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Thursday, January 7, 2016

IS CHINA FINALLY CRASHING?

I've long and regularly posted on China.  Here is one future I suggested more than two years ago.  Last year I compared the stock markets of the U.S., China and Japan.  Here is the latest historic comparison, Dow Jones on top and China below:




We'll see what happens today, but the Shanghai Stock Exchange has been  halted twice just this week, after sinking 7% each time.  The equivalent of 7% for the Dow is around 1100.  The Chinese Yuan is also sinking:


All this metastability with China dropped the Dow Jones almost 400 at this writing, while oil at one point sunk to $32/barrel (but recovered to $33/bbl for the day):


So it's not as simple as China crashing and the world, by comparison, thriving.  When in 2008 the American stock market almost went into depression, the world suffered.  When the largest world economy in terms of purchasing power, China, sneezes, the worldwide contagion is immediate.

In March of 2014 David Stockman (yes, that David Stockman of the Reagan Era) wrote:

China is the greatest construction boom and credit bubble in recorded history. An entire nation of 1.3 billion has gone mad building, borrowing, speculating, scheming, cheating, lying and stealing.

Simple monetary madness, also known as a Ponzi Scheme, he said.

In August of last year Bloomberg blared, China is Crashing.  However, the government intervened and all mostly stabilized, until now.

The Washington Post this past September asked, Will China Crash?  Japan's bubble burst in 1989 because the economy was driven by low credit.  The Nikkei 225 is today only half of what it was a quarter century ago.  China appears to be making the same mistake.  Hmmm....isn't this similarly being mandated by the Federal Reserve Board of the USA?


Most importantly, are the people happy?  Nope.  There are hundreds of daily protests across the country you never read about because the government controls the media.  The latest data I could find suggested 180,000 separate protests in 2010, but mostly on local level issues.  We have black, white and brown unrest, but China has 55 significant minority groups, all unhappy.  Efforts are being made to move Han Chinese (92% of the population) into some of these areas, but problems are escalating.  A huge concern is the internet, coupled with a growing mass of college graduates (7.5 million/year) who can't find adequate jobs

Finally, what will the two-child policy do?  Turns out rural regions already had reproductive freedom and people in large cities don't want children.  Countries like Singapore and Japan are already down to 1.6 workers/retired person.  China will be headed in that direction even when given the second child option, for the economy trumps births.


I've stopped going to mainland China, and many others, too, because the air pollution is horrendous.  Sure, the country seems surprisingly progressive on the matter of global warming control, but that is mostly spurred by their noxious atmosphere caused by burning coal.  The Air Pollution Index of mid-town Beijing today is a green 38, but southern Beijing goes up to a dangerous 327. (Anything above 300 is hazardous.)  You probably don't read much about their toxic water pollution, but I was in Shanghai  in 2013 when thousands of dead pigs floated down the Huangpu River, from where the city's water comes.

So will China crash?  Someday, maybe, but not this year.  Something more cataclysmic than the above will need to happen to catalyze any significant doom.  This could be a tough 2016 for world stock markets, but China and the world at large will survive to experience a total eclipse of the Sun (March 9, but only in the region of Indonesia), Summer Olympics in Brazil (August 5-21) and Fall Presidential Election (November 8) in the USA.

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