Hidden Threats Behind Fantastic Figures

Discussion in 'Economics' started by Yin Wang, May 10, 2007.

  1. Yin Wang

    Yin Wang

    9% annual economic growth rate for nearly a decade in China, is it fantastic and amazing? Sure, it is. But wait a moment, have you ever spared a minute to meditate: is it just a one-sided story?

    My intuition denied it. Facts show the strong economic growth of China mainly originates from two forces, exports and investments, both of which constitute the substantial double-surplus (surplus in current account and capital account), thus breaking the record of US$ 1 trillion in its foreign currency reserve. But it is not always that good as it seems. One major problem in the current Chinese financial market is too much liquidity. Huge amounts of international speculative capitals have been pouring in to seek higher returns, which sources from the probable appreciation of RMB as well as the booming economy (with a high marginal return). Therefore a monetary crisis is possible now if China opens its financial sector fully at a time. Recall the economic history of Japan in 1980s, after Plaza Accord, Yen soared to a peak high, accompanied by the recession of Japanese economy.

    Moreover, taking an in-depth look at what¡¯s going on behind the magnificent figures, you¡¯ll find that China is conducting losing business. For every dollar invested in China, the return rate is over 22%, while that of U.S. T-note is just 3%, which constitutes the major part of the portfolio of Chinese foreign currency reserve. Hence it is quite clear China is borrowing money at a much higher price than they lend. Fortunately, the government has noticed this and is planning to establish a special investment fund to earn more profit.

    Crises crouch underneath the fantastic prosperity.

    Australian Financial Review
  2. Rocko1


    Don't forget the bad debts and unsold inventory piling up though counted as GDP.
  3. Outstanding post, Yin Wang.

    This is why many money managers and investors won't touch Chinese stocks with a 10 foot pole - lack of transparency.

    The SSEI is like looking into a funhouse mirror. Distortions everywhere.

    When that sucker crashes, which will be soon, it is going to bankrupt a lot of Chinese.
  4. What baffles me is how they come up with a 50% savings rate if everyone is putting even their rent and tuition money into the stock market?

    How can that be true if the stock market is not considered savings?

    Also, don't they have income taxes? Taxes here are almost 50% when you include Fed, SS, Medi, and State. Here, since 401k isn't considered saving either, thats another 5%. It makes no sense that someone could save 50% and pay 50% tax, and live on absolutely nothing, and still have money to invest in the stock market.

    Something is wrong with my assumptions or wrong with the numbers, IMO.
  5. if China doesn't chip in to buy treasuries, US rates rise and chokes off consumption.... something China can't handle is a slowing of exports......

    China understands very well that econonmic stress leads to political upheaval and the distress of 1989 can't be repeated......

    it is a parasitic relationship that will end at some point, and political stress cracks are appearing....

    something that worldwide stock markets are beginning to notice.........
  6. Another outstanding post.

    China is subsidizing low interest rates in the U.S. (so is Japan) by buying reams of our government debt at less than stellar yield.

    They know they need the American consumer ...

    ... for now.

    What happens when the American consumer loses their luster?