I’ll admit my knowledge is a little vague, and based only on reports in The Economist, but the Chinese economy is based on massive monetary and credit expansion by the government and central bank.
Many of their businesses are showing massive inefficiencies and wastefulness in use of their resources, be them financial or technical, and reports are there of how miners taking the coal up to the factories are being told not to bring in too much coal, and even then they have too much of it. All their resources are being wastefully used; they are diseconomising, not economising. And all these businesses have no accountability to public shareholders, as government is often a majority stake in them, and they neither declare dividends, nor make new investments from internally generated capital, as they keep borrowing more and more, and the banks keep giving more and more.
If past information on all previous business cycles are indication, increased availability of credit leads to businesses recklessly borrowing more and more, sometimes just for the sake of it, and putting it into increasingly speculative ventures, and just to quickly cut the long story short, it ends in one business shutting down after another, once they fail to meet any demand, and the entire economy comes into recession.
One of the world’s most successful shortsellers is calling China a bubble. The Economist is also becoming increasingly bearish about them. While reports keep coming in of soaring Chinese economy, more and more bearish people are calling it a bust.
So what does Mises Institute think? IS China on the verge of a recession? Wouldn’t that have terrible implications for all those of us who import from them? Would it end up just like Japan did and go into a similarly long period of deflation?
I have seen the exact same thing be done by Indian government officials and central bankers who are blaming instability and inflation on too much foreign investment, while it really is Indian central banking policy which is pushing inflation higher and higher, as many businesses just keep borrowing more and more recklessly.
One Indian company Suzlon went into deep losses after years of profits solely because all their growth was because of reckless borrowing from here and there. A lot of Indian businesses keep doing this; they really are just funding their growth from increased borrowing.
I feel increasingly upset that the cycles of boom and bust created by these central banking institutions all over the world will never end as long as they exist and as long they wash their hands off all the crises they keep creating. How many more people have to be thrown into poverty and joblessness just out of the whims of people in these monopolistic government institutions who have no accountability for their actions? It never ends.
That people from all sides of various economic spectrum are calling China a bust only means that this is not a foregone conclusion, but only simple logic. VERY tragic.
The Economist crams all possible perspectives into all of its articles, arguing for all of them simultaneously, and this is how it has worked since past history. Therefore, they always manage to have some prediction that manages to be correct, simply because they included it alongside all others. So that’s that for track records, Marko.
So back to the topic I was making: this rag has still managed to point out so heavily often that China is doomed, even when it has to qualify its own perspectives with all possible contrary opinions. But it’s not just The Economist. It’s everybody:
I know it’s not consensus which is highly valued among thinking people. But understanding of business cycles and results of central banking policies so clearly point to incoming Chinese doom and destruction. All that validates it further is the fact that it’s not just you who has reached the conclusion. Everything I have heard about Chinese economy, their banking system which throws away enormous amounts of money to their large enterprises, so it can continue seeming like the glorious rising power that it wants to be, are just a sign of what is going to go terribly wrong with this country.
This is all going to be Japan 2.0. It’s the expansion pack to Dubai. It is the spinoff series to the American financial crises. Only, it’s going to be the most massive fall on an entire economic system we have seen in a long long time. And we all are going to suffer from it across the world.
I don’t think consensus is valued by thinking people at all. It is the non-thinking people who value the accepted wisdom. The thinking people can make their own conclusions.
I know there are many who are pointing to China as a bubble, but do these people understand the ATBC? Do they know economics? Are they the people who were warning u about the bubble in the US and are now warning us about the danger to the destruction of the dollar or are they the people who were hailing Greenspan as a genius and spurred on the US bubble?
Now I am willing to subscribe to what they are saying even if the latter is the truth if they can explain to me why what they saying is true. I do not see any of that. I see many people making this assertion, but I do not see anyone explaining why this assertion is correct. Anecdotal evidence of empty real-estate is not enough when your claim is that China = bubble. It is decent evidence that there is a real estate bubble in China. But that is not even close to saying that the Chinese economy in general is a house of cards.
The Chinese are harming themselves in many ways, the dollar peg, high inflation, giant public works and now possibly also a credit driven boom. All ways of throwing money away. But none of this need be enough to bring ruination of the type seen in the US. The real estate bubble was dramatic in the US because once it burst the people saw that was all they had had. Once possible bubbles in China pop they will presumably still have a good business climate to move a factory to and make all the made in China stuff lying around my home.
There is a simple way to tell if China is in a bubble: what is the ratio of bank loans to GDP in China? Compare this with bank loans to GDP in the USA and Europe, and you get your answer.
But think about it from the point of view of the average Chinese person.
That China exports goods to you only means that you benefit. People’s wealth is in available goods and services, not in terms of paper money. The average Chinese person is much poorer than the average American, and if the credit driven boom eventually results in downsizing of Chinese corporations, there will be so many Chinese without jobs and so many who will be even poorer. And they are already living on far less.
Yes, China will still be producing goods for the entire world. Export driven economy will still keep China a good place to do business. But in a Chinese environment, the result on people’s lives will be dramatic. Even if it doesn’t take away all they had, it will take away a lot. In real terms, your average American still lives an infinitely more luxurious life than your average Chinese, even after the recession.
Besides, China is a large nation. As a collective whole, it will always seem prosperous. But in different parts of it, a different story would be told, with a few factories closing down in some regions with devastating effect, and so on.