There are many segments of the global economy that are inter-related, concerned with the strength of the Chinese economy. We do get weekly snippets of statistics which supposedly are an accurate portrayal of economic activity, but can we rely upon those numbers, and do they give us a complete picture?
So many economies depend on a vibrant and growing Chinese economy. Australia and Brazil are big suppliers of iron ore for the infrastructure in China. Brazil, Argentina and the US are suppliers of agricultural products. The employment of Chinese labor, moving from the farms to manufacturing in the cities, provides the developed world with cheaper manufactured products.
Europe, the largest destination for Chinese exports, is now suffering from a recession. As their exports slow, so will their trade surplus. This surplus has long been invested in US Treasuries. What happens if they no longer have money to finance the US trade deficit?
There is a comprehensive article in Barron's called Falling Star, which is a must-read for all traders. The article is lengthy, but the problems confronting the Chinese economy are complicated. Many of these issues are going to influence markets for years, even decades.
The Barron's article begins;
"The Chinese economy is slowing and is likely to slow a lot more. Get ready for a hard landing.
After three decades of annual growth averaging 10%, China's bullet-train economy is slowing markedly. Economic problems in Europe and the U.S. are stunting export growth, long the primary driver of China's economic miracle. Growth in industrial production has likewise been decelerating for months. This year growth in gross domestic product could slip to 8% - and it may get a lot worse from there. Though recently announced interest-rate cuts and a ramp-up in the government's already massive infrastructure spending could postpone the day of reckoning, to us it looks like the Great China Growth Story may be falling apart."
It looks like "irrational exuberance," to borrow a phrase from Alan Greenspan, has no boundaries.
Last edited by CashBackForex; 07-03-2012 at 08:59 AM.
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