Chitchat Will China implode in 2017?

[kryonlight]

China’s plans to lead the global economy are being foiled by… China

America’s traditional stewardship of the global economy is in limbo. As president-elect Donald Trump sees it, the United States’ role in the world isn’t necessarily to lead it. Sure, the US will still engage with other countries—but only in line with Trump’s guiding principle of “America First.”

History warns that when the leader of the global order withdraws as Trump is suggesting, disaster follows. As economic historian Charles Kindleberger argued long ago, the Great Depression was “so wide, so deep, and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it.”

The US eventually stepped up, leading the global economy through decades of brisk growth. And now China is signaling that it’s keen to move into any vacuum that America might leave. China is already a regional superpower; since Trump’s victory China president Xi Jinping has positioned his country as a champion of global free trade.

But closer examination of China’s finances suggests that any ambitions to assume a US-like stabilizing role in the global economy will be harder to fulfill than its leaders—and indeed most people—realize.

The core problem for China lies with how it differs now from the economy of the US during the mid-20th century. It’s similar in running enormous trade surpluses, the flip-side of which means lending its extra earnings through foreign investment. But whereas American investment benefited the world economy, on balance, China’s pattern of investment has eroded global demand—hurting in particular those countries to which it lends. Its precarious growth strategy has also burdened China’s banking system with debt now worth an alarming 250% of its GDP.

Through global interconnections, China shares its dangerous imbalances with the world—a quandary that illustrates exactly why rules of trade and capital flows should be rewritten. But in an era in which Chinese mercantilism has whipped up Trump protectionism, that hope grows increasingly dim.

 

[kryonlight]

The case for the new Chinese century

The US government has long used free-trade pacts—guaranteeing access to America’s 300 million consumers—to reward other countries’ cooperation with its geostrategic aims. In Trump’s view, this “globalist” policy is the crux of America’s problems. He has already vowed to ditch the Trans-Pacific Partnership, president Barack Obama’s signature multilateral trade pact. He talks about trade barriers—most infamously, the 45% tariff he has threatened to slap on Chinese imports—as both a cudgel and a solution to US joblessness. To lead his newly created National Trade Council, Trump tapped an economist known for his belief that raising tariffs and rewriting trade agreements are central to America’s economic rebirth, to bringing low-skill manufacturing operations back home. Trump criticizes the World Trade Organization and the US’s multilateral trade agreements as rigged, and threatens to run roughshod over those agreements by retaliating against what he sees as mercantilism by China, the euro zone, and Japan (among others), according to the Trump Economic Plan (pdf).

Amid this, China sure seems like a shoo-in to assume the US economic mantle. Already the world’s biggest trading nation, China is neck and neck with the US as the largest economy, in purchasing-power terms. Including Hong Kong, China roughly ties Japan as the world’s biggest creditor to other nations. (The US is its biggest debtor.)

The recent rollout of the Asian Infrastructure Investment Bank and the One Belt, One Road regional economic development plan burnished its regional leadership. Its global aspirations are apparent in China’s unexpectedly bold leadership on climate, its frenzy of bilateral trade deals, and its dogged campaign to get the yuan included in the International Monetary Fund’s reserve currency basket.

In the last month, Xi and other Chinese leaders have jetted around the planet calling for stronger global governance and praising multilateralism. “We should deepen and expand cooperation in our region,” he told the Asia-Pacific Economic Cooperation forum in Lima, Peru a few weeks ago. “Any attempt to undercut or exclude each other must be rejected.”

Expect similar soundbites from Xi in Davos next month, the first time a Chinese president and head of the Chinese Communist Party will attend the World Economic Forum’s annual gathering of corporate and political leaders. China, as one former high-ranking official put it, is on a crusade to “make globalization great again.”

 

[kryonlight]

The great US-Britain switch

At least one China-watching economist is skeptical. Michael Pettis, a finance professor at Peking University, often turns to history for clues to present-day puzzles. And it’s pretty clear that the place to start looking is the last time rapid globalization hit a wall: with the outbreak of World War I, in 1914.

The last globalization heyday was similar to the current one, as radical technological innovations—notably in steamships, railroads, and the telegraph—started in the 19th century to deepen crossborder trade and investment ties. Britain sat at the center of global finance, trade, and investment for more than a century. The outbreak of WWI, and the series of calamities that followed, not only upended British dominion—it also shattered the liberal world order that many at the time had assumed spread peace as well as prosperity. After the 1929 stock market crash hit, major world economies devolved into trade war, causing the nasty, global post-crash banking crisis to metastasize into the Great Depression. Then, of course, came World War II.

Somewhere amid those decades of chaos and devastation, America emerged as the dominant world power. Its ascendancy made sense. The US surpassed Britain in its share of global output (pdf, p.6) in 1913, seizing the title of world’s top exporter (pdf, p.52) less than a decade later. By WWI, it had also become the planet’s biggest creditor.

These two facts aren’t coincidence. When a country exports more than it imports, the surplus in income from trade often flows to other countries as foreign investment. When other countries need that investment to propel their economies, this natural flow of funds is great for everybody—like in the early 20th century, for instance.

“The Great War accelerated US economic growth, along with the excess of American savings over investment, so that it began the 1920s with a huge savings imbalance, like that of China today,” Pettis writes in a blog post.

The US’s European allies needed that money to fund their war efforts. Afterward, American investment financed their reconstruction. This happened again in WW2’s aftermath, as the US took income that could have been spent domestically and shifted it overseas, investing in rebuilding Europe and Japan. In return, the US enjoyed both high yields on the money it lent and those countries’ increased demand for US goods as their economies recovered. As the US finally accepted its dual role as the engine and bankroller of global growth, it also assumed a leadership over the world’s global trade and financial order.

 

[kryonlight]

Good savings glut, bad savings glut

For the last few decades, China has built up huge savings surpluses like the US had nearly a century earlier. Does that signal that it’s now China’s turn to lead the global trading regime?

Probably not. In the postwar years, capital was scarce, and the US’s low unemployment rate meant there was little room left to invest productively in the American economy. America instead supplied its excess savings to countries whose factories had been razed and needed rebuilding.

Even when there’s no postwar reconstruction to fund, this is how things should work in a balanced global economy, says Dean Baker, economist and founder of the Center for Economic and Policy Research. Slower-growing countries should invest their excess savings in faster-growing poorer countries. Financing infrastructure and manufacturing in underdeveloped nations boosts productivity and raises their citizens’ standards of living—expanding global demand by more than if that savings were spent or invested domestically by mature economies.

These days there’s too much capital to go around—which is what former US Federal Reserve chair Ben Bernanke dubbed the “savings glut.” But the bigger problem is that this capital hasn’t been spent wisely. Instead of flowing to the poor countries that need the investment, much of it has gone into US government bonds. And though it’s not the world’s only chronically over-saving country, China is by far the biggest. Why has a relatively poor country been investing like crazy in low-yielding Treasurys issued by the US government? The answer happens to be the secret to the Chinese growth model.

 

[kryonlight]

Making a miracle

The US savings glut in the early 20th century came from the excess income generated by its ultra-fast growth. China’s results from its growth model.

This isn’t, as is widely assumed, an “export-driven” approach. Instead, China has relied on investment to fuel its rapid expansion. The money to finance this strategy came primarily from ratcheting up the country’s savings rate—the income not spent by households (as consumption) or businesses (as investment).

The Chinese government has kept interest rates on savings deposits artificially low, while simultaneously barring households and most companies from moving money out of the country. With no reliable option but to keep their earnings in Chinese state-run banks, savers supplied banks with a plentiful pool of virtually free money to loan out for investing in domestic infrastructure and factories—a surefire way to produce eye-popping GDP growth. Though these policies have lost their effectiveness in the last few years, the savings rate still hasn’t fallen much.

Until very recently, China’s central bank also prevented the Chinese yuan from appreciating against the dollar as much as it should. This makes Chinese exports cheaper for buyers abroad, while increasing the relative price of imports for Chinese consumers.

China’s internal imbalances have thrown the global economy out of whack too. Its strategy of spurring growth by boosting its citizens’ savings rate—which, again, is the same as suppressing consumption—means Chinese state-run banks persistently amass even more funds than they can lend or invest domestically. The central bank has for more than a decade invested those excess savings abroad, which drives up the relative value of those countries’ currencies against the yuan.

Normally, exchange rates would eventually balance things out. For instance, to buy Chinese goods and invest in its enterprises, traders and foreign investors buy yuan, selling their dollars (and other foreign currencies) in return. This surging demand for the yuan should drive up the currency’s value against those of its trade partners, making China’s exports pricier and, conversely, its imports cheaper. If Chinese households bought more (now relatively cheaper) foreign goods, the trade surplus would shrink.

But the Chinese government interfered with this natural adjustment process by keeping the yuan’s value against the dollar artificially low. To do this, China’s central bank (via its state-owned banking system) made Chinese exporters exchange the dollars they earned for yuan, giving them more yuan per dollar than they would have gotten on a free market. By paying more yuan than each dollar was worth, the central bank essentially subsidized exporters and foreign investors.

This exchange rate manipulation swelled China’s foreign exchange reserves to a grotesquely huge $4 trillion at their peak, with most of those dollars invested in US government bonds. China kept buying US debt due neither to investment savvy or generosity, but to suppress domestic consumption—reflected in its increased net exports—in order to keep investment powering its growth.

 

[kryonlight]

The dangers of zero-sum surpluses

What does this have to do with China’s case for leading the global trade regime? Its mercantilist model—with its reliance on trade surpluses—doesn’t jibe with the collectively beneficial trade system that the world needs. It also is incompatible with fostering global prosperity. Chinese household consumption—a force of demand that should be powering the global economy—still generates what is among the smallest shares of a national GDP ever recorded.

In fairness to China, it has shrunk its surplus from 10% of GDP in 2007 to around 3% in 2015, notes CEPR’s Baker. But while China is certainly not the only country propping up growth by relying on other countries’ demand, it’s by far the biggest.In a savings-glut world, even a small surplus run by a country of China’s size requires imposing massive deficits—and the debt and unemployment that come with them—on other trading partners. And that’s not exactly a winning quality in a global trade regime leader.

China could change its growth model to winnow down its export surpluses. In fact, in many ways, it has. The government has given up most of its old methods of suppressing household consumption. An explosion of shadow banking in the last seven years has granted citizens fairer returns on their savings, undermining the government’s interest-rate repression. And in the last two years, as the economy slowed, people have been spiriting their money out of China, driving down the yuan’s value. Nowadays, the central bank is selling off its dollar reserves in order to keep the yuan stable, not buying Treasurys like it used to.

Still, China’s trade surplus has persisted, a sign that increasing household demand for imports will require more government effort than simply winding down old policies. As Pettis argues, the chief challenge is shifting wealth from the state and corporate sectors to households—a transition that’s proving politically difficult. Letting investment drop, making more wealth available to households, would drag down GDP growth, causing mass layoffs and the related threat to Communist party legitimacy. Plus, the diminished international stature that might accompany slower growth seems unlikely to suit Xi’s nationalistic zeal.

There’s an even bigger hurdle, though: China’s enormous debt burden.

 

[kryonlight]

China’s debt-management secret weapon

Incentivizing workers to subsidize companies by oversaving has “fueled what will one day probably be seen as the largest investment misallocation spree in history,” says Pettis.

Cheap money invites wasteful investments, and as Chinese economic growth inevitably slowed, its companies took out more loans to pay off old ones. This has gone on for long enough that China’s debt is now equal (by a conservative estimate) to 250% of its GDP—among the highest debt-to-GDP ratios anywhere on the planet. Its non-financial private sector is now using around one-fifth of its income to pay off debt, according to the Bank for International Settlements.

Because investments in its businesses aren’t generating the return they should in the form of increased output, China must borrow ever-rising sums in order to hit the government’s target GDP growth of 6.7% annually. With outstanding debt already totaling around 250% of GDP, reaching that target, by Pettis’ calculations, now requires adding between 40% and 45% of GDP to that amount each year. That amounts to roughly $5 trillion in the last year or so.

Whereas its surplus used to create the engine of investment-fueled growth, China’s surplus has now become a crucial “debt-management tool,” he says, funding economic activity that would otherwise have to be paid for with loans.

The more income from its trade surplus China brings in, the less it has to borrow to reach the government growth target. Raising its trade surplus by one percent of GDP keeps it from having to take on between 10% and 15% of GDP more in loans, calculates Pettis. With China’s pile of debt now at a level that’s perilously close to a financial crisis—that offsetting surplus income counts for a lot. And if the government is to restructure the economy so that it averts financial fiasco, that trade surplus “provides the country’s leaders with crucial breathing space” to do so, says Pettis.

A good chunk of that breathing space comes from the huge trade surplus China runs with the US right now. If Trump keeps his word and raises trade barriers, China will have a hard time hitting its 6.7% GDP growth target. If Pettis is right, that means it will either have to bump up its borrowing to even more extreme levels, or find another country on which to foist the goods it currently sells to the US.

 

[kryonlight]

Left leaderless?

The result of all of this is that China’s need to maintain its trade surplus will likely have more of a role in dictating how states cooperate on trade and capital rules than Xi’s grand “free trade” rhetoric. Even to those uncomfortable with a giant authoritarian country assuming leadership of the global economy, this shouldn’t necessarily come as good news. Without a superpower to manage a global system of rules, the “modern world economy falls apart occasionally,” argue economists Peter Temin and David Vines.

“A hegemonic country has the power to help countries cooperate with one another for the maintenance and, when needed, the restoration of prosperity,” they write in The Leaderless Economy. “When no country can or will act as hegemon, a world crisis erupts.”

Trump’s promised retreat, China’s ambitions, and the reasons why it probably can’t fulfill them—it all suggests the unnerving possibility that this eruption is already underway.

 

[tanwahtiu]

Trumpet need a Palmerston syndrome to smash the celestial kingdom China with gunboats diplomacy and also force China to open opium trade. Then if Trumpet not happy continue a new opium trade war no. 3 with China. Then send China poor again for 150 years.

 

[tanwahtiu]

Drug money is easy money to make and Make UArseA great again in double quick time. UArseA history already proven drug money made UArseA great in the 1800s.

No choice must do criminal biz to enrich themselves quicker at the expense of Greater East Celestial Middle kingdom China.

 

[frenchbriefs]

i dont understand how u lead the global economy,i know u can engage in economic activity with another country like china is doing with 130 countries in the world.but lead?if the global economy was under american stewardship for the past seventy years they must be doing a terrible job since there are so many poor 3rd world destitute countries before China came along and started investing and developing them.i dont recall USA ever doing jackshit except send planes and tanks to invade and bomb other countries for the past 40 years.not warships and planes bearing gifts and money and bulldozers.

 

[tanwahtiu]

Spot on bro.

British empire America spent 52% of their time engaged in military wars with one nation after another.

Until the Chinese went to one after another African States to build roads and housings for the Africans they see improvement in their quality lifestyle.

Now the African Unions want to interconnect among states with high speed rails using Chinese bullet train rails. How wonderful to see them process under the celestial Kingdom China.

The white only want to provide shit aid where every 1 dollar they give take back 80 cents. no progress under white shitskin.

Singapore Chinese community of 300,000 population under British empire were drug with opium monopoly which is a sad Singapore history and under the carpet under PAP.

PAP still loved white lancheow and sucking all their sperms.




http://www.druglibrary.org/schaffer/history/om/om4.htm

Coming fresh from a tour of the opium-dens of Singapore, I must say that item caused some mental confusion. It must also be confusing to the Chinese. It must be very perplexing to a Chinese sailor, who arrives in Liverpool on a ship from Singapore, to find such a variation in customs. To come from a part of the British Empire where opium smoking is freely encouraged, to Great Britain itself where such practices are not tolerated. He must ask himself, why it is that the white race is so sedulously protected from such vices, while the subject races are so eagerly encouraged. It may occur to him that the white race is valuable and must be preserved, and that subject races are not worth protecting. This double standard of international justice he must find disturbing. It would seem, at first glance, as if subject races were fair game-if there is money in it. Subject races, dependents, who have no vote, no share in the government and who are powerless to protect themselves-fair game for exploitation.

i dont understand how u lead the global economy,i know u can engage in economic activity with another country like china is doing with 130 countries in the world.but lead?if the global economy was under american stewardship for the past seventy years they must be doing a terrible job since there are so many poor 3rd world destitute countries before China came along and started investing and developing them.i dont recall USA ever doing jackshit except send planes and tanks to invade and bomb other countries for the past 40 years.not warships and planes bearing gifts and money and bulldozers.

 

[kryonlight]

Until the Chinese went to one after another African States to build roads and housings for the Africans they see improvement in their quality lifestyle.

Now the African Unions want to interconnect among states with high speed rails using Chinese bullet train rails. How wonderful to see them process under the celestial Kingdom China.

The negative effects of so-called Chinese "investments" in Africa is starting to unravel.

We can’t let China destroy Nigeria’s economy - President of Manufacturing Association

“The problem with the textile industry in this country is the stiff competition they are getting from Asia, notably China. In fact some of our fabrics are taken to China, massed produced and brought back to us at a lower rate. That made the products of textile industry uncompetitive. If government can come up with the right policy to check our borders and make sure that these smuggled goods are not allowed into the country, I think those industries can be resuscitated.”

“We cannot continue to import fabrics where in this country we have material that we can turn into fabrics. We cannot allow the Asian countries, especially China, to destroy the economy of Nigeria.

Kenyan rail workers are protesting against their Chinese employer

According to workers and locals, the jobs haven’t appeared, or at least not enough of them. On Aug. 2, residents of Kenya’s southwestern Narok county stormed a construction site of the project’s contractor, China Road and Bridge Corporation (CRBC), attacking Chinese workers with clubs and knives and chanting “haki yetu” (“our rights”). Fourteen injured Chinese staff were sent to a nearby hospital, according to local media.

The demonstrators, mostly from Kenya’s pastoralist Masai tribe, say they were promised jobs as plant operators and drivers. “But the job opportunities we have been given are negligible,” one protester told a local television station.

 

[frenchbriefs]

The Africans love Chinese fabrics and shoes,in fact they love everything made in China because it is cheap and affordable and has given them access to a far greater range of goods and wares and greater standard of living before than was possible before China came along.there are tons of African businessmen and shopkeepers now selling tons of Chinese stuff on the streets,China has given them greater opportunities for commerce and business than before.do u want all these to disappear and Africans to live in communist like lives simply because a few dinosauric industries are unable to compete and keep a few workers employed?

 

[Pinkieslut]

Implode? Tell you which cuntry in Asia to worry first:

Sinkieland and Japan.

Why you think Abe so gancheong? Abenomics has collapsed with government doing negative interest rates as a way to steal money from the savers to fund the zombie companies and also feed enormous population of old dying people (who don't die).

Anyone who has real working experience with Japan corporate will tell you their dynamism are all dead. So call work long hours are more like wayang wayang in some outmoded culture.

Go google. A recent nuclear plant project by Toshiba in China has collapsed due to poor project management, leading the collapsed share prices of Toshiba. Remember Ah Tiong very smart, give such strategic projects to Nippon enemies as bargaining chip. So that can squeeze their Balls later. Same with US and Europe. China is now at least among the top 3 markets for many of their high technology, consumer and farming products.

Why you think the very street smart Duetre jump ship?

The bloody brainless angmo Gao and their spgs economist make claims ah Tiong got same problems with Japan. Remember about this- Japan is a totally closed up market whose ecomomic growth was based on ridiculously favorable trade conditions set up by US to make it a super power in order to control Asia during Cold War. Now all those conditions are gone and Japan do not not have any extraordinary special technology which has advantage. Just look at the almost complete collapse of their electronics industry Kenna swamped by Korea and now China.

Ah Tiong has a very serious problem with the super over inflated property market. However it has still millions of peasants to urbanize and it can easily nip those it's internal debt by loosening 1-child policy and print more money. Japan do not have that option. When the bubble explode in late 80s, Japan is already a full urbanized highly advanced materialistic society.

Do you know many Ah things are settling in Africa in another new wave? Many went there as engineers or workers for Ah Tiong infrastructure projects. Coming from the poorest Ah Tiong provinces, they saw many opportunities in the resource rich not so crowded Africa. Many are doing trade business (selling China goods or exporting African resource) marry African Chiobu, including beauty queens. Some African towns and villages have appointed them in tribal committees. They are like the Ah Tiong ancestors of Siam Chinese and Peranakans. I can imagine Ah Tiong culture will influence Africans in another 2-3 generations.

However if you switch on angmo Gao media like CNN or BBC they will continue harp about Ah Tiong exploitation and local Africans boh song.

I seen such double standards at play during the 1998 Indon riots where the same media kept harping about 'ethnic Chinese own 90% of economy'.

 

[winnipegjets]

China will control Asia. Period.

It can still grow without exporting to US. Can US grow without exports?

 

[tanwahtiu]

China need to built the Kra shipping road to render Singapore useless in 2025.

If All Asians countries chip in to fund this Kra project will benefit the sea routes to the West in 2050 once the costs is recovered.

Remember the early 1600s when the West dominates Asia and colonize SEA which can block China only shipping route to pass this narrow strip to the West.

The White Peril to the East.


You hv British empire taking Singapore and Malaysia, the Dutch colonize Indonesia, Spanish colonized Phillipine. And further north the French occupied Vietnam.
Then you hv the fucking Japs in the North siding the drug trafficker angmoh British empire. Futher down south Australia under British empire.

Then British colonized India also can stop and block Chinese gunboats in Indian oceans when Chinese gunboats crossing there. Then further West the British occupied the tip of Africa further blocked Chinese opium Buddha TeaClippers ships, to start the Yellow Peril to the West, and Chinese gunboats at the turning point.

From the opening of Kra canal Singapore is finish and let's see the ex-colonial master drug trafficker angmoh will leave Singapore too.

The celestial kingdom China is back in business the return of Ming Dynasty.


God bless China.

China will control Asia. Period.

It can still grow without exporting to US. Can US grow without exports?

 

[tanwahtiu]

Yellow Peril:

a highly offensive term referring to the perceived threat to Western nations posed by the nations of East Asia, especially China.


https://www.bing.com/search?q=yello...*Vu5U*OPD55kTX9wuyuIGBb!LtofjoiWgMeJa1iY6lcOc

fucking angmoh stopped short of explaining the reason of Yellow Peril to the West. Their shameless history of humiliating China with forced opium trade at China door step created the White Peril to China and Asia.

 

[kryonlight]

China's Currency And Economy Are Imploding

A little over six months ago the owners of the Baha Mar, a $3.5 billion Bahamian resort, filed for bankruptcy. Shoddy construction from the China State Construction Company led to delays resulting from leaking plumbing, porous Chinese concrete and large cracks at critical stress points. The doomed project even led to the death of two Chinese workers. Although the building is 97% complete, the structural deficiencies make it uninhabitable. Given the Chinese proclivity to build ghost towns, it makes you wonder if their construction crews are accustomed to erecting buildings that are never intended to be occupied.

The Bahamian Baha Mar can now join the Hall of Shame of Chinese exports that include cancer causing laminate flooring, noxious drywall and exploding hover boards…just to name a few. As if they don’t have enough vacant edifices of their own, one has to also wonder if the Sino Scam artists in Beijing have now resorted to exporting empty cities.

But perhaps the most troubling export from China has yet to come. It is the financial crisis that will unravel with the unwinding of the country’s $30 trillion credit bubble. At the World Economic Forum in Davos, Harvard professor Ken Rogoff described China’s credit bubble as the “Last big domino to fall as the global debt super cycle unwinds.”

Professor Rogoff believes the stated 1.5 percent rate of non-performing loans held by banks is just as fictitious as China’s inflated GDP data. He considers the real figure to be between 6 and 8 percent.

The growth of China’s bad loans is troubling; they have risen by 256 percent in the past six years, even as the ratio to total lending has dropped. The actual amount of delinquent debt is unknown because banks conceal bad loans by rolling them over. But the problem is that the credit in China is now growing much faster than the economy.

Therefore, it doesn’t appear that China will be growing out of their bad debt anytime soon but will instead be headed for a crash landing. January exports fell by 11.2 percent year over year and imports were down a whopping 18.8 percent. In fact, Chinese imports have now plunged for 15 months in a row.

The slowing economy is making it harder to sustain surging debt levels. According to Bridge Water Capital, it now takes four yuan of extra debt to generate a single yuan of economic growth; that ratio was almost one to one a decade ago.

The China Bulls would gladly tell you that the nation has unlimited room for error thanks to its enormous cash reserves. While these reserves are still impressive, they are shrinking at an alarming rate. A year and a half ago China held as much as $4 trillion in foreign exchange reserves. Those foreign reserves have dropped by $700bn to $3.3 trillion, as capital flight overwhelms the inflows from the country's trade surplus. And more than a third of the shrinkage has been in the last three months, prompting speculation about how much longer Beijing will be able to mitigate the fall in the value of the yuan.

With debt growing at a rapid pace, it is uncertain if China's banks are healthy enough to handle a new wave of defaults. And because of the smaller pool of reserves, their leaders have less room to manage currency depreciation.

None of this is lost on the megalomaniacs who mismanage the Chinese economy. However, in the government’s typical short-sighted fashion, instead of curbing lending and asking banks to write off bad credit, they are reducing the ratio of provisions that banks must set aside for non-performing loans. And has recently cut the Reserve Requirement Ratio for banks for the fifth time in the past 12 months. This latest reduction was by 50 basis points, to 17%.

After all, one way to keep the ratio of nonperforming loans under control is to increase the number of loans outstanding (the denominator in the ratio); and then hope that the new loan creation will steadily outpace the number of new non-performing loans. In the short term the scheme is working to force banks to push more debt on the debt-saturated economy. China's new yuan loans jumped to a record 2.51 trillion yuan in January significantly surpassing the 1.9 trillion median estimate of Bloomberg News. Aggregate financing, the most comprehensive measure of new credit, also rose to a record 3.42 trillion yuan.

In fact, the number of troubled loans in China ($645 billion) has already risen to a greater level than the entire sub-prime mortgage market ($600 billion) back in 2006.

Eventually, the despots in Beijing will lose control of their banking system and exchange rate, causing capital to flee at a pace that is beyond the ability of their currency reserves. While significant capital reserves may afford them a few more months at the helm of their currency; it is only a matter of time before their entire economy is exposed to be as hollow as their vacant cities and the communist house of cards collapses.

But this isn’t just a Chinese problem. Global government suppression of interest rates, along with massive new debt issuance just for the sake of hitting centrally-directed growth targets has resulted in unproductive and unsustainable GDP growth--and an unprecedented misallocation of capital. This, along with a humongous debt overhang that cannot be serviced at a free-market interest rate, has virtually guaranteed to produce a global recession of historic proportions…one in which governments have largely become impotent to rectify.

 

[virus]

China will control Asia. Period.

It can still grow without exporting to US. Can US grow without exports?

china belongs to taiwan.