LETTERS

Beneath surface, China economy faces problems

Posted 7/28/15

To the Editor:

To the astute that study financial markets (and history), know that the current China stock market decline is only a drop in the bucket, compared would could happen in the future to …

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LETTERS

Beneath surface, China economy faces problems

Posted

To the Editor:

To the astute that study financial markets (and history), know that the current China stock market decline is only a drop in the bucket, compared would could happen in the future to that stock market. China operates a planned economy. The government decides what is to be produced, and where and how. And to prop this system up the government prints and spends huge amounts of money; similar to printing and distributing monopoly money. The money is certainly not based on any hard standard such as gold or a balance of payments with other nations; they simply print and print. But the short-term benefit of all this “free” money is a booming economy. The China economy resembles the U.S. economy in the late 1800s/early 1900s. In fact, until recently China’s two main stock markets resembled the US stock market of the 1920’s. In fact the Chinese economy has boomed so much in the last decade that China has laid more concrete for building projects in the last decade than the United States did in all of the 20th century. Simply an astounding fact! 

All seems well, but if you look beneath the surface there are some rather disturbing things to realize. All of the China debt (public and private) amounts to almost 3 times the annual gross domestic product of the whole country; a level of debt that rivals even some third world countries. The Chinese economy is very dependent on the United States not having a manufacturing base. If and when the U.S. sees the wisdom in reviving their own manufacturing base (and the U.S. may have to) then China will have not have a huge market to sell its products. And do not forget the huge debt China has accumulated will have to be paid some day. 

In the future China may have so much debt that it will no longer be able to prop up it’s economy by printing paper. When this happens look for the overvalued (and propped up) stock market to sink like a rock. A drop in the bucket may become a Tsunami washing away any confidence at all in the Chinese economy. Twenty years from now a popular aphorism of the day may not be, “as worthless as a three dollar bill,” but “as worthless as a Chinese stock! “

Kevin Vealey

Warwick

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  • georgecarver

    Interesting and always appreciated topic. Nice job Mr. Vealey!

    Being stripped of most manufactured items/capability, I often wonder how the US will fair out should China no longer be able to produce all the goods they do.

    We have lost most of our tool makers and would have one heck of a ramp up requirement....this coupled with the US debt being the largest in the world in dollars and about #3 d when measured by GDP could create a challenge. Over 40,000 manufacturing jobs lost in RI alone over recent times. Perhaps our federal government at some point will balance out tariffs , quotas and currency valuations with China at some point . Not to mention, environmental and human welfare and rights in the work place. Time will tell.

    Thursday, July 30, 2015 Report this