Tag Archives: Chinese economy

China’s Fatal Dilemma, by Charles Hugh Smith

Even quasi-effective policies in China to combat the coronavirus would enact a heavy economic toll. From Charles Hugh Smith at oftwominds.com:

Ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners.

China faces an inescapably fatal dilemma: to save its economy from collapse, China’s leadership must end the quarantines soon and declare China “safe for travel and open for business” to the rest of the world.

But since 5+ million people left Wuhan to go home for New Years, dispersing throughout China, the virus has likely spread to small cities, towns and remote villages with few if any coronavirus test kits and few medical facilities to administer the tests multiple times to confirm the diagnosis. (It can take multiple tests to confirm the diagnosis, as the first test can be positive and the second test negative.)

As a result, Chinese authorities cannot possibly know how many people already have the virus in small-town / rural China or how many asymptomatic carriers caught the virus from people who left Wuhan. They also cannot possibly know how many people with symptoms are avoiding the official dragnet by hiding at home.

No data doesn’t mean no virus.

If the virus has already been dispersed throughout China by asymptomatic carriers who left Wuhan without realizing they were infected with the pathogen, then regardless of whatever official assurances may be announced in the coming days/weeks, it won’t be safe for foreigners to travel in China nor will it be safe for Chinese workers to return to factories, markets, etc.

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A Decade Of… What Exactly? by Michael Every

Historians looking back on the decade now ending may well name it the decade of debt. From Michael Every at zerohedge.com:

Authored by Rabobank’s Michael Every

Summary

  • We are now close to the end of the year and the second decade of the 21st century
  • 2010-19 saw a marked difference between growth in developed and emerging markets – but both may be about to slow together
  • World Total Factor Productivity growth was virtually zero – and China’s performance crucial
  • 2010-19 was a decade of record high debt… following a global crisis created by too much debt
  • Absolute poverty levels continued to decline – yet there was increased in perceived insecurity and hardship in many developed markets
  • There was a major increase in global asset prices, especially of stocks and houses…
  • … and in inequality of wealth and income, even as gaps between states narrowed
  • Interest rates went up and then down again in developed markets, and bond yields fell to record lows; but emerging markets also saw rates and yields spike
  • The USD gained against most major FX crosses, and most so against struggling emerging markets
  • What do the 2020s hold for us if this was what the 2010s provided? China arguably holds the key on many fronts

A very mixed decade

We are now close to the end of the year and, given it is 2019, also of the second decade of the 21st century. That marks an opportune time to look backwards in order to then try to look forwards.

In many respects this has been a difficult decade – for example, what do we even refer to it as: “The twenty-tens” or “The twenty-teens”? Far more importantly, of course, the key developments seen over the last ten years present a very mixed picture. Some are certainly positive, and yet arguably more are deeply negative.

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New Reality of China’s Failing Economy Is Coming Soon, by James Rickards

James Rickards sees trouble ahead for the Chinese, and consequently for the global, economy. From Rickards at dailyreckoning.com:

I’ve written for years that Chinese economic development is partly real and partly smoke and mirrors, and that it’s critical for investors to separate one from the other to make any sense out of China and its impact on the world.

My longest piece on this topic was Chapter Four of my second book, The Death of Money (2014), but I’ve written much else besides, including many articles for my newsletters.

There’s no denying China’s remarkable economic progress over the past thirty years. Hundreds of millions have escaped poverty and found useful employment in manufacturing or services in the major cities.

Infrastructure gains have been historic, including some of the best trains in the world, state-of-the-art transportation hubs, cutting edge telecommunications systems, and a rapidly improving military.

Yet, that’s only half the story.

The other half is pure waste, fraud and theft. About 45% of Chinese GDP is in the category of “investment.” A developed economy GDP such as the U.S. is about 70% consumption and 20% investment.

There’s nothing wrong with 45% investment in a fast-growing developing economy assuming the investment is highly productive and intelligently allocated.

That’s not the case in China. At least half of the investment there is pure waste. It takes the form of “ghost cities” that are fully-built with skyscrapers, apartments, hotels, clubs, and transportation networks – and are completely empty.

This is not just western propaganda; I’ve seen the ghost cities first hand and walked around the empty offices and hotels.

Chinese officials try to defend the ghost cities by claiming they are built for the future. That’s nonsense. Modern construction is impressive, but it’s also high maintenance. Those shiny new buildings require occupants, rents and continual maintenance to remain shiny and functional. The ghost cities will be obsolete long before they are ever occupied.

Other examples of investment waste include over-the-top white elephant public structures such as train stations with marble facades, 128 escalators (mostly empty), 100-foot ceilings, digital advertising and few passengers. The list can be extended to include airports, canals, highways, and ports, some of which are needed and many of which are pure waste.

To continue reading: New Reality of China’s Failing Economy Is Coming Soon

Trade Is a Matter of Survival for China, by Jim Rickards

The impetus for everything the Chinese government does to “manage” the economy is political: keeping the Chinese government in power. From Jim Rickards at thedailyreckoning.com:

Many investors are familiar with the fact that President Franklin Roosevelt closed all of the banks in America and confiscated all of the privately-owned gold by executive order in the early days of his administration, which began in 1933.

Presidents since then have seized assets from countries such as Iran, Syria, North Korea and Cuba and imposed sanctions on Russia and many other countries by executive order.

Yet, relatively few are familiar with the statutory authority for these orders.

The president does not need an act of Congress to support such extreme actions. The laws have already been passed and the president has standing authority to act like a dictator with regard to financial assets.

The first such statue was the Trading With the Enemy Act of 1917, TWE. This was used to seize German assets in the U.S. during the First World War. It’s how the U.S. took control of Bayer Aspirin from the German firm Bayer AG.

TWE was the authority FDR used to close the banks and seize the gold. It’s not clear whom FDR considered the “enemy” when he used TWE; probably private gold hoarders. But, in 1977, the Congress enacted an even more extreme version of TWE called the International Emergency Economic Powers Act of 1977, or IEEPA.

This is the equivalent of a nuclear weapon when it comes to financial warfare.

IEEPA allows the president to seize or freeze any asset or block any transaction if the president deems it to be necessary in the case of a national emergency.

The problem is that “national emergency” can be defined broadly to include trade imbalances, lost jobs or any other economic adversity. President Trump may now use IEEPA to block a variety of Chinese deals in the U.S. in retaliation for Chinese theft of U.S. intellectual property.

With the U.S. using its nuclear option in financial warfare, investors should hope that the Chinese don’t respond in kind.

President Trump may not appreciate the extent to which China will go to protect its interests. Trade negotiations are not the art of the deal, as far as China is concerned. Their goal is national survival.

China’s economy is not just about providing jobs, goods and services that people want and need.

It is about regime survival for a Chinese Communist Party that faces an existential crisis if it fails to deliver. The overriding imperative of the Chinese leadership is to avoid societal unrest.

To continue reading: Trade Is a Matter of Survival for China

Chaos by Robert Gore

By Robert Gore

There is a law of inverse political thermodynamics. Above a certain threshold necessary to free a social system from chaos, over time the more energy expended to maintain order by a governing body, the less order there will be. Government efforts to promote order often cause disorder, and in extreme cases, chaos. If the spending of governments around the world is a proxy for the energy spent maintaining “order,” then never has so much been expended in pursuit of that elusive goal, to such little effect. Continue reading