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Here’s to Hoping on China ...

Discussion in 'The Economy' started by Tropo, 18th Feb, 2009.

  1. Tropo

    Tropo Well-Known Member

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    “Coffee leads men to trifle away their time, scald their chops, and spend their money, all for a little base, black, thick, nasty, bitter, stinking nauseous puddle water.”
    Anonymous

    Here’s to Hoping on China ...

    There was a story in Bloomberg last week regarding the potential for China’s economic recovery to have already begun. I believe the evidence rested simply on the effects of the Chinese’s stimulus plan.
    The thing is, even though the US is floundering over its stimulus package, possessing the ammunition and holding the economic vantage point apparently allows China’s government stimulus to rescue their economy within a few short months of its introduction.
    hrhrhhgghghghrrrbullcrapghghhrrrhhhgghrhhr ...
    (Sorry, that was a cough – I’m been feeling kind of under-the-weather the last two days.)

    China would be very happy to know that their spending efforts on railways and residential homes since November have sparked recovery. But I have a feeling they’re not banking on such sage advice.
    China’s economy is set to grow 6.6% in the second quarter of this year. Flip that number upside down and you have China’s recent pace of growth not long ago (9.9%).
    While 6.6% is better than the 6.3% that China is expect to do in the first quarter, we have to wonder if 6.6% can sustain social and economic stability in China.
    I would say it’s going to be a very tough task. Was it not just the middle of last year that analysts expected China’s growth rate could drop to as far as 8% without shaking up the economy? Now that we’ve broken down through that threshold, where are all the China bears?

    Well, right here in Currency Currents is where major China bears reside!
    Our guess is that Chinese GDP growth has now crossed down below urban unemployment rate—and that gap is widening fast! It’s bad news for guys that like stability.
    The “China way” is about to get slammed we think. And on that score—emerging markets get slammed and money runs more quickly into the good old reserve currency—the lowly dollar.

    No matter your story it seems Bloomberg’s going to have some place for you to hang your hat; ours is on the bear post. Today a story popped up regarding the surging cost of shipping. The conclusion drawn from the 147% jump in shipping prices (Baltic Dry index) is supportive of China’s export economy and those economies exporting to China. More evidence pointing toward China’s recovery, right?
    The other conclusion drawn from the Baltic Dry Index’s recent climb is that currencies of commodity-exporting countries will be supported as well. The correlation between shipping costs and ComDols -- specifically the Australian dollar, Norwegian krone and Canadian dollar, as it was noted in the article -- has grown tight over the last year.
    It was also said that the Baltic Dry Index was a good leading indicator for commodity prices; and that currency traders were increasingly using it as an indicator for ComDols. Seems they may have abandoned it ...
    But the ComDols mentioned in the article have each “tanked” since the turn of the year ...
    I guess the question is: who’s leading and who’s following now?
    Key lows are waiting in the wings. Can commodity prices rebound in time to stop the currency bleeding?
    China better get on the stick if they’re going to save Norway, Canada and Australia.

    Regards,
    John Ross Crooks, III LLC
     
  2. Mindmaster

    Mindmaster Member

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    The outlook for China is not that good

    -unemployment has increased dramatically in the last 6 months and the official statistics don't show this. Millions of migrant workers were retrenched after the national new year holiday

    -the economy is export driven. When the economies of majory trading parters go down, the Chinese economy is also pulled down

    -In a recent speech, the PLA was reminded to be loyal to the central government. Why? Because the central government expects trouble? Why? Because increased unemployment and job insecurity, growing gap between the rich and poor and an increase in poverty in general
     
  3. Chris C

    Chris C Well-Known Member

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    LOL - I don't know why people are keep going on about how there'll be a social unrest/revolution in China... If I was running the US I'd definitely be feeling a little hot around the collar.

    There are a LOT of Americans with guns. The right to bare arms was written into their constitutions for the very situation where those in power abuse their power at the expense of the people.

    So how is America with its massive amounts of unemployment, little social welfare, corrupt government and gun loving nation not more likely to incur civil unrest. The only thing the US has going for it is popular TV programming like the biggest loser, american idol and big brother.

    If I was a terrorist I'd hit America where it hurt - it's broadcasting stations! With no TV and media propaganda America would be forced to ask itself a couple of deep questions about how they got to where they are... that to me would be scary.

    On the other hand all China need to do to stop the social unrest is remove the internet filters so their population can get some news on how bad the rest of the world as most countries race each other to bankruptcy.
     
  4. Chris C

    Chris C Well-Known Member

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    Double post...
     
  5. Mindmaster

    Mindmaster Member

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    Chris you have a number of good ponits.

    The thing with China that does not often appear in foreign media is the number of riots and uprest that is continuously occuring all over the country and particularly in the poorer areas.

    I'm not talking about in Tibet and western Sichuan during the Olympics. I mean much lower key stuff that is happening all the time. Once unemployment bites and migrant workers stay at home with no form of income, protest and civil unrest will get worse. If it snow balls and becomes self sustaining???

    Also look at China's history. EVERY revolution began with low key wide spread civil unrest during economic down turn.
     
  6. Billv

    Billv Getting there

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    Not a chance.
    The Chinese government will crash any move of unrest and as we've seen in the past they are not afraid to use weapons.

    Killings and abuses of human rights are not uncommon in China but as you know China is too big and too important to the west so western government will close their eyes to any excessive use of force just like they've done in the past.

    It's sad really, but that's life.
     
  7. Chris C

    Chris C Well-Known Member

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    The problem the Chinese government has is that not enough of its population owns TV's so they can bombard them with suppressive propaganda like the US government and corporations do. So I suppose that increases the likelihood of civil unrest.

    :D
     
  8. bubblebobble

    bubblebobble Member

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    I believe the reason many expect unrest in China is for the same reason that we saw it in Indonesia when their economy turned down. Indeed the CCP has warned of the danger themselves. As long as people felt their lives were getting better they accepted the lack of political freedom but when the economy turned down that was the end of Suharto. The government admitted to 70 000 protests in 2007 and that was when the economy was growing at close to 13%. In the US people at least feel like they have some avenues to express frustration but that is not the case in China. In addition, the increased wealth of recent years has been very unevenly spread. The vast majority of Chinese are still poor farmers.

    I lived in China on and off for four years between 2001 and 2007, can speak and read Chinese and believe me, there is plenty shown on the news about problems in other countries (despite 50+ TV stations they all show the same authorised news program). Almost everything said about China though implies that things are great. The Internet is very popular but more for playing computer games and chatting than seeking out news.

    As I understand it the Chinese report an annualised GDP figure, and some are suggesting that their last quarter was already negative. The government statistics are notoriously unreliable so economists tend to look to proxies such as power generation to get a good idea of growth. I believe there was a severe contraction in this area in the second half of 2008.

    There is already massive overcapacity in industrial production and construction yet the stimulus package apparently still targets this area, rather than doing much to boost consumption. This despite stated aims of replacing external demand with internal demand. Well in a country with expensive housing relative to incomes, where many cannot even afford to go to primary school, no free health care and little to no pension to speak of it is going to be a big ask to get the Chinese people to change their frugal habits. Consider how low their GDP per capita is and I think it's extremely unlikely they can recover until their export markets do. And if they direct their reserves at domestic use who will finance the ever increasing budget and trade deficits in the US, which is the reason the US could consume so much in the first place?

    For an interesting take on excess construction in Beijing check out the following article by Peking University professor Michael Pettis:
    RGE - Chinese real estate is in the headlines again