9/26/2011 6:24 PM ET|
Why China is all that matters
The Chinese government wants to cool its hot economy to prevent higher inflation, but what if it overshoots? The entire global economy is at risk. Investors, watch carefully.
Let's be honest with ourselves, OK?
China is all that really matters for global stock markets.
If China's economy slows more than expected in 2012 -- and grows at something significantly less than the 8.2% to 8.5% now expected -- it won't really matter what the eurozone nations do about the Greek debt crisis or whether the United States stimulates its economy. In 2012, growth in the world economy will slip far enough to throw the developed world into something very close to a recession, and global stock markets will suffer through yet another painful bear market.
In the short term -- let's say for October, November and maybe December -- what the United States and the eurozone do matters.
If the United States, through some currently unimaginable political alignment, were to implement a significant program of government spending on infrastructure and tax cuts to stimulate the domestic economy, global stock markets would rally.
If the eurozone countries manage to put together some credible package that kicks the euro debt crisis down the road into December and maybe into 2012, then global stock markets would rally.
But the rally wouldn't last long if economic numbers and anecdotal news reports fed into worries about slower-than-expected growth in China.
On the other hand, if the evidence started to point away from the possibility of slower-than-expected growth in China, then a temporary rally on good news from the United States and the eurozone could turn into a lasting rally in global markets.
And I think that China is so central to global stock markets right now that good news on China's growth in 2012 would produce a rally in global stock markets -- and even to a degree in U.S. and European stocks -- even if the U.S. didn't do anything to stimulate growth and European nations wound up with a Greek default. (Although under that scenario, I'd still rather be underweight U.S. and European markets.)
If all this is true, then the big question is, How real are current worries that China will slow more than is now expected in 2012?
China is slowing down
There's no doubt that China's growth is slower than it was. China's gross domestic product grew at a 10.3% annual rate in 2010. In the first quarter of 2011 that growth rate dropped to 9.7%, and in the second quarter it declined to 9.5%. Economic forecasts call for a further drop to anywhere from 9.0% to 9.3% for the third quarter.
This is exactly the kind of controlled slowdown that China's government has been hoping to engineer in order to control inflation -- which seems to have peaked at 6.5% in July -- and to reduce speculation in the real-estate market. It would put China on a path for the 8.3% to 8.5% growth that the consensus is looking for as a bottom to China's growth rate.
Just for the record, I agree with this consensus about China's growth in 2012. But I also recognize that markets are on edge about China. So what are they worried about?
3 worries of China investors
First, even in the best of economic worlds, bringing an economy this big on a predictable glide path is extremely difficult. Most of the time governments overshoot, loosening too much when they're trying to stimulate or tightening too much when they're trying to slow growth. The latter is the worry in China's case.
Second, this isn't the best of all economic worlds. It's unlikely that China's government planners figured a global economic slowdown into their calculations when they were putting in place plans to raise benchmark interest rates or require higher down payments for third homes.
Third, China's official statistics are like those of most governments only more so -- biased to make current conditions seem better than they are and often deeply contradictory. What if statistics and policies don't really reflect or address what's going on in the economy?
Let's take those worries one at a time.
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China over the next 2-3 years will crash and burn, for the following reasons. First they have 1.9 Trillion in bad loans to business, that they keep rolling over. They have no water as over 80% is unusable. The factory workers want higher wages. They have reduced their farming by over 50%. They have cities that no one lives in. The manufacturing sector is making products that have serious issues with what is in them and what really is in them. Most of the best and brightest young people are leaving for better paying jobs. They have Trillions in toxic debt which they continue to hide. Don't believe me check it out.
R. Cox: We must bring back american manufacturing..BUY AMERICAN
Who is we? I didn't have anything to do with sending manufacturing to China and having to buy a bunch of crap that works until you get it out of the package! Tariff the companies that sent the jobs that way and see how quick they turn from the cheap labor. Post it on TV, billboards, etc. that Company ABC shut down the shop in the US and sent it to China. Have Company ABC pony up or move their headquaters to China also. Wonder what would happen?
Wonder if the Chinese military stuff that is manufactured in China works more that once?
Oh, and another thing...China's experiment in capitalistic free market ideologies is a giant pain in the *ss for the communist party. It's hilarious when you see the burgeoning classes of oriental aristocracy fumble with their immature flaunts; buying then trashing exotic sports cars, blogging about Hermes purses, floating around on their ultra-luxurious Italian yachts. All while the other 98% (sound familiar) work their fingers to the bone just to get by.
They are doing a good job of making capitalism look like a mafia carnival. Just wait until their version of Wall Street starts screwing the masses. 999 million angry Chinamen will make our current Wall Street protests look like day care. Keep it up guys!
The only thing stopping China from dominating the production of top quality goods is a lack of demand for those goods and the need for more top quality engineers. Care to take a guess how many Chinese engineers are graduating from universities in China and the US this year.
The Chinese have a long way to go but they have a long term plan and the money to accomplish their goals.
The US is still the leading economy in the world right now but our country does not have a long term plan and our government has to borrow money from the Chinese to operate. Our country is screaming for a leader who able to form long range plans and is popular enough to make the politicians go along with it. Lets face it unless the idiots in congress think they will lose their jobs they will never work together. To bad we can't draft somebody to take over the job of President.
Well now, it 's nice seeing folks actually agreeing on something for a change. A bit boring, but I'll take it. But besides the attention grabbing headline, there is little cub reporter breaking news here.
Of course China's output is slowing down...who do you think is buying their goods? The rest of the non-Great Wall world simply can't afford to frequent Pier 1 and Toys "R" Us as much these days. Americans are actually blanketing themselves with the "S" word to hedge against further deterioration of our fragile economy. The savings "woo bee" is all the rage, and is the paradoxial recovery stumbling block.
And as some alluded to, higher wages (although still ridiculously low compared to Western Stds), quality, and health control issues, have put the brakes on the fastest growing economy of our modern age.
But don't put too much stock in China's downturn being an economic atom bomb for the rest of us. What should matter most is what's going on due north and south of middle America. Canada and Mexico are our greatest trading and energy partners-not China. We need to focus on long term growth and infrastructure improvements on the N. American Continent. Screw Beijing!
Just a general comment to the idea of who is the "we" that sent manufacturing jobs overseas to begin with. The we, was us, all of U.S., and our collective greed, our collective fight for the "American Dream"
It was the unions fighting for ever higher wages, great living wages for employees. That would in turn force the price of the goods produced to rise.
It was the fight for competitive prices in the shopping malls and TV channels. Who's got the best price? Who's got the cheapest products.
My friends, the two do not work together.
Returning living wage manufacturing to our shores would help, yes. But in order to do so, we must fix our disposable, Wal-Mart lifestyle.
Everything else we are experiencing, financial bubbles, recessions, systematic wealth disparity....all are merely symptoms of the above described conditions.
This all can be traced to the Religion of Free Trade. The moment we signed the first free trade agreement was the moment we set this wheel spinning. Unfortunately both parties deserve the credit for this one.
However if we have now given in blood (jobs) enough to make the chinese wealthy enough to now buy our goods than god bless it they better dam well get to doing so.
After all wasn't that the whole friggin idea. Open up a huge market. Well there it is. They got flow, but no buy American.
I say why the freak not? We should tie our openness to their level of Positive trade with the United States. What exactly do we have to lose we haven't already lost?
Papa tiger: Right on!!
Today we need less EPA, less lawsuits and more use of our own resources to get the economy going again.
Most industry already has the mentality and means to keep their waste to a minimum. It actually cost more to produce waste than it does to use all raw materials efficiently and produce a product correct the first time.
Now all they need is a little bit of less Gov't to allow them to hire the people they need to manufacture the products we want.
To do so, requires a reversal in the direction this Administration is taking us. President Obama needs to retire from the Presidency in 2012.
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