China: Crunch Time

Seeking Alpha ^ | March 30,2010 | Peter Zeihan

[arthurus]

China has had an extraordinary run since 1980. But like Japan and Southeast Asia before it, dramatic growth rates cannot maintain themselves in perpetuity. Japan and non-Chinese East Asia didn’t collapse and disappear, but the crises of the 1990s did change the way the region worked. The driving force behind both the 1990 Japanese Crisis and the 1997 East Asian Crisis was that the countries involved did not maintain free capital markets. Those states managed capital to keep costs artificially low, giving them tremendous advantages over countries where capital was rationally priced. Of course, one cannot maintain irrational capital prices in perpetuity (as the United States is learning after its financial crisis); doing so eventually catches up. And this is what is happening in China now.

STRATFOR thus sees the Chinese economic system as inherently unstable

[mamelukesabre]

All I can say is it’s about time we quit coddling china. If obama had dropped obama care, cap and trade, and immigration reform, and then did this with china and then took on iran...I’d conclude he was a good president.

[bIlluminati]

Read several of their analyses. The comments on other web sites that republish the analysis is worth more than the analysis. It’s wrong on so many levels, I don’t know where to begin.

China started holding U.S. debt because that’s what other large countries do. When their U.S. debt grew large, they attempted to buy a U.S. oil company. That was shot down in the U.S. for political reasons. So, they’ve been buying resource companies and parts of companies (mines, oil fields) elsewhere, including Australia, Canada, Africa (many nations) and South America.

The writing of Stratfor appears suitable for Sunday supplements in the state run media, the IPCC, and other sources of fantasy. One better source would be the CIA public analysis, which although slanted, at least starts with the facts. In fact, I would like to unread the articles, and have the time and brain cells back.

[bIlluminati]

Continued: China is not happy with a 2% return on the investment, which is why it is investing in resource companies. It is already investing massively internally in China, and many of the investments in China are poor. That part of the article is correct. The Chinese are researching a politically acceptable way to invest in the U.S. that does not put the capital at risk later.

Because of that, China is unlikely to invest in Russia. They have invested in Venezuela, but are likely to protect that investment rather than add to it. Many Chinese investments are yielding 8-12% real term, so 2% on a fiat currency is frozen money.

What would make sense is for China to invest in U.S. real estate, starting with rental units for its large student population. From there, Chinese managers would get the experience needed to operate profitably in the U.S. market.

Or they could buy Detroit. With lots (houses may be repaired or torn down) as low as $1, they could buy 20,000 units of prime city locations for less than $1 billion and build a new Shanghai in a couple of years once palms were greased. Las Vegas would be more expensive, but there are also many available units on the market.

And it would be good for the U.S. too. Go to Toronto or Vancouver and compare either to a similar sized American city. Both have large Chinese populations from Hong Kong, and both are doing well economically.

[bIlluminati]

(01/2006) Mr. Zeihan is a Senior Analyst with Strategic Forecasting, Inc., serving as the company’s chief analyst for global economic issues.He plays a central role in the development of Stratfor’s political and economic forecasts for the states of the former Soviet Union and Europe.He has been with Stratfor for five years, during which he has also directed the creation of a global energy analysis product designed to serve the needs of senior executives within the energy sector.Prior to joining Stratfor, Mr. Zeihan worked with the U.S. Embassy in Canberra, Australia, and was formerly Susan Eisenhower’s office coordinator while with the Center for Political and Strategic Studies in Washington, D.C. In such capacities, he regularly analyzed developments in Asia, Europe, and the former Soviet Union, while producing briefs and publications for a variety of clients.He has a master’s degree in political and economic development from the Patterson School of Diplomacy, a postgraduate diploma in Asian studies from the University of Otago in New Zealand, and a bachelor of science in political science from Truman State University.

Some of Zeihan’s analysis and information is good, and some of his speculation, like speculation anywhere, appears to me to come to implausible conclusions. E.g. He expects Germany and Russia to get closer (think 1939), and says that Russia is Germany’s #1 trade partner. But imports from and exports to Russia are less than trade with either Belgium or the Netherlands. Facts wrong, conclusion suspect.

[Niuhuru]

“they’ve been buying resource companies and parts of companies (mines, oil fields) elsewhere, including Australia, Canada, Africa (many nations) and South America.”

And welcoming our companies by not persecuting them all the time and they don’t allow people like Jesse Jackson to show up and extort from them.