Global Economic Crisis

Official figures from Beijing indicate  that the Chinese economy grew by 7.5 percent in Q2 of 2013. In a developed economy, that would be considered stellar growth. In China, however, where economic dynamics (and economic data transparency) functions acutely different from a typical advanced economy, this number is alarming. It represents a sharp contraction in growth,  far removed from the sweet days prior to the onset of the global economic crisis, when annual growth rates routinely exceeded 10 percent.

China’s economic model was based on export led growth, facilitated by low labor costs. As recession-plagued Europe, in particular, can no longer sustain a growth in exports from China, fiscal and monetary stimulus is substituting in an effort to extract some level of expansion in China’s economy. What is in fact occurring is the proliferation of massive bubbles, particularly in real estate. Much of the GDP growth  in China is based on industrial, commercial and especially residential real estate construction funded by easy credit. The number of unoccupied homes and office complexes is rising, leaving China’s economy vulnerable to massive bubble implosions on the level that afflicted the U.S. property market in 2007.

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Hillary Clinton Nude

Hillary Clinton Nude

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HILLARY CLINTON NUDE

WALL STREET KILLS--A CHILLING NOVEL ABOUT WALL STREET GREED GONE MAD

To view the official trailer YouTube video for “Wall Street Kills,” click image below:

Wall Street Kills-Official Trailer

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It is the epitome of all ironies. A supposedly workers Marxist/Communist political entity, the Peoples Republic of China, is in reality capitalism’s ultimate creation: an authoritarian  workshop for multinational corporations, that keeps wages at  the lowest possible levels, while making strikes and plant shutdowns by workers strictly illegal. This enforced low-wage corporate model is the basis behind China’s export boom and economic ascendancy. However, despite government pressure, cracks are beginning to appear in the façade.

Strikes are breaking out throughout China. The factory of the world is in revolt, with workers unrest growing like wildfire. Most recently, plants that produce parts for the Japanese automakers Honda and Toyota have been hit by labor shutdowns. In virtually every case that has become publicly exposed, the employers have been forced to provide large pay rises as the price of ending the strike. Illegal or not, the strike has emerged as a potent and popular labor weapon across the shop floors of the factory of the world.

There are profound economic and political ramifications related to China’s growing labor unrest. Inflation is increasing in China amid asset bubbles fed by Beijing’s loose fiscal and monetary policies. The Chinese workers are becoming increasingly militant in reacting to the widening gap between rich and poor in this supposedly classless communist nation. What is at risk is the very essence of what has thus far enabled China to compete on the world stage and emerge as the primary global exporter. Also at risk is the ability of the central government to profit from a low wage economy, in the process building up huge cash reserves. In large part, these reserves are what has enabled the Chinese sovereign fund to invest in U.S. Treasuries.

This is potentially a huge story, bigger than many currently appreciate, given that the Chinese authorities have probably suppressed the news concerning most strikes and workers demonstrations in China.  What we have learned about the strikes at Honda and Toyota plants in China is merely the tip of the iceberg of labor discontent in China, a factor that may in time create severe obstacles for the Chinese and global economy.

The world’s third largest economy is sending worrying signals to those whose best hopes for an end to the Global Economic Crisis reside with China. Though Chinese growth projections seems spectacular in a recessionary world, with estimates ranging from 8% to above 9%, there is both more and less to these numbers than meets the eye.

The superstructure underlying China’s impressive growth rate over the past decade and more has been exports, especially to the American consumer, with facilitation from credit flows emanating from Beijing. In a situation where the central government is priming the stimulus pump, growth is being artificially created to a large extent, since domestic demand cannot compensate for China’s ravaged export markets. Factories may still be manufacturing export goods, however, the inventories are surging while shipments abroad are contracting. That appears to be the message revealed in new figures on China’s economic performance.

According to China’s  customs bureau, exports in July declined a staggering  23% from a year ago. This number is apocalyptic, yet on paper China’s GDP keeps soaring. How can an export driven mega-economy experience significant growth simultaneously with its core export sector undergoing a free fall contraction? By flooding the economy with liquidity through  monetary easing, it would appear. However, this is not a recipe for long-term, sustained growth. This policy will only succeed if there is a rapid turnaround in China’s export trade. That is a dim prospect, in light of the continuing decline in employment numbers in most of China’s key export markets, especially the United States and the Eurozone.

Another  revealing statistic to emerge from Beijing involves lending. The first 6 months of 2009 involved a floodtide of easy credit saturating  the Chinese economy. However, in July new loans declined by a massive three quarters from the prior month. It seems policymakers in China are getting more concerned about  the prospect that overly-loose credit will fuel an asset bubble in Chinese equities and real estate, while leading to an increase in loan defaults in the future.

Taken together, we see China engaged in a a series of massive interventions and policy actions in response to the Global Economic Crisis that are not dissimilar from other major economies. These steps are predicated on the hope that massive pump priming will keep the economy from imploding until there is a global recovery, enabling China’s export trade to resume its upward trajectory.

In my view, despite the rosy growth projections, the underlying fundamentals of China’s economy are based on fragile assumptions. If demand for China’s export goods from overseas consumers remains far under peak demand levels for a sustained period, Beijing will confront this reality: the nation’s massive export manufacturing infrastructure cannot indefinitely employ workers who fabricate products that pile up on the docks of China’s major ports. That is the nightmare scenario China’s leadership circles pray never unfolds.

The global economic crisis accelerated the US trade deficit, which rose in October by 1.1 percent to 57.2 billion dollars. The October results also showed that America’s trade gap with China had widened, according to U.S. government official figures.

The trade numbers caught economists and experts off guard, as they had forecasted a drop to $53.5 billion. Results show that the American trade deficit with China grew slightly to $27.9 billion in October from 27.8 billion dollars the previous month. The U.S. Commerce Department released the trade figures.

The trade results also show that total trade volume had fallen by 1.7 percent. Declines were registered in imports and exports, a manifestation of the growing impact of the global economic crisis in both the United States and throughout the world. October imports declined by 1.4 percent from September to 208.9 billion dollars. Exports also showed a decline, dropping 2.4 percent to 151.7 billion dollars.

The dismal trade figures highlighted the third straight month of a drop in both imports and exports. The Commerce Department numbers reflect a weakening in the performance of the U.S. economy simultaneously with a reduction of international trade. In the first ten months of 2008 the cumulative American trade deficit was a staggering $590.9 billion.