China's economy showing signs of trouble

Steve McCann
Lost amid the Democrat/Media-produced circus side-show of whether Herman Cain is a serial sex-offender and the very real crisis in Europe is the deteriorating economic situation in China.   China, often portrayed as an unstoppable force in the media and among those who have given up on the United States, is on the verge of a major growth reversal bordering on a potential collapse.

Per the Investor's Business Daily:

The cause: China's imploding real estate market.  Since late summer, Chinese home prices have tumbled, partly a result of Chinese government policies intended to keep the economy from overheating.

Barclay's Capital Research predicts China's home prices will fall 10% to 30% next year, hitting the economy hard -- and putting at risk the Chinese economy's 20-year string of 10% average GDP growth.

Much of China's growth over the past three years has been fueled by a massive pile of debt.  Chinese banks have lent an astounding $8 Trillion since 2008 -- an amount that dwarfs the Eurozone's $4 Trillion in debt.

That debt binge is now abruptly ending as China begins to ratchet up interest rates and limit home buying to keep prices in line.  An epic bust is coming.

There is a general consensus that by 2013 growth will average 6% or less and that by 2018 it will be just 3.5%.   While that may sound terrific by current United States standards, it is a disaster for China.  The reason:  there is still overwhelming rural poverty (among nearly 500 million people) as millions yearly migrate to the major urban areas in search of work.  Tens of millions are underemployed.   And cost are rising dramatically for a rapidly aging population. 

Rather than focus on bettering the standard of living for the masses, the government has spent untold billions on wasted infrastructure and manufacturing facilities.  As a consequence, the household share of GDP has dropped to perilously low levels and, with it, consumption has as well.

All the while the unrest among the people, where even the middle-class standard of living has started to deteriorate, has been increasing and riots have become commonplace.   

The ruling class in Beijing must maintain an annual growth rate of 8-10% in order to keep a lid on a pot destined to boil over.   Unless the Chinese economy is rebalanced toward consumption, which can only be done by sharply reducing investment and credit growth, can China avoid a massive collapse.  That means empowering the people and forfeiting power, something the Party faithful are loath to, and incapable of doing.

American Thinker has been among the few sites that have sounded this alarm bell over the years and admonished the people of the United States not to fall prey to unrestrained fear of China.  They are an economic and potential military adversary, but they are not invincible.  As the Investor's Business Daily summarizes:

This is a big change from headlines reading "China Will Overtake U.S. Economy" and "Age of America Nears End" both of which we saw just last summer.

Sure, China may dodge its economic bullet.  But chances are it won't.  And when it happens, China's bust will make the EU's -- and -- U.S' seem tiny by comparison.

The United States can and will be the world's dominate economic power far into the future if the current regime in Washington is dispatched in November 2012 and a business friendly environment established which will lure major investment and job creation back to America as China will no longer be the magnet for investment and a stable manufacturing environment and the European Union will be in shambles.

Lost amid the Democrat/Media-produced circus side-show of whether Herman Cain is a serial sex-offender and the very real crisis in Europe is the deteriorating economic situation in China.   China, often portrayed as an unstoppable force in the media and among those who have given up on the United States, is on the verge of a major growth reversal bordering on a potential collapse.

Per the Investor's Business Daily:

The cause: China's imploding real estate market.  Since late summer, Chinese home prices have tumbled, partly a result of Chinese government policies intended to keep the economy from overheating.

Barclay's Capital Research predicts China's home prices will fall 10% to 30% next year, hitting the economy hard -- and putting at risk the Chinese economy's 20-year string of 10% average GDP growth.

Much of China's growth over the past three years has been fueled by a massive pile of debt.  Chinese banks have lent an astounding $8 Trillion since 2008 -- an amount that dwarfs the Eurozone's $4 Trillion in debt.

That debt binge is now abruptly ending as China begins to ratchet up interest rates and limit home buying to keep prices in line.  An epic bust is coming.

There is a general consensus that by 2013 growth will average 6% or less and that by 2018 it will be just 3.5%.   While that may sound terrific by current United States standards, it is a disaster for China.  The reason:  there is still overwhelming rural poverty (among nearly 500 million people) as millions yearly migrate to the major urban areas in search of work.  Tens of millions are underemployed.   And cost are rising dramatically for a rapidly aging population. 

Rather than focus on bettering the standard of living for the masses, the government has spent untold billions on wasted infrastructure and manufacturing facilities.  As a consequence, the household share of GDP has dropped to perilously low levels and, with it, consumption has as well.

All the while the unrest among the people, where even the middle-class standard of living has started to deteriorate, has been increasing and riots have become commonplace.   

The ruling class in Beijing must maintain an annual growth rate of 8-10% in order to keep a lid on a pot destined to boil over.   Unless the Chinese economy is rebalanced toward consumption, which can only be done by sharply reducing investment and credit growth, can China avoid a massive collapse.  That means empowering the people and forfeiting power, something the Party faithful are loath to, and incapable of doing.

American Thinker has been among the few sites that have sounded this alarm bell over the years and admonished the people of the United States not to fall prey to unrestrained fear of China.  They are an economic and potential military adversary, but they are not invincible.  As the Investor's Business Daily summarizes:

This is a big change from headlines reading "China Will Overtake U.S. Economy" and "Age of America Nears End" both of which we saw just last summer.

Sure, China may dodge its economic bullet.  But chances are it won't.  And when it happens, China's bust will make the EU's -- and -- U.S' seem tiny by comparison.

The United States can and will be the world's dominate economic power far into the future if the current regime in Washington is dispatched in November 2012 and a business friendly environment established which will lure major investment and job creation back to America as China will no longer be the magnet for investment and a stable manufacturing environment and the European Union will be in shambles.