why the Yuan is surging. It isn’t because the traders believe everything is roses in the US and China. It’s just that it’s not as bad as the rest of the places.

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