Tuesday, June 19, 2012

Debate Over China's Economic Slowdown

Michael Pettis discusses the economic debate over China's slowdown, and the question of whether China's CCP government can pull the economy out of its decline. Pettis discusses some of the main problems with China's current policies of malinvestment and misallocation of resources.

Patrick Chovanec provides a wealth of links to articles on China's economic situation. This "links feature" from Patrick is turning into quite a treat. Using this information, a person can browse the data points and draw his own conclusions.

Coal stockpiles rise as economy dips

Watching the growing stockpiles of essential commodities is one way of monitoring economic progress. Another important checklist to update is overcapacity in manufacturing and real estate.

If Pettis is right, and China is being forced into another round of stimulatory infrastructure overbuild, we will need to be able to monitor the extent of this overcapacity.

China can easily prop up its near term GDP numbers at the cost of future stability. In the process, it can lend false hope to its commodities suppliers such as Brazil, Australia, and several S.E.A regional countries.

In the end, China will have to reform its corrupt and dysfunctional system of state owned banks and enterprises and crony government, or it will resort to escalating nationalistic xenophobia and war, or China will schism into antagonistic fragments.

The crisis point will likely occur sometime in the 2020s, within years of a similar crisis point in neighboring Russia.

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