The Coming China Collapse: Economic, Political Or Both?
Even with this enormous credit expansion, recent estimates (.pdf) still place the number of Chinese living on less than $2 per day at approximately 480 million, over a third of the entire population. The credit push has lead China to consume more than half of the world's cement, 47% of the world's coal and 48% of all iron ore. This, for a country whose GDP is just 10.7% of the entire global economy and hundreds of millions wallow in poverty.
Sustaining the credit expansion in an attempt to prevent a recession has built the world's largest house of cards. Estimates have put the number of vacant apartments built as high as 64 million. Entire ghost cities have been constructed and sit virtually empty. The homes are simply unaffordable. The average Beijing citizen's entire annual income would purchase just 10 square feet of residential property. In the commercial sector, China holds the record for the world's largest shopping mall. Currently it is 98% vacant.
China's real estate bubble, one of the few remaining, is losing air at an astonishing speed. In just the past few weeks, hundreds of real estate brokerages have shuttered and thousands of workers have been laid off. The private SouFun Group in Beijing announced that the number of transactions fell by more than half in six of the 35 cities it surveyed just this month compared to last year. At least some declines were seen in 80% of the cities it surveyed.
Fear of punishment kept a lid on public protests in China for decades. However, a recent wave of protests might be enough to foment into an unstoppable movement. In August, an estimated 12,000 people gathered in Dalian demanding the closure of a chemical plant. In a defeat for the government, the protests ultimately succeeded and authorities announced the plant would be closed. That protest and victory by civilians was just one recent example. While Beijing still has success stifling news of dissent and protests from reaching the outside world, the sheer numbers have been overwhelming. According to Sun Liping, a professor at Tsinghua University, as many as 180,000 separate protests and other unrest occurred in China last year. That is nearly 500 for each and every day of the year.
Beijing has been forced to close off sources of easy credit to keep inflation from running rampant. The tightening brings copper to a tipping point where massive business defaults could occur, pushing prices even lower. In turn, the slowing of China's real estate market could be pushed into a freefall that makes the rest of the world's problems look miniscule. Pile all of those potential economic disasters on a poor and angry populace seeing success in fighting government for the first time in decades and the outcome will be anything but stable. In fact, China may not be the largest country on the planet for many more years. What was once called China could be dozens of smaller states fighting for the scraps left after the fall of Beijing.
I shudder to think of the economic consequences to European and American countries if the scenario plays out.
Economic Trouble in the West Shows Signs of Catching Up With Asia
HONG KONG — Asia’s ability to stay resilient amid the West’s economic troubles is slowly waning.
For much of this year, the economies of the Asia-Pacific region appeared to be blissfully isolated from the turmoil in other parts of the world. Asian stock markets fell along with those in the rest of the world, but the region’s economies continued to power ahead.
Within the last few weeks, however, cracks have emerged in the region’s mighty economies, and analysts and policy makers have become more concerned about the painful disruption that could spill into Asia as the situation in Europe continues to deteriorate and the United States’ growth remains subdued.
Exports from Asia have been softening for months as demand in Europe, in particular, has slowed. Although many countries depend less on exports than they once did, the sector remains crucial for economies like those of Taiwan and South Korea and for the small, open economies of Hong Kong and Singapore, economists say.
“The potential risks for Asia have increased” as the European crisis has moved beyond small peripheral economies like Greece, enveloping larger countries like Italy, Spain and even France, said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.
China won't save us – safeguard your wealth now
Thank goodness for China.
The US is going nowhere. Europe's heading back into recession. But China should be able to keep global growth going.
And even if China suffers a few bumps along the road, it's the superpower of the future. So best invest in it now.
At least, that's the story the bulls are sticking to.
Sadly, it isn't likely to work out that way. With China now facing some huge problems, the country is a long way from being a 'safe haven' for investors.
Let me explain why – and then we'll take a look at where you should really be looking to invest your money in these uncertain times.
China PMI Falls for First Time Since 2009
China’s manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed.
The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said in a statement today. The median estimate in a Bloomberg News survey of 18 economists was 49.8. A level above 50 indicates expansion.
The central bank last night announced the first cut in banks’ reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europe’s sovereign-debt crisis. The move will add about 370 billion yuan ($58 billion) to the financial system and more reductions may follow as the government seeks to support growth, Citigroup Inc. said
Today’s report “clearly adds to the urgency for easing,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The PMI is showing weakness across the board and this would seem to be the reason the government cut banks’ reserve requirements. If this trend continues we should see another cut pretty soon.”