Chinese Economy “Teetering On the Edge”

posted by Nima

September 27, 2011 · Posted in Global Economics 

From Bloomberg, On the Move in Asia:

Some posts I wrote before on China:

Rally in Chinese Stocks – Time to Kiss it Goodbye and Cash Out:

The truth is: There is no decoupling. The Chinese economic miracle is a mirage, a very popular one to be sure. If it is China the world is banking on to lead a recovery, then the world is royally screwed.

By the way, the Shanghai Composite index has fallen from around 3000 when I wrote that post to around 2390 now, a 20+% drop.

China’s Bubble Produces Empty (!!!) City:

China’s growth is a mirage, its bubble a monstrous one, its impending crash completely inevitable.

China will not be immune to this global slowdown, in fact it may be leading it.

Update: Another important post I wrote about the macro environment in China, in particular money supply:

The Chinese money supply figure that is closest to my True Money Supply in the US is M1 as reported by the People’s Bank of China:

china-money-supply

The money supply in China has easily tripled over the past 6 years.

And here is a comparison between the money supply growth rates in the US and China:

china-vs-usa-money-supply-growth

Money supply and credit supply have both been exploding in China, while money supply in the US has rather stagnated or at least grown a lot slower alongside contracting credit.

This is the main reason why I don’t think that the Yuan will remain strong against the US dollar for very long, and it is also why I don’t think the Chinese bubble can continue for much longer, but then … bubble often times last a lot longer than you’d expect.

The only way how the Yuan can maybe remain strong against the US$ for a sustained period of time, in my view, is if the PBC tries to cheapen the Dollar by selling reserves against Yuan, which in turn would exert an upward pressure toward exports from the US into China while having the adverse effect on Chinese exports, and thus hurt China’s politically powerful export lobby.

However, such a policy, too, would find its natural boundaries in the amount of Dollar reserves accumulated by the PBC.

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Comments

2 Responses to “Chinese Economy “Teetering On the Edge””

  1. Peter on September 27th, 2011 7:45 pm

    Always enjoy your commentary and attention to issues that should be obvious, but are often outside the scope of normal discourse, like this one.

  2. Nima on September 27th, 2011 8:26 pm

    Thanks, Peter, much appreciated.

    I also forgot one more link of something I wrote about China not too long ago:

    http://www.economicsjunkie.com/inflation-money-supply-in-china/

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