Special report: China's debt pileup raises risk of hard landing

[Thump553]

Good article, PJ, it's nice to see you reference in something other than the usual partisan opinion piece or poll.

The whole idea of shadow banking was news to me-it's amazing that an economy as regulated as Red China's allows that to exist.

I also caution against drawing a parallel to Japan of the 80's and 90's though, they are completely different situations.

As for jobs coming back to the US from China-don't hold your breath as to this being anything more than a token. As costs in Japan rise, industry will seek cheaper countries-like Vietnam, Malaysia, India, etc. Heck if Africa ever got it's act together regarding corruption and social stability it could even be there (China is investing billions in Africa now). And even if some jobs come back we still have the problem of all the stolen intellectual property and manufacturing techniques that are pirated by China and used in competition against us.

 

[Infohawk]

Cliffs:

China's more fucked than we are.

China's current debt won't seem as big if they keep growing, which is much faster than we can grow.

As for jobs coming back to the US from China-don't hold your breath as to this being anything more than a token. As costs in Japan rise, industry will seek cheaper countries-like Vietnam, Malaysia, India, etc. Heck if Africa ever got it's act together regarding corruption and social stability it could even be there (China is investing billions in Africa now). And even if some jobs come back we still have the problem of all the stolen intellectual property and manufacturing techniques that are pirated by China and used in competition against us.

Yeah, this is the main problem with this argument. It's not like China has the only poor workers in the world. One advantage they do has is a strong central government that can make it easier for business if they want to. But otherwise there are other countries that can do the same thing China is doing.

 

[LegendKiller]

True, but those factors have been in place for years. Why should the value suddenly decrease?

It's not "suddenly" per se, it's been sneaking up for a long time, but with the more recent Yuan revaluation plus surging inflation, it's been sneaking up very quickly.

 

[Atreus21]

It's not "suddenly" per se, it's been sneaking up for a long time, but with the more recent Yuan revaluation plus surging inflation, it's been sneaking up very quickly.

Hasn't Bernanke been using inflation to try to bring about this exact scenario? I remember something about that.

 

[momeNt]

Hasn't Bernanke been using inflation to try to bring about this exact scenario? I remember something about that.

In a way yes, with the USA being an economy that countries seek to dump their surpluses, the USA is able to export inflation. China has tried to combat this by pegging to the USD to keep their economy growing. This tactic is beginning to fail as inflation in China has forced them to loosen the peg and will eventually force them to have their currency raise in value enough that the trade deficit shrinks to zero.

 

[LegendKiller]

Hasn't Bernanke been using inflation to try to bring about this exact scenario? I remember something about that.

I do believe that QE is intended to be a multi-purpose vehicle.

1. Reduced government debt costs.

2. Reduce other debt costs.

3. Through reduced debt costs (gov't and private) encourage debt spending AND increase excess funds through reduced debt expense.

4. Expand monetary base which requires China to expand the Yuan by roughly 6:1, all of it being domestic holdings of Yuan created through credit and/or profits.

5. Drive FDI into China and the creation massive influxes of "hot money", which, if unsterilized, drives further inflation.

There are others too.

Overall, 3/4/5 results in huge amounts of inflation in China which can only be balanced through Yuan appreciation but China cannot do that since it would destroy the manufacturing value proposition, destroying their growth.

 

[Atreus21]

I do believe that QE is intended to be a multi-purpose vehicle.

1. Reduced government debt costs.

2. Reduce other debt costs.

3. Through reduced debt costs (gov't and private) encourage debt spending AND increase excess funds through reduced debt expense.

4. Expand monetary base which requires China to expand the Yuan by roughly 6:1, all of it being domestic holdings of Yuan created through credit and/or profits.

5. Drive FDI into China and the creation massive influxes of "hot money", which, if unsterilized, drives further inflation.

There are others too.

Overall, 3/4/5 results in huge amounts of inflation in China which can only be balanced through Yuan appreciation but China cannot do that since it would destroy the manufacturing value proposition, destroying their growth.

huh. And I thought all this time China's undoing would be their social/population problems.

 

[LegendKiller]

huh. And I thought all this time China's undoing would be their social/population problems.

Ohhh, there's certainly that. I'm only discussing the financial side. The whole population engineering they've had going on is a whole other ball of wax that I haven't studied too much.

 

[crashtestdummy]

huh. And I thought all this time China's undoing would be their social/population problems.

Those have been kept quiet because the economy is growing so quickly. Nearly all the Chinese citizens I've talked to (all graduate students/post docs studying in America, to take it for what it's worth) have told me that nobody likes the government, and that once the economy falters, the government will come tumbling down.

 

[ShawnD1]

This is also true, but doesn't for me constitute the answer. There are growing alternatives to (increasingly less) cheap Chinese labor in Vietnam and India. Why would they come back to America?

Considering how bad ATPN is, it may shock you to learn that Americans are significantly less retarded than most other people in the world. Americans can follow simple instructions, read, write, and describe things using proper terms like "trapezoid."

 

[IronWing]

Americans can follow simple instructions, read, write, and describe things using proper terms like "trapezoid."

Killing trapezoids is worth 50 points in Doom. Sneaky bastards.

 

[blackangst1]

Originally Posted by blackangst1
Cliffs:

China's more fucked than we are.

China's current debt won't seem as big if they keep growing, which is much faster than we can grow.

Sure, if China's growth continues as it has (which it isnt), and its debt growth slows (which it isnt). Gogle "China's growing debt" and "China's slowing growth" if you want links.