The End of Communist Party Rule in China?
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Jack Delano “FOR US, BONDS : Chicago, Union Station” January 1943 The more I read about China, the more chaotic it seems to become, and the more I sta
[See the full post at: The End of Communist Party Rule in China?]Excellent investigative work; great article.
“That’s correct, but that is also why China is now heading to catastrophic failure. Because Chinese leaders have the power to prevent corrections, they do so. Because they do so, the underlying imbalances become larger. Because the underlying imbalances become larger, the inevitable corrections are severe. Downturns, which Beijing hates, are essential, allowing adjustments to be made while they are still relatively minor. The last year-on-year contraction in China’s gross domestic product, according to the official National Bureau of Statistics, occurred in 1976, the year Mao Zedong died.”
The last correction happened in 1976. Two-thirds of all profits made in China end up in U.S./Japanese/European hands – two-thirds! That’s a lot of moola. I wonder how much say the multinational corporations have in what goes on in China and the “preventing of corrections”.
Naked Capitalism had a piece re the stalling Trans-Pacific Partnership talks. The author said:
“Many of the anti-TPP stances [in Asia] are underpinned by a desire of corrupt, cronyism-riddled governments to hang on to their cosy status quos. […] If the TPP is on the other hand merely the US government doing the bidding of one of its main vested interests and biggest group of political donors (the multinational corporations) and asking the respondent TPP countries in the Pacific Rim to go against their own vested interests (such as subsidised agricultural producers or State Owned Enterprises) then the US will have to buy off the politicians in those countries with some political favours.”
I wonder if China wasn’t bought off way back when Nixon visited there. After all, it’s been up, up and away for China ever since. Perhaps the elite have been making hay while the sun shines, preventing any downturns or crises, and are now fleeing the country while they’ve still got clothes on their backs.
Communist Party? I’m thinking it should probably have been called the Corruption Party or the Just-Us Party. They’ve stuffed their suitcases with cash and our western governments are giving them a nice welcome at the Immigration desk. They’re doing all they can to prevent a correction in order to save their own hides.
Someone else said: “China’s leaders are riding a runaway train that they don’t quite know how to stop. And they’re running out of track.”
All Central Banks are doing this. They’re all in collusion.
Here’s another article by Gordon Chang re China’s real estate market. He says there is a huge overhang of units for sale: “In a normal economy, an overhang of this sort would depress prices, but in China many developers do not have to dump units because they are not allowed to go bankrupt. Cities have informal quotas for business failures, so the country now has zombie developers, dead but still walking.”
He goes on to say that the most important reason that properties keep rising is there is just too much money in China: government liquidity and shadow banking. He said, “At some point, unrestrained credit creation will lead to a disaster of its own.”
https://www.forbes.com/sites/gordonchang/2014/01/05/your-best-investment-in-china-in-2014/
Runaway train – no kidding!
“Beijing Goes Hunting for Overseas Real Estate Bought with Dirty Money”:
Beijing goes hunting for overseas real estate bought with dirty money
“In July [2013] Canada and China agreed to seize, share and return the proceeds of crime,” but not so in the U.S. The U.S. and China have no such agreement. We will see what Canada comes up with; they stopped keeping records, so they say. They record every other piece of information, but not that. Gee, I wonder why.
I’m getting too cynical.
Corruption is inevitable in a one party state. Not that corruption is absent anywhere but it’s always worst in single party states. I used to ponder this about China but began to think of not corruption so much as just the sheer volume of money that is exiting. If the money is ill gotten or not is perhaps secondary. At least as far as the global financial system. Of course it could be a gigantic issue in China starting as a domestic political problem. Trying to predict anything about that is probably impossible or extrapolating the global consequences would be impossible times ten.
These articles giving numbers to offshore money give some indication of the scale. But how much if the money is in the control of the individuals and how much is invested on their behalf by managers? Individuals probably would not liquidate but what about wealth managers and funds? Could such funds end up being orphaned by disappearing managers or individuals who are prevented from or unable to manage the accounts? Are very wealthy individuals leaving with their families so as to help guarantee access to their assets.? Are many planning too if the political situation gets volatile? Questions abound.
Maybe the first issue will be a slowing of money flowing out of China into the global financial system? The visible liquidity situation as followed by Lee Adler has the current situation as extremely positive yet the markets in the new year are anything but. Could Chinese flows, lack of same, or liquidations be playing a part? I wouldn’t bet against it.
Somebody mentioned that this China Credit Trust default warning would be a very odd trigger for a panic because it is so visible so far in advance. The markets never ring a bell to announce a real big move. Such well publicized stories usually act as a hook to get the max amount of people on the wrong side of a trade. If everyone is talking about Jan 31 as a D Day, don’t count on it.
When the 5-Year Treasury Note hits 2%, buy it. We won’t see 2% CPI for many years. And after June 2014, the CPI including food and fuel won’t see 1% for a long time to come. Current 5-year note yield is about 1.7%. We’ll get to 2% later this year. The equity market still has momentum and Treasuries will lose a bit more ground before the trade of a lifetime emerges. Everyone save Gary Schiling hates long dated Treasuries. And that’s exactly where you want to be.
Within a few months, investments offering safe 2% yield will be hard to come by. And a 5 year time horizon is just about perfect. The likelihood of a US default within 5 years is nearly zero. You can sit and stare out the window with 2% nominal with 3-5% real. If you want to cash in your chips early, 15-25% capital gains are a certainty. Evidence? Look at how the 1-month Treasury Bill has regularly dipped negative in recent days when the market dips from all-time nominal highs. A year or two from now, the 5 year note will be yielding close to zero.
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