China: Liquidity and Other Economic Issues

Been reading about China recently. A little hard to put everything together. Not very forthcoming. And most reports tend to be rather topical. And I don’t want to bore you with a long list of references. So… I’ll just give one….

http://www.reuters.com/article/2014/01/06/us-china-economy-shadow-banking-idUSBREA0503T20140106

Bottom line? China has liquidity issues. And Trust issues. And… just like Americans and Europeans… a lot of greed….

And all of those issues could erupt into a veritable Supervolcano of World Economic Destruction….

Many of you may have noticed that affluent Chinese are buying up real estate in California. Why? Because they can?

Yeah. Sure. And because apparently to diversify portfolios and manage the risk of investing. The Chinese Stock Market has weakened and the Banking Sector is… almost non-existent… as one would expect in a Communist… State Capitalist… society…. And this is being recognized as an issue…. Private Banks are few and far between and the ones they have only lend money to very wealthy and VERY stable clients…. BIG business…. Not small business. And not medium business. And 75% of China’s GDP comes from small and medium-sized business… not MegaCorps….

Another issue… not only are small and medium businesses not considered good investments… but local governments can’t borrow money either…. So the one of the major ways that local governments raise funds is to sell property…. A VERY unCommunist way to do things…. Also… a very short-sighted way to run things…. But… this has a significant trickle-down effect…. Because the local governments have no money, the poorer areas have little educational or economic opportunities…. Little in the way of HealthCare…. No WalMarts…. No McDonald’s…. No KFC…. No meat…. So… the people from those disadvantaged areas are flocking to the big cities… where there are insufficient living spaces… so China’s MegaCities are developing a notorious group of Underground Denizens…. Living in small, damp, dank basement apartments with no amenities…. No washer…. No dryer…. No stove…. No refrigerator…. No plumbing…. No heat…. And apparently causing a number of fires…. Many workers live in the basements places they work. And cities have begun to weld the manholes of the sewers closed because they found a lot of people living in the sewers. These are people with little education who have moved to the cities to get jobs gutting fish…. The economic disparity between the Haves and the Have-nots is growing astronomically… and the acceleration of the disparity is constantly increasing… leading to a life of despair….

http://www.reuters.com/article/2014/01/05/us-china-property-basement-idUSBREA040GD20140105

Now… back to my MAIN point…. The Banking Sector in China is almost completely run by State Capitalist establishments…. The government…. So… corruption raises its ugly head…. People and companies with inside connections CAN get loans…. DO get loans…. And they build factories and other things…. That aren’t always necessary…. So… China is finding that they have an over-abundance of production facilities…. At the same time… interest rates are low… and the Stock Market is falling… so… wealthy Chinese with available assets are looking for someplace to put their money to make more money…. So… some smart entrepreneurs have come up with ways to create such investment opportunities…. Wealth Management Products (WMPs)…. WMPs pay higher yields than bank deposits and other safer investment vehicles, but apparently are nothing more than a package of stuff with a maturity…. The problem is… the maturity dates on the WMPs have been coming due BEFORE the investment vehicles included in the portfolios…. So… the “shadow banks” have been having to find creative ways to come up with the cash… so they don’t default…. Some of the ways… include making shady… unsecured… loans to small and medium business and local governments… and all manner of people who seem to be high risk for default…. The unscrupulous lending practices involve using series of shifting interbank loans to hide the REAL loans…. By this point… many of you are probably scratching your heads and thinking that this seems eerily similar to the Savings & Loan Scandal and the Housing Bubble and the Sub-prime Mortgage Crisis… all of which involved political insiders and corruption… and HUGE bailouts….

Here’s another article on Shadow Banking…. http://www.bloomberg.com/news/2014-01-06/shadow-banking-risks-exposed-by-local-debt-audit-china-credit.html

Well…. This crisis in China seems to make what we thought was a mountain of debt look like a macroeconomic molehill…. If you read some of my previous musings… I pointed out that China has a National Debt of only around 31.7% of Gross Domestic Product as of the close of 2012…. And I ALSO pointed out the China’s finances are notoriously difficult to assess…. Turns out… the actual public debt is significantly above 200% of GDP… which is STILL less than developed or industrialized nations such as Japan… and the United States… but the Chinese debt is skyrocketing… rising by about 75% in the last five or so years… and China lacks the Banking Structure to handle such debt…. How do you explain the 200% discrepancy…? The developed nations have private and public debt. The Capitalist Enterprise that funds Industry and the Service Sector have been largely separate from government… before recently…. China runs a State Capitalist Enterprise. The State runs the Banking Sector and the Industrial Sector and the Service Sector… and housing and transportation and communications and everything else…. Soup to Nuts…. So PRIVATE debt… is really PUBLIC debt…. Just like America during the Wall Street and GM Bailouts…. But… what if America had to bail out our ENTIRE Economy…? The largest Economy in the World…? That’s what China… and the rest of the World… will be facing… if China doesn’t fix her issues….

And… in the mean time… she is embarking on an Arms Race in the East and South China Seas… and a Space Race…. And… that is ALL about technology…. China has been 50 years behind America and Europe and Japan and Korea and Australia and the rest of the developed world in technology…. And… she wants to catch up…. And she is competing with India and Russia…. And… she feels she is in an Economic position to do to America and the rest of the West… as Ronald Reagan did to the Soviet Union…. Melting the ice of the Cold War….

And now… for just a bit of history…. Before World War I… the greatest Economic and Military power in the World was the United Kingdom…. World War I apparently was about keeping Germany in its place…. That’s why the reparations were SO excessive… leading to Hitler and World War II…. But nevertheless… the United Kingdom’s role as King of the Hill was usurped… but the United States…. World War II solidified America’s place atop the heap… and paradoxically… rebuilt Germany and Japan… the LOSERS of the war… to overtake the United Kingdom, France and Russia… who were the WINNERS of the war…. Same thing happened in Taiwan and Korea, at least in the South…. But… few people recognize that the entire English-speaking world belongs to developed world except South Africa which is up and coming and Ireland… and Belize….

One more thing…. Immigration….

http://www.smh.com.au/business/comment-and-analysis/is-australia-ready-for-23-million-more-people-20131028-2wb0n.html

Australia…. Germany…. United Kingdom…. Ireland…. America…. we have ALL prospered economically in recent times largely because we have hard-working and well-educated immigrants who have increased our National Productivity…. Also… by draining off talent from countries such as China and India and Russia and Iran and Pakistan and Brazil and other competitors… we have improved OUR prospects… and decreased theirs…. If you look at Mexico… and Canada… you will notice that BOTH have experienced significant growth as a result of NAFTA… and America has increased productivity and maintained growth…. America needs to improve education and continue to provide Economic Opportunity in order to prosper….

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One thought on “China: Liquidity and Other Economic Issues

  1. Pingback: China: Liquidity and Other Economic Issues | Wright-Wang Extreme Mystery, Inc.

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