In my post at http://gordonfeil.blogspot.ca/2016/11/too-late-for-china.html I have discussed China and its falling reserves. These are down to about 3 trillion dollars now, but some of this is in illiquid investments…..probably a lot actually. And a huge amount will be needed to bail out Chinese banks. Maybe there is a trillion that is liquid and unencumbered. About enough for 12 to 18 months of cash deficits. China is going broke. Its capital outflows, despite high interest rates, is eating up its cash.
The Chinese would like to devaluate their yuan. This would reduce the real cost of interest and it would reduce outflows in dollar terms and maybe even help exports, but now that they got their way to get the yuan included in the basket of SDR currencies, they can’t very easily devaluate. No, China is in big trouble.
I was speaking today with a professional from China who now lives in Canada, but who still visits China frequently. He described an appalling level of corruption that he says has affected all occupations. Doctors prescribing hospital stays at $8000 a day for flu patients and receiving a 30-40% commission on the charges. Teachers holding private classes evenings and weekends for their students for exorbitant fees, and not teaching during the day so that the students are compelled to attend the high priced after hours classes so they can learn. And here I thought the Chinese students spent so much time in school out of their parents’ desire to see the children excel at academics. People routinely refusing to help anyone injured in case they are accused of causing it and are sued for damages. On and on went the examples.
Huge amounts of materials and labor are being spent on houses to replace other houses that are sometimes only 10 years old when they are destroyed, or on ghost cities. In economic terms, those labor hours may just as well have been vacation and the materials might as well have been blown up in a war. This is not the way to prosperity.
No, China is in trouble.
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