According to the “experts” China’s booming economy will surpass that of the United States. Possibly, according to those same experts, by as soon as 2025. It’s a juggernaut that cannot be stopped.
Of course, there’s an alternate point of view that gets very little play in the media. And that point of view is that the Chinese economy is built on equal measures of high technology, cheap labor, smoke and mirrors.
CNBC exposes some of the cracks that are starting to appear in the facade:
China’s economy is showing real signs of weakening, particularly in real estate, and even could tip into a recession, hedge fund manager Jim Chanos told CNBC.Though the nation has been looked on as a key driver of global economic growth, Chanos for months has been sounding warning signals about China and the precarious nature of its economic surge. He said a recent visit by members of his investment team found a slowdown in housing sales as well as a decline in prices.
“The cracks are spreading in the facade,” he said. “You’re seeing real estate firms shutter, sales offices closed down. Some of the engine behind the boom is at least beginning to sputter.”
At least on the surface, the biggest perceived problem with China has been inflation.
The Chinese central bank has responded to overheating in its economy by raising interest rates four times since October 2010. Inflation has subsequently cooled, slowing to 5.3 percent in April, but the economy is still roaring with a 9.7 percent increase in gross domestic product for the first quarter.
The rate moves have raised questions about whether the government is going too far to slow things down, and whether the country can accomplish its desired transition from an export-driven economy to growth based more on internal consumption.
As Chanos, founder of Kynikos Associates, sees it, any appreciable slowdown could snowball quickly.
“A lot of people are willing to say China will slow down,” he said. “The really scary thing is if you do the numbers and they cut back on construction it’s not a slowdown, and they go negative real fast.”
He is among those who believe that measures to slow growth could backfire.
“The fact of the matter is if they hit the breaks really hard, the economy goes into reverse. It doesn’t slow,” Chanos said. “Nobody will say that publicly because it’s unbelievable. But it happens to be the way the numbers work.”
We’ve all seen videos and photos of the ghost cities that have sprung up around China – empty cities built to maintain full employment.
What happens if it’s true that the economic miracle really is smoke and mirrors?
Well, the Chinese are hip deep in piles of cheap Western – mostly American – money. As western economies begin to crumble and even China’s cheap manufactured items become too expensive, the Asian powerhouse could be in big trouble. Maybe even more trouble than the western economies.
Fact is, its domestic market isn’t robust enough to take up the slack. Not nearly robust enough. The government overlords can only keep the factories running, people employed and inventories piling up for so long.
At some point, even the Chinese must submit to the inexorable forces of supply and demand. Factories will be shuttered. Massive layoffs will ensue. Unrest will rise among millions of Chinese factory workers (nee peasants).
China will join the western world in total economic collapse. The only difference will be in the amount of blood shed in the aftermath.
Have a nice day.
Source: CNBC
{ 3 comments… read them below or add one }
China is not isolated from the rest of the world. But in terms of smoke and mirrors, she is nothing compared to the financial-derivatives uber polluted trans-atlantic system. China has made serious investments in the energy sector (nuclear plants and hydroelectric dams) and infrastructure. Of course a lot of its growth was caused by artificially devaluating their currency, thus their own economy didn’t and won’t assimilate all that growth. If the US will go down, it will start a chain reaction and no country will emerge victorious. Either every left sane sovereign nation state implements a type of Glass-Steagall reform, thus creating the basis for a new Bretton Woods system (fixed exchange rate system), with a NAWAPA transcontinental science-economic driver initiative, or the world will descend into hell. The europeans will have to abandon the Maastricht treaty if they want to create/form and move the necessary capital for their own revival.
PS: When I said left I meant it as in, every last sane sovereign nation state left. I was not referring to the ideological left.
@Serban Enache , You Are Wrong We are In Lot Of Trouble and you Know This , Starting In 2012 We will have Many Many Different Problems , We The Government Is Paying For All This Building , We Know Our Own Citizens Can’t Afford This Type Of Live Style , but we are building it Any way , we want to be like America and Europe but we will fail and it’s the sad truth , We China as a Country we have to copy everyone’s Stuff to get anywhere , But When we Do fall the Government Leaders will have enough American Money to move out of china and leave china for it’s self