Why I’m bearish on China
All of the growth stories about China over the last 5 to 10 years have come to fruition. They’ve created a bubble. Anytime there is a worldwide rush of investment to one idea, place, or thing, it is bound to produce over-investment, and that it has…in spades.
Three numbers should suffice to give Chinese economic policymakers a sleepless night: 65.4 million, $28.7 billion and $2.45 trillion.
In order, they are the estimate by a government researcher of how many apartments stand vacant in China, many of them bought as speculative investments; the country’s trade surplus in July; and the international reserves the central bank has accumulated by buying dollars to hold down the yuan.
What this means, among other things, is that there is a huge dollar bubble that is about to pop. China has been essentially propping up the dollar to support their export-driven economy and to preserve the value of their investment in U.S. debt.
China has felt flush with cash for many years now, but this has produced mal-investment. As the worldwide economy retracts, China will feel less and less wealthy due to plunging exports to the west. As their economy deflates, they will become unable to support a weakening dollar with their equivalent of “Open Market Initiatives.”
What happens when they have to unload $2.4 trillion in currency reserves? Pop goes the bubble, I’m thinking.
[...] right now…domestic or foreign. The Chinese are learning this after having woken up with $2.8 trillion hangover in USD reserves accumulated from propping up the dollar despite our government’s binge [...]