Politics Information |
The Economic Giant-- A Closer Look at China
IT'S NO LONGER NEWS THAT CHINA IS BECOMING A MAJOR player on the world economic scene. Yet, as we've noted in past editions, investing in China is fraught with uncertainty, due to a still un-free political situation, and insecure property rights. Despite our current lack of interest in Chinese stocks, China's renaissance clearly has implications for investor decisions worldwide, simply due to its market's enormous size. Recently, China's newfound economic strength has become fodder for political electioneering, and talk of protectionism is once again rearing its ugly head. Candidates are falling over each other to see who can blame the Chinese more effectively than their opponents. Of course, our readers recognize such ranting as nothing more than political gamesmanship. Nonetheless, all efforts to "save jobs" at the expense of free trade can only be dangerous to the US economy. Looking back in history, identical rhetoric led to trade barriers, and the Great Depression. For the moment, the greater issue may be what the future holds for China, and what impact that may have globally. The key to the future centers on China's currency and their banking system. Trade with the US, while important, is truly a secondary issue. So far, every story in the press involving China's economy seems to focus on trade issues, business growth, and cheap labor. Those are interesting. But an issue that is getting little or no press dwarfs them. China has two overwhelmingly significant flaws in its economic structure that must converge in the relatively near future to cause a devastating collapse. When that happens, politicians and reporters who have focused on trade issues will look silly at best. Only recently have we begun to see unfocused stories about China's economic bubble. They cite skyrocketing real estate prices, and over-investment in specific industries such as automotive or aluminum, but they miss the bigger picture. Blame is cast upon Chinese peoples' penchant for gambling, as though it is the citizens who have brought this upon themselves. As usual, we know to look to the government for most of the fault. China's financial system is a relic from the past: a dinosaur from the days before competition entered the economy. The nation's financial system primarily comprises four government-owned banks, which may be privatized in the near future. Thus far, these institutions have been shielded from competition and guaranteed by the government. Those who remember the savings & loan fiasco here know that thrusting such incompetent institutions into a competitive world is disastrous.Long overdue for reform and utterly unprepared for the pressures of competition, the problem with China's financial system doesn't end there. China's economy has grown impressively over the past decade but much of that growth has resulted from tricks played by the government related to its currency and exchange rates. Over the past decade, the Chinese government has carefully "managed" exchange rates in such a way to devalue its own currency. This has made Chinese goods unnaturally cheaper for foreign currency holders, simultaneously impoverishing segments of the Chinese population. To accomplish this valuation, China has had to hold vast sums of dollars, yen, and other currencies, instead of exchanging them for yuan. This leaves other countries holding their yuan, and causes their value to fall. The falling yuan makes Chinese trade goods more attractive to the rest of the world, but the citizens suffer in the short-term, due to their weak currency.We hear that the "new" administration in China (which is directly related to the "old" administration) has an interest in seeking a more responsible balance of payments and reducing inflation, but we find this unimpressive. Until actions follow the talk, there is little evidence that any real change will develop. The combination of currency disruption and a weak banking system is a recipe for near-sure collapse. This leads us to recommend against the rush to Chinese stocks. However, the bigger question is what impact this collapse will have on the world economy. It is difficult to determine how devastating the repercussions would be, but suffice to say, it won't be good. We'd imagine that stable economies will hold up best, but the very size of China's economy would likely affect everyone. On the other hand, due to the nation's relative isolation, it is possible that problems will be somewhat muted. The greatest threat would normally be a trade disruption. We might see some price increases in Chinese-produced goods, but the impact on the U.S. economy or those of other developed economies would not seem to be incredibly susceptible. The greater fear may be that when China runs into trouble, it will start spending all those dollars they've been holding. The result may be further pushes toward inflation in the US, an outcome we've already predicted. In these days of rabid spending, and increasing debt, an inflation rate that pushes interest rates higher cannot be good. These concerns are not immediate, but a long-term investment plan requires some foresight. Despite our concerns about the longer term, we are still quite confident that the economy, and hence the market, will perform relatively well through the elections in November. As a result, we strongly recommend making the best of it, as the longer-term outlook is uncertain. Perhaps when November comes, we will have a clearer view of the future, but for now, investing for the present is all that can be done. To send comments or to learn more about Scott Pearson's Investment Management Services, visit http://www.valueview.net Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.
MORE RESOURCES: Unable to open template $TEMPLATEfilename, exiting |
RELATED ARTICLES
Council of Six The head of the Club of Rome has said that the major issue that prevents World Peace is the matter of terminology or differences in what people mean across different cultures. I have no illusions about having devised a fool proof proposal here - but it would be nice if the dialogue existed and not until it does exist will there be much hope for real change. Nurturing Global Disequilibrium This brings to our consciousness, issues concerning the ever rising level of inequality prevalent in our times with its attendant fallout and imbalance within our global system.This has had its roots within the basic units of human co-existence experienced at our different localities and as such has naturally extended beyond, to a multi-level of inter-relationships across national boundaries. Immigration: Ten Points to Ponder 1. Why is it that no one seems to notice, much less ever mention, that the World Bank and the IMF have implemented economic measures that have left large sections of their populations unemployed and destitute? (The illegals are not doing this, you see, but this population is easier to attack and is more defenseless than the World Bank and the IMF. The Gay Male Agenda for Political Dominance I would like to pose a question. I am unsure if you have noticed what I have with regards to Homosexual males in the United States, but sense they are moving their agenda faster and faster and we are seeing more and more Corporations are catering to this group. Philosophical Thoughts from a Road Warrior; Part II Continued thoughts while driving down the road in a huge semi; mobile command center, the miles click by, but the mind flies thru time at the speed of thought.Yet as we previously approached Socialism at a rapid rate and faster than anytime in our history during the previous 8 years administration we did not allow for it. Competition Laws A. THE PHILOSOPHY OF COMPETITIONThe aims of competition (anti-trust) laws are to ensure that consumers pay the lowest possible price (=the most efficient price) coupled with the highest quality of the goods and services which they consume. NASA Budget Space Shuttle Thoughts Regarding the issues with the Space Shuttle and the in flight explosion of the Columbia. I believe that of course that hindsight is always easy to use to place blame, however we must continue the program and the Space Shuttle as it sits may not be the best technology as newer technology is now available for re-useable craft such as;http://www. Sodomy Sodomy is against the law, yet goes on every day across our nation. The vice of buggery is so pervasive in certain regions of our country that even heterosexuals in our population are a risk of contracting AIDS. UAV Targets, Aerial Dog Fights, Interception, Future of War Intelligence The UAV, Unmanned Aerial Vehicle is hear to stay and they are rapidly replacing the glory days of the fighter pilot and soon, there will be no humans in military aircraft flying the planes. Here is a quick overview of UAVs and all the new types. Freedom on the Internet Throughout all recorded history on our lovely little planet, Earth's human beings have been concerned with a few main ideals. One of these is the idea of freedom. We Do Not Have An Upside Down Trade Deficit Because We Cannot Compete Our trade deficit is directly proportional to our attacks on US Businesses and Entrepreneurs. We do not have an upside down trade deficit because we cannot compete. Conservation of Water in Big Cities Water Conservation in larger cities is less of an issue publicly than in smaller cities, yet in reality it is more important in larger cities to conserve to allow smaller cities to exist. This is ironic, however truth because a small city that saves a lot is a mere drop in the bucket to the amount of water a big city can save when each person saves only a small amount, because those little amounts are multiplied by the masses into true water savings. 5 Years in Prison for Satirical Flash Films About the President of Belarus They do not allow the criticism of the president in any kind, whether it would be an animated file, a joke, the poster or the broadcast. So they believe in Minsk and don't understand humour. Israel Termed A 'Nuclear Power' By US Officials In the last two weeks, two non-senior US officials indirectly called on Israel to start planning on cancelling its nuclear weapons programs. Even though they said this is not intended for 'the foreseeable future', their publicly terming Israel a nuclear power on a par with India and Pakistan might be a sign that the US perceives of nuclear issues as too serious to condone the double standards it employs freely on other issues. War with Red China Eminent Now An irresponsible Chinese General made a very telling comment recently. He stated that when China takes over Taiwan, that the United States better not interfere otherwise China would be forced to retaliate with nuclear weapons against the United States. The History of Trade and Using it as a Weapon for Peace The Flow of Trade is a major consideration of civilizations and cultures working together to insure that they can get what they need. Some areas have special crops, which grow in their regions, which the other regions would like to have. The American Worker: Downward Mobility All the indicators show an improving economy and, finally, the start of job growth. More than eight million unemployed workers see hope around the corner and re-enter the nightmare of job search with increased enthusiasm and the positive outlook they lost six months ago when they virtually gave up on ever finding a good position. Colts' Stadium Short on Horse Sense The predominant discussion in the Indianapolis media over the proposed $500 million Colts stadium is how to fund it, not over the wisdom and propriety of taxpayers going into debt to build it.Apparently the leaders of both major political parties in Indiana have signed off on the concept, including a poor building design, and are content to confine their discussion to who's picking up the tab. Belly Full of the Clintons [Political View] As I read the papers and watch the news day after day after day, and listen to the debates on what we Americans should do with Iran and North Korea, as if we were the only ones involved, yet as always the world will put their two cents in, and to be quite honest, that is all financially they will give, but for advise, like my neighbors, they will give a tone of it away free. Anyhow, I should get to my clout in my throat. Franchising Democracy and Creating Cohesive World Government There are so many problems with our perceived perfect checks and balances system of our government, that one cannot use the exact United States version model of government to create a franchise agreement for future governments of the world. A standardized system of government in all countries of the World needs to exist if we are all to live peacefully on the planet, trade and respect each others cultural heritage and tolerate the many different renditions of World Religion. |
home | site map | contact us |