China and its economy - The Myth and reality

"China can't save the world. It can only help itself," CIC Chairman Lou
Jiwei said here Wednesday. "Right now, we do not have the courage to invest
in financial institutions," Lou said, citing the losses of its early
investment in Morgan Stanley and Blackstone Group.

By John Ross Crooks, III

If you want to know how far this financial crisis has stretched, look no
further than China.

Just last year, China was the economic god, a paragon among mortals - and
for good reason. China has had the fastest growing economy in the world for
decades. The Chinese government has amassed trillions in reserves, while
building up a trade surplus just last year of US$262.2 billion.

But lately, China's fundamentals have been breaking down, one by one, like
massive dominoes.

a.. Manufacturing in China just shrank by its largest margin EVER.
b.. China's GDP growth for next year is projected to be around 7.5% -
that's down from an 11.5% pace not long ago.
c.. China recently adopted its own US$586 billion stimulus plan to try to
jumpstart growth. (Notice: That's more than twice China's trade surplus of
last year - it's also nearly as much as the U.S. plans to spend on its
US$700 Billion TARP bailout plan.)
d.. Housing prices are dropping in Shanghai, Shenzhen and Guangzhou.
e.. The central bank just slashed rates by the most in 11 years.
A Worldwide Cleansing System Starts in China
You can trace all China's problems back to their now broken export model.
For years, China has played the middleman between Asia and the United
States.

Their low-cost, cheap-labor production model dictated that they grab input
products and other raw materials from nearby developing nations.

The Chinese then used those low-cost resources to build their goods and ship
them off to the U.S. and other developed nations. China's Asian neighbors
depended on China to continue this cycle to fuel their own export-driven
economies.

As a result of receding liquidity, U.S. consumers (and others) have a
shrinking appetite for cheap goods, so they spend even less.

So, China is now losing its best customer, the U.S., thanks to the
recession. It is also selling less to other developed nations of the world.
This hurts all the emerging Asian economies that depend on China to buy
their inputs. It's a vicious cycle.

http://www.worldcurrencywatch.com/2008/12/03/why-china-cant-save-the-global-economy/



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