The Future History of China's Economy : When Will The Economic Crisis Come ?

  

 Let me say a few words about my blog. There are some people who say articles in my blog are too technical to read. I don’t share that view. I’m also having problems with technical words. But I do acknowledge that the topics I write about are controversial and might require substantial knowledge.

In the next few months, Chinese currency should appreciate against the US dollar.  Dollar will still depreciate against other currencies. If China continues to hold dollar, it will put her at a disadvantage.  Weather China wants it or not, she will have to sell the Dollar she holds.[1]  

In the medium and long term future, China won’t be able to peg it currency against US dollar for the sake of export.  Export markets are collapsing and local and government debts are on the rise. I’m uncertain about the future of Asia than I do about that of the West. It does not bode well for Asia.

The effort of Chinese Government to cool down inflation is becoming effective. As a result, growth will slow down. If the growth falls below %8, China will run a risk of social unrest, according to some sources. The economic growth must be relatively strong to create jobs for hundred millions of Chinese migrating from rural area to work in the cities.

Liquidity drain and collapsing export markets will put downward pressure on world-second largest economy. In the coming years, growth should slow down. But I don’t expect a hard landing. Nouriel Roubini, one of the world most sough-after economist,  used to say it would be a hard landing in somewhere around 2013.For me, it seems Chinese Government is well-prepared for that. But I’m not sure if Chinese Government is capable of keeping growth above %8 or not.

Consumer spending is still not making up a big part of GDP. Although the Government’s last five years plan emphasizes on a more consumer and innovation –driven economy and a harmonious society. A more harmonious society means a more powerful middle class. And a more powerful middle class means a stronger purchasing power. So, debt-to GDP will rise. Conversely, the debts in West will decrease.

I have made two points already. In the next few months, the RMB will appreciate against Dollar and the China’s economy will slow down in the next few years. I still agree with Harvard university professor Kenneth Rogoff. He predicted that China’s economy will have burst by 2020.

There are some who said Professor Rogoff’s prediction is misleading, pointing out the effectiveness of Chinese Government fight against inflation. The China’s economic crisis should be triggered by property bubble fueled by bad loans and heavy investment. The burst might occur when second wave of high inflation comes, somewhere around 2015-2020. It’s the Chinese Government who pushes up the prices of the property; investors just go with the flow.  2

What would happen when the bubble bursts?  I would like to invite you to read this: Waiting for an Economic Crisis from China- and Secret Economic War 2.0. It’s just a very first assessment. I will update my article as trends warrant.  The effect will be felt across the global. It’s a short-lived crisis. Also, it’s can be a harsh one unless policymakers are doing something useful to tame the crisis P.S: If you don’t understand the article, please read my previous ones.  Some sticking points were already written.  

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[1] I have already discussed about this problem. Visit http://sengkongses.blogspot.com/2011/08/lost-battles-but-win-war-on-what.html  

Why Preah Vihear Is Not The Problem?

  As you see in my blog, I’m not really interested in regional politics, let alone local one. It has to do with news. News is not widely available for regional political context. So, I find it hard-pressed to write a good article.

Now, the Preah Vihear case is in the hands of ICJ. At the same time, the situations in Thailand remain largely volatile. But the political earthquake was over.  I think major social unrests in Thailand are unlikely. Most people would love to use the words: Preah Vihear crisis or Preah Vihear dispute.

Preah Vihear dispute has been settled since 1965. Preah Vihear is just a pretext the Yellow Shirt used to topple Thai Governments. From my point of view, the problems we are having with Thailand are border disputes, especially with the sea borders.  Needless to say, Preah Vihear is the problem between Thai and Thai.

France Essential 

Essential

It is worth noting that we have been paid for our lip service. There have been clashes in the frontier provinces. Some groups demand that Thailand pay for the damages. But I don’t think the Thai Government will pay. Why? We received than 100 million dollars already.

For ICJ’s forthcoming judgment, I expect it would something both sides can at least get a reason to claim victory. Preah Vihear is a small fish. The big fish is about our sea borders. Everyone seems attentive on Preah Vihear issue. But it’s not really the problem. Only a bit of exaggeration, Preah Vihear is not our problem.

For sure, Thai politicians used to play Preah Vihear card. But I believe they won’t use it heavily as before. Thai political crises should end up in:

The King will play a more symbolic role.  2. The military groups will be less powerful, at least in theory. 3. Thai middle class people will have a greater say for their future. 4. All parties involved will be either pardoned or acquitted by the King.

Prime Minister Hun Sen once called on France to come and help settle the disputes. Francois Fillon took a visit to Cambodia not so long time ago. France has finally come. And the disputes have been internationalized. United Sates and United States might be involved with disputes setting process between Thailand and Cambodia. 

The card now is in our hand. Asked if our politicians will play it or not, I’m not sure. The good thing I think we get is that we won’t have any big problem with our neighbor countries once the disputes are settled. It will be long. It will be hard but it won’t be impossible.

Can the United States and China Become One Economy ?

  Firstly, I’m not an expert on China. It’s still the case for an expert on US. So, I’m talking as an observer. Speculation is high that China and the United States are becoming one economy. The military relations have been up and down for years. Now, economic ties are at crossroad.

The recent political earthquake in Washington was over. But the aftershocks remain. China feels the need to diversify its Forex holdings faster than it should be. However, no other currencies but Dollar can absorb such a large amount of money. At the end of the day, dollar is still the best answer. However, sollar will be become cheaper and cheaper at least until the time US’s economy booms.

Dance until the music stops

The economic relations between the two countries are in holding patterns. Frictions over economic ties should be unavoidable, should the current trend continues. The world has been a zero-sum game and will continue to be.

It’s well known that China buys US debts to prevent the RMB from rising to a level she doesn’t want. There are people who argue that Globalization making economies more dependent on one another. Thus, it reduces the possibility of war

Joseph S. Nye made a different case. “But, while Britain and Germany were each other’s most significant trading partners in 1914, that did not prevent a conflagration that set back global economic integration for a half-century,”[1] he puts. They still went to war.

I’m not saying that China and US are going to war. The notion I’m trying to make is that it’s not really the case that they are becoming one economy. Military budget of both countries just keeps increasing. It means that war is still the last resort.

All players in Globalization game can’t win all, I once wrote. We can’t find losers for now. But it won’t be long. As far as I know, military budget expenditures of most countries are on the rise.  Countries that lose the game may go to war. Who knows? What if the United Sates loses the game? What if Russia loses the game? What if China loses the game? What of India loses the game? What would happen?

The world with which we are living is like the world in early 20^th century. Each country is flexing muscle. We have yet to see either the winner or the loser. Again, we can all be the winners. The key different point is we are playing economic game, not war game.  As Chuck Prince, former CEO of CitiBank interesting said: We have to dance until the music stops. When will the music stop?

China-US ties are highly volatile. I’m not sure if they are becoming one economy. The thing worries me the most is that I believe the leaders of both countries are not sure too. From my viewpoint, they are preparing for the worst.  Influencing by both Chinese and Western cultures, I don’t want to see anyone of them fails.

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[1] http://www.project-syndicate.org/commentary/nye95/English

Asia Is Losing the Economic War to United States of the West

  Most scholars believe the Great Recession is the demise of Western capitalism. Some even said the process of decoupling is on the move. I’m an Asian. And my continent is losing the economic war to United States of the West, comprising of United States and Europe.

In my forthcoming book, I argued Asia is not the winner of this economic crisis. They pointed to the impressive growth of China, India, Brazil and other emerging economies in the time of a crisis. In addition, developed economies in Asia bounced back healthily in the wake of global economic crisis. Namely, Singapore, Taiwan and South Korea.

It’s not the case. We are running of ammunitions to weather the storm stoked by the West. As Joseph S. Nye, a veteran political analyst, interesting pointed out:  In 20^th century, we talked about the balance of military power. In 21th century, we talk about “Balance of Financial Terror.”

Asia is not knowledgeable enough to play that game. The impressive economic growth in Asia in recent years was mainly the result of stimulus packages. It pushed up the debt ratio. Besides winning the macroeconomic and political stability, there’s nothing we can be proud of.

How about the United States and Europe?  Most people believe that Government of the West robs its own people. Countries are bracing for second wave of currency war. Recently, Japan and Switzerland have intervened to stabilize national currencies. Other currencies considered as safe heaven can’t help to intervene too. Every country has only a choice: To depreciate the currency.

I have written articles about the benefits of economic crises for the United States and Europe.  If you are not sure, please scroll down and read it.  The fighting is Washington has made the dollar become cheaper and cheaper. And QE3 is coming. Asian countries don’t have much power in hands to counter the possible consequences.

If you look at inflation in China and Brazil, it may be impossible for both Governments to print out more money to stabilize the economy should the next wave of destabilizing forces come. Asia is not the loser of the economic crisis too. In my words, Asia is just a continent that used to capitalize on the crises. And that day is over.

America is winning back its manufacturing sector. Investors are moving back to both America and Europe. What we have got is the inflow of hot and bad money, setting the stage for bubble economy.  Most importantly, the West is becoming a more export-driven economy.

 China is shifting its economy pattern, from investment and export driven economy to consumer driven one. It’s clear enough that China is becoming a consumer of the West. Other developing countries are more of the same. In the near future, debt to GDP ratio of developing countries will rise dramatically. Conversely, that of the West will fall down.

I’m very still optimistic that the West will bounce back strongly. This time is different. The west won’t lead the world economy but will depend on one for its growth. Again, we are running for ammunitions. China can do little when US politicians were fighting in Washington. It threatened the values of $ China holds.

We can’t say we are winning the war as our debt is on the rise, export markets are collapsing, our competitors are gaining strengths, and are vulnerable to future shocks from the West. We did capitalize on the crisis.  Did we capitalize enough to offset future losses? It’s anyone’s guess.

I would like to hear your voice. Please share it with me.

Lost the Battles But Win the War: On What Washington Really Wants

 
“Phew, what a big relief,” I said when I was informed an agreement had been reached in Washington, meaning that America would be able to meet its immediate obligations. I wish I didn't take a close look on so-called fiscal clashes in the United States.

The deal came at 11^th hour and I was feeling the rush of adrenalin even after I heard the news. World was totally on the brink of a collapse. China is busy with both all-time high inflation and property bubbles; Japan has yet to recover from a devastating earthquake and Europe is still living with confidence crisis. Everyone is tired. What if America fails?

My friends on Facebook said it was good news. I’m not sure if you guys are Americans, I asked.  Nope, they replied. I said you guys didn’t have reasons to be cheerful then.  It was good news from America but not necessarily the rest of the world. Why not? , One may ask. If one takes the close look, the big picture will be revealed.

Dollar will be weak for  a long time.

America has been losing competitive edges to Asia for such a long time, contributing to employment, debts and deficits. She is fighting back. In my latest article, I said the United States was trying to inject more and more money into the economy. I was partially wrong. However, I was right to say that US is trying to devalue its currency.

The clashes between Democrats and Republicans were of serious consequences, people would like to say.  Credit rating agencies are putting US’s AAA status under review.  If the status was downgraded, it would endanger the confidence of investors and eventually push up the interest rates, they went on. Credit rating agencies might not as reliable as one though.  They were the people involved in causing 2008 meltdown.

The concessions were made and the compromise was reached. The bottom lines are: 1. 1.2 trillion dollars in spending cut over the next decade. 2. Tax increases.  Economically speaking, the United States of America is not the United States of Europe. Austerity measures may be working in Europe. But I don’t think it will work in America.[1]

Why United Sates did it? Easy money policy of the Fed has been pushing up the inflation in the United States and of course in the world. Spending cut will reduce the purchasing power of its people. The inflation will be down. The people will be happy and Obama will stand a high chance of being reelected.  However, I don’t think spending cut will stand the test of time. The spend cut will die after Obama gets reelected at longest.[2]

As I mentioned above, US was trying to inject more money into the economy. Congratulations, you did it. It was not conducted via QE3 but by something similar to that one. I would rather call one “Intoxication Campaign.” Again, the deal was reached at 11^th hour.  Countries were fearful that the talk would collapse and the dollars would be very much undervalued.

They were in a rush to sell dollars and buy back the gold. Wall Street Journal reported yesterday that South Korea bought an unusually large amount of gold. Thailand just replaced Singapore as 25^th largest holder of gold. Every country is buying gold. What is happening? Dollar is becoming cheaper and cheaper.

I have written extensively about the advantages of a weaker dollar in previous articles. So, I’m skeptical that they were fighting in jest. What they really want is a weak Dollar. Most analysts failed to see the Big Picture. So, they concluded US politicians are misleading the economy. Phew, I said it again. I finished writing the article. What a big relief….. Go to bed for a nap. Please post your comment. :D 

 

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[1] I will write an article detailing on that issue.

[2] Thanks Mr. Andrew Peng for this useful comment.