The world’s soon to be
number one economy is precariously addicted to growth and we are precariously
dependent on its continued addiction.
China is also obsessed with secrecy so it’s
almost impossible to gauge domestic economic indices.
But China is unique. Totalitarian communism drives a virulent
capitalist economy and concerns raised by the proletariat are rare and frowned
upon. An obstructionist Senate determined to thwart jobs' growth is not one of
China’s problems.
China’s true wealth lies in numbers, one and a half billion of
them, with each thirsting for middle-class status the State is determined to
provide for them, and in advance.
China is banking on its emerging, tax-paying middle-class to fund its
relentless growth.
No Western economy can hold a candle to China’s domestic growth, as
empty ghost cities the size of Perth and replete with infrastructure sprawl
inland awaiting resettlement from rural hamlets.
But can it continue? Yes, it sure can for now, sheer numbers of Chinese
will take care of that mind-boggling growth, yet financial storm clouds are
gathering on the horizon and little old Aussie will need a big umbrella.
The State banking sector has “loaned” $15 trillion for expansion in
just the past five years. Lack of transparency is making it impossible for
the market to assess what the trust companies and unregulated “Shadow Banks”
are actually doing, where the money is going and how solvent borrowers are.
Many analysts are suggesting the Chinese financial system is
approaching a sub-prime loan valuation slide, leading to a Bear Stearns moment.
The trouble is we don’t know!
Some estimates of China’s borrowings are as high as $32 trillion,
exposing internal and external “lenders”, including Hong Kong banks, to a
financial crisis that would make the latest GFC look like a Visa card late
payment.
If China, which escaped the GFC, thereby ensuring we did (despite
Labor’s crazy unnecessary spending) suffers a credit squeeze or decides to call
time on its growth rate then its biggest customer the US, is stuffed once
again!
Only this time it will be hard for the US to recover. It is already
wallowing in $17 trillion debt (a third of which is held in bonds by China) and
suffering from two terms of Left wing Administration.
If the US is in trouble then China’s woes for the first time will
become exponentially worse and Australia, still reeling from two terms of the
Left bashing our mining industry, will have no fall-back position and be bereft
of a meaningful manufacturing export industry.
China is on a financial treadmill it can’t slow and we are impotent
bystanders hoping it doesn’t run out of financial puff. It must eventually of
course.
This giant game of brinkmanship is
between the US and China and we’ll be lucky to get an invite into the dressing
shed at half-time.
So, when Tony Abbott lobs in Beijing this week, they might offer him
sweet and sour pork with some green tea, and politely ask where he’s from ...
but that’s about it.
Confirming current contracts for iron ore won’t cut it.
The Pickering Post
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