About Me

Aug 31, 2011

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.  

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