China’s Economic Bubble?

Economies based heavily on exports have systemic weaknesses because they rely on other countries for economic growth. For example, Japan gets hit particularly hard when the US economy turns south especially because it relies so heavily on US consumptive power to fill its domestic markets with capital and cash. This is especially the case with China: an economy run on exports and highly undervalued currency. Furthermore, recent Chinese government expenditures have been regularly cited for creating a false bubble in Chinese manufacturing that will soon come to an end.

Something to note about trade imbalances: our trade imbalance with China is not necessarily a bad thing because China is giving away real products for cash (which isn’t based on gold anymore). China gives away its own raw materials to add numbers to their bank accounts (which is quite terrifying from a Chinese perspective). Furthermore, US trade imbalances with China are offset by the shrinking of traditional deficits with other Asian nations. Essentially, trade deficits have been shifted to China so while the US-China deficit increases it essentially shifts away from other countries. However, policy makers are increasingly encouraging China to shoulder some of the global consumption burden and it has been a hallmark of Geithner and Obama’s foreign economic policy.

See this link concerning Chinese consumption: http://seekingalpha.com/article/176785-the-difficult-arithmetic-of-chinese-consumption

All this unhealthy economics is worrisome. Some do not think that it will cause economic ruin in China. I personally do not think that China’s growth will be hurt in the near future but some people do. They believe that China is cooking the books and faking its economic numbers. See the link below.

http://finance.yahoo.com/banking-budgeting/article/108534/contrarian-investor-sees-economic-crash-in-china?sec=topStories&pos=7&asset=&ccode

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