Can someone please explain to me the China collapse theory?
China has a severely undervalued currency, an established and powerful manufacturing base and a hoard of savings they’ve accumulated over the years.
America has a severely overvalued currency, a terrible manufacturing base and no savings.
How can they both crash? They can’t.
China can allow its currency to appreciate, can switch its manufacturing base to produce what its citizens need as quickly as demand falls from its exports targets and can liquidate their savings to finance any purchases they could possibly need.
If you enjoy the content at iBankCoin, please follow us on Twitter
Fear wins.
China depends on western demand. Without western demand, their factories will close. Once their factories close, their unemployment will SURGE.
The reserves will be used to buoy their domestic economy and whither away quickly. Why?
Because they are a house of cards and the avg annual salary is $6k.
If western demand crumbles, their factories will not go out of business. THey will be forced to allow their currency to appreciate, and quickly turn into producers of domestic needs, rather than foreign, while being able to purchase from abroad what they have to with a stronger currency.
I don’t think that if they face turmoil they will just coast through it, but I don’t think the same type of collapse exists in China that exists in America. Should the world be forced to reallocate resources and reshape domestic production, it is China where you’d want your money to be.
Do some googling. Factories are already closing. They can keep them open if they want, no one will buy their shit.
House of cards because the people are poor.
Factories can close now, sure. This isn’t a one time thing. Evolution of a manufacturing base takes time. take a look at how long it took Americas to fall down, as Education was subsidized and everyone thought their college degree made them “too smart” for factory work. Took 30 years, at least.
Your argument is that the entire world is falling apart, but wealth has to go somewhere.
Where would you like it? The best spot is China thanks to wonderful manufacturing capabilities, hoard of savings, quality education and a currency that will only appreciate.
@chive – It’s the currency peg to the US Dollar that gave them the advantage. That’s why they were loath to let the currency float. If they did the prices for their junk would go up as the Renminbi would soar in relation to the Dollar and the Euro.
It was totally NOT free trade, which gutted our manufacturing base. If their currency floated as it should in true free trade, the market would have taken away their advantage.
I’ll leave it for you to figure out why we never pushed the issue with them, as we should have if we really believed in free trade. We don’t. It’s a farce.
@chivo – Sorry on the fat finger. Have a nice weekend.
Chivo, the crux of your argument rests on China identifying their own economic demand, then flawlessly repositioning themselves to that end while also convincing their own populace to go along with it all and not making any missteps.
Who in China is going to execute that?
The beauty of Western demand for the Chinese, up until now, has been that it puts their citizens to work without them needing to plan or organize the effort.
The Chinese government cannot substitute the $1.5 trillion in organization that comes to their country every year in the form of export demands. They were having a time enough of putting everyone to work as it was.
I mean, really why don’t we just do that same suggestion here? Our manufacturing, despite the hype, is not that much worse off than China’s. According to U.N. statistics, we were still the largest global manufacturing as early as two years ago.
Take a good look at the numbers. The U.S., regardless of the politics, has consistently produced more than each subsequent decade, up until and including now.
We’ve been shedding manufacturing jobs, but our plants are increasingly automated and more efficient, so we produce more despite that.
We do have the manufacturing capability to do exactly what you’ve suggested, so why don’t we?
Oragnization is a bitch. How do you get all the groups to cooperate? The markets do this feet every day. Demand brings the parties together.
The crippling of the Western world will harm China very much because they have no internal mechanisms, other than some lame bureaucrats, to make it all happen. They need to get their own population into the capitalism game, but they probably won’t be able to do it fast enough.
You are making the error of transposing the notion of “hoard of savings” from the government to its citizens. Its people have nothing and in aggregate they generate very little GDP per capita. Additionally they have very little purchasing power parity with the rest of the world. Their currency is artificially low because it allows the rest of the world to decrease their COGS and overhead for manufacturing. Inflation runs rampant in China at >6% and is leading its entire population into a Malthusian trap, somewhat like London in the Victorian era. Shifting the entire global economy to a rising yuan will take time and will slowly reverse China’s trade surplus. You must also consider that credit in China is not all social. Private debtors who have little capital and purchase items on credit and suddenly cannot meet their obligations will depreciate the value of the assets they must liquidate. This follows the motions in America with housing. All things considered, slower growth in America and Europe will pinch any excess credit driven capacity created by the Chinese government or Chicoms when the utilization drops. With interest rates lifted by their government to curb consumer inflation, they are suffocating businesses’ operating needs (short term credit). If funding dries up and capital cannot be obtained with collateral held, a powerful liquidity event can occur.
Are we forgetting that China isn’t “capitalist”? I say that in quotations because in some ways they are more capitalist than us. But, organization should not be a problem for them at all — I mean, simply, they learn better than anyone and work harder than anyone. Should they be made aware of necessary changes, their population will not have a problem adapting. Moreover, I believe the difference in our manufacturing base and theirs is exactly why they CAN shift the target of their production. It’s simply people making different shit, whereas for us it’s years of innovative technology that more or less replaced the people. @yogi, I realize the RMB has been pegged to the USD, that’s why it is sorely undervalued, and that’s why it would benefit the citizens who in this situation would need to purchase some foreign goods.
I am talking about a specific scenario, one being put forth by Fly, that the entire world is falling apart. It’s agreed upon that it is shitty here in America and Europe, but Asia too? If the whole world isf alling apart, China is best situated to weather the storm.
chivo,mostly what everyone is saying, is that china will run out of steam, eventually,thus having to move to an inward expansion, via a consumer economy/service economy. those people are mostly all for one, and none for all type. being like a smidge of n.korea and the u.s. like.it wont work.after a while money usually runs out.
I’m still ruminating whether to convert mucho USDinero for China Renmibi Chivo; nowithstanding the tide “we” hear.
Ask Buffet or PimCo who their “advisors” were.
Nope. They: “were” and “are” and “will be.” Whoot!