China's rise to power in the last 10 years is nothing more than money printing gone berserk.
This is not unprecedented. America did the same trick in the 1950's and 1960's. They printed dollars like crazy and bought up European companies. They were able to do this under the guise of gold to dollar parity and convertibility. Europeans were happy to accept dollar payments for their companies because of the perceived power of the USA (they did after all rebuild Europe after WW2), but it's just excess amounts of dollars printed by US banks.
What happened next was the Germans, French, and Italians cashed in their gold at Fort Knox. Nixon had to suspend dollar to gold convertibility (the Nixon Shock: http://en.wikipedia.org/wiki/Nixon_Shock) because there was not enough gold for every dollar. The Bretton Woods system was dismantled. Our currencies have been floating ever since.
Japan did the same trick in the 1980's. They bought up Rockefeller Centre, Universal Pictures, Columbia Pictures, Pebble Beach Country Club with printed Japanese money.
The Chinese have been doing the same in the last 10 years, although they're only able to acquire businesses that the West don't want. These are unprofitable companies like the sale of Volvo by Ford to Geely, the sale of IBM's PC business to Lenovo as PC hardware sales are declining, the sale of Motorola by Google to Lenovo, etc.
Overall, there is a reticence to sell to China because of national security issues as the Chinese government has significant ownership of Chinese companies doing the acquisition.
What there is not reticence is in the area of real estate, particularly in the Singapore, HongKong, Canadian, and Australian markets, the last of the bubbles to pop. Canada and Australia in particular have significant investor visa programs that let this hot money buy up real estate, although both countries are starting to dismantle these programs.
But we don't have to wait for the Chinese to stop buying for the bubble to pop. Any country that prints like crazy eventually will have problems inside their countries before currency dealers get wiser. Currency dealers don't have perfect information. They don't have the information on how much money Central Banks are printing. But as I said, countries implode before currency dealers and bond traders get the wiser.
It happened to Japan when their stock market tanked. It happened to the USA in the 1970's with stagflation. It will happen to China soon. Their manufacturing is in decline. Steel output is in decline. Property market crashing. They've converted the bad loans in their bank's books to CDO's (the same ones that caused the 08 crisis). Now they are trying to inflate their stock market as a last ditch effort to appease their bankrupt middle class.
Anybody who believes that a low cost, low margin manufacturing country will rise to take on the world is a fool.
Real growth happens with real income, productivity, and technological gains. China doesn't have the preconditions. All they have is balance of payment surplus from slave labor low-cost manufacturing which they use to mask their money printing adventures.
The communist party has no legitimacy and is gasping for air. They hinged their legitimacy on growth and jobs, which are evaporating. They are in for interesting times.
1. Collateralise the debt of government owned companies and banks. Offer them on the Shanghai Exchange.
2. Engineer a stock market boom (free up margin lending, setup and encourge trading accounts to entice the general population).
3. I wouldn't be surprised if the central government is playing market maker. They're slowly inflating this.
4. Insulate the outside world from the Chinese mini-boom. Keep it Chinese only (for now).
5. When the time is right, open up Shanghai Stock Exchange to foreign institutional investors.
6. Then tighten restrictions on margin lending and ban trading accounts by general Chinese population.
7. Market crashes. Foreigners will be the last holding the bag.
If they play this right, they can effectively pass on the bad debts of their banks and of Chinese businesses to the general population and finally to foreign institutionals and pension funds.
The question is, will foreign investors bite?
At least, if foreigners don't get fooled, they're just passing on the debt from businesses and banks to Chinese people. That's a better position to be in than having zombie banks and businesses.
UPDATE 3-China April exports unexpectedly contract, import slide worsens, more stimulus seen
Fri May 8, 2015 4:09am EDT
* Surprisingly weak trade data fans stimulus expectations
* Risk that growth could slow to global crisis levels
* April exports -6.4 pct yr/yr, vs f'cast +2.4 pct
* Imports -16.2 pct yr/yr, vs f'cast -12.0 pct
* Trade balance +34.13 bln, vs f'cast +39.45 bln (Adds exports to US, EU)
By Kevin Yao
BEIJING, May 8 (Reuters) - China's exports unexpectedly fell 6.4 percent in April from a year earlier, while imports tumbled by a deeper-than-forecast 16.2 percent, fueling expectations that Beijing will quickly roll out more stimulus to avert a sharper economic slowdown.
The dismal trade performance raises the risk that second-quarter economic growth may dip below 7 percent for the first time since the depths of the global financial crisis, adding to official fears of job losses and growing levels of bad debt.
"This is bad. I expect an interest rate cut this weekend," said economist Tim Condon at ING in Singapore.
"This is going to make 7 percent (GDP) growth hard to attain. It looks like the weakness in the first quarter wasn't transitory. It's persistent."
The central bank has lowered interest rates and banks' reserve requirement ratio (RRR) thrice in three months since November to stoke the economy, and most analysts had expected it to loosen policy again on both fronts in coming months.
Policy insiders told Reuters this week that China's leaders have been caught off guard by the sharpness of the downturn, and are likely to resort to fiscal stimulus to revive growth after a flurry of monetary policy easing has proved less effective than hoped.
Imports have been weaker than exports, falling 16.2 percent in April from a year earlier, according to data released by the General Administration of Customs on Friday, highlighting tepid domestic demand as the world's second-largest economy slows.
Analysts polled by Reuters had expected exports would rise 2.4 percent in April after a 15 percent plunge in March, and predicted imports would fall 12 percent after a 12.7 percent drop the previous month.
In April, exports to the United States, China's top export market, rose 3.1 percent from a year earlier, while shipments to the European Union, the second largest market, dipped 10.4 percent, according to customs data.
UNCERTAIN OUTLOOK
Economists at Nomura expect annual economic growth to slow to 6.6 percent in the second quarter from 7 percent in the first quarter, and are pencilling in three more 25-basis-point rate cuts and two more 50 bps cuts in banks' reserve requirements for the rest of the year, which would mark the central bank's most aggressive easing campaign since the global crisis.
Buffeted by lukewarm foreign and domestic demand, China's trade sector has wobbled in the past year, adding to pressure on the slowing economy and unsettling policymakers.
Earlier this week, China's trade minister said the devaluation of currencies by some countries has led to sharp gains in the yuan, hurting the competitiveness of Chinese exports.
The yuan has gained against major non-dollar currencies in recent months, leading to its rise on a trade-weight basis.
But Premier Li Keqiang has ruled out a devaluation, even as the economy faces headwinds.
While some exporters said they have not felt the impact of a rising yuan, thanks in part to the growing popularity of currency hedging options, few doubt that sales would suffer in coming months if the yuan sustains its ascent.
"If the demand in other countries does not improve, the declining trend in exports will continue, maybe even worsen," said Wang Jianhui, an analyst at Capital Securities in Beijing.
"On the import side, most infrastructure projects led by the government haven't begun yet, so demand for energy and steel is very low."
China had a trade surplus of $34.13 billion for the month, widening from $3.08 billion in March.
Chinese Vice Premier Wang Yang was quoted by Xinhua state news agency as saying last month that authorities must arrest China's export slowdown lest it further dampen economic growth.
China's trade grew 3.4 percent in 2014, missing the government's growth target of 7.5 percent by more than half.
The government has lowered its growth target for 2015, with combined imports and exports expected to rise around 6 percent.
China will release inflation data on Saturday, with factory output, retail sales and investment numbers expected next week. (Additional reporting by Koh Gui Qing and Judy Hua; Editing by Kim Coghill)
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