China’s epic hangover begins – Telegraph
“The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow.”
“There is so much spare capacity that they will start dumping goods, risking a deflation shock for the rest of the world. It no surpise that China has just imposed tariffs on imports of GM cars. I think it is highly likely that China will devalue the yuan next year, risking a trade war,” he said.
China’s $3.2 trillion foreign reserves have been falling for three months despite the trade surplus. Hot money is flowing out of the country. “One-way capital inflow or one-way bets on a yuan rise have become history. Our foreign reserves are basically falling every day,” said Li Yang, a former central bank rate-setter.
The reserve loss acts as a form of monetary tightening, exactly the opposite of the effect during the boom. The reserves cannot be tapped to prop up China’s internal banking system. To do so would mean repatriating the money – now in US Treasuries and European bonds – pushing up the yuan at the worst moment.
The economy is badly out of kilter. Consumption has fallen from 48pc to 36pc of GDP since the late 1990s. Investment has risen to 50pc of GDP. This is off the charts, even by the standards of Japan, Korea or Tawian during their catch-up spurts. Nothing like it has been seen before in modern times.
The argument comparing china with India and Brazil is specious. Comparing India which has an internal consumption led economy which is largely export agnostic with an export led China is bad reporting. The foreign capital will leave because USA is the only “safe” investment or a general move out of developing markets to USA. China might crash due to overcapacity. India might crash due to it’s stupidity/inflation or that of it’s government’s action. The paralysis of Indian government is the only event which can save India. They seem intent on killing themselves with social welfare legislation which can’t be paid for without huge public debt.
Just reports which are not well reasoned are not worth reading.