Wednesday, April 9, 2014

China is on a financial treadmill it can’t slow and Aussies are impotent bystanders hoping it doesn’t run out of financial puff.


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

No comments:

Post a Comment