As we headed out on the Happy Hooker from Doolin, the second mate sidled up beside me and whispered, “Not to worry, but hold on, there’s going to be a bit of rock ’n’ roll. Rock ’n’ roll is what he called it. The waves were enormous.
To keep my eyes from the wall of water crashing down, we nattered away – me nervously, yer man, chilled. While the islanders were unfazed, my group of Jackeen lads blanched at every swell.
The stoic locals told me that this year they’ve seen a surge in Chinese tourists. When they say a “surge”, they said they saw a good few busloads of Chinese tourists heading from Doolin to Aran for the first time ever.
Sitting outside An Teach Osta on Inishmaan is hardly the most obvious place from which to discuss events in China, but the odd thing about globalisation is that what was once remote becomes local and, in turn, what was local can be projected to the most remote parts of the world.
China matters to everyone.
This came home for me a few weeks back while making an upcoming documentary for RTE. While filming at a high-end luxury goods shop in London, the manager confided to me that close to 40 per cent of all the goods were sold in China.
The whole world is selling to China.
Take that in for a second.
We are so used to the expression “Made in China”, but we never use the expression “Sold to China”. This article is all about “Sold to China”.
Quite apart from being buyers of Irish tourism on remote Inishmaan, China is the world’s largest consumer of copper, steel, iron ore, cars, aluminum, mobile phones, nickel, rice, cigarettes, meat, Swiss watches, television, rubber, potash, energy, robots, beer, red wine, machine tools, dried milk, wheat, rare earths and coal, as well as many of the luxury goods that we associate with Europe and the US.
Because of China’s seemingly endless demand for everything, many companies – and entire countries – have built their business and economic strategies around selling to China.
As a result, since 2008 the global economic story has been not so much “Made in China” but “Bought by China”.
China’s story since 2008 is a bit like Ireland from 2000-2008. It is a story of easy money, easy lending and easy growth. Although I am no China expert, I fear China is hurtling towards recession.
The reverberations of the first great Chinese recession will be felt all over the world.
In 2008 when the world economy went into spasm, no country was more potentially exposed than China.
The reason for this is political. For the Communist Party to survive, it had to ensure no social tensions – the type of social tensions that come with recessions. The Chinese Politburo had seen what happened in the Soviet Union when the party lost control and the country went into a tailspin in 1990.
Beijing was determined not to make Moscow’s mistake. Therefore control of the economy was paramount.
Unlike most countries, China had money in 2008. While countries like Ireland needed other people’s money to survive, China had the cash. Having spent 20 years exporting to the world and building up massive foreign reserves, the Chinese government had money to spend. And they spent it.
After the global financial crisis, China pumped four trillion yuan ($586 billion in 2008 US dollars) into its economy to protect it from the global fallout.
The story of what happened next will be familiar to everyone in Ireland. The double-digit growth attracted foreign investment and as all this cash came in it drove up prices. Everything looked brilliant.
China has experienced the triumvirate that Ireland knows too well – (1) easy money, (2) easy lending leading to (3) easy growth.
The result tends to be too much investment, too much optimism and then too much extra borrowing. Again think of the dynamic in boomtime Ireland.
With everything going up and everything looking rosy, all sorts of investments looked attractive and the sky was the limit. Easy money begot yet more easy money. Chinese companies borrowed from “everywhere”; and “everywhere” was prepared to lend to Chinese companies. The whole world was beguiled by the “Made in China” idea.
This is when the whole world began to experience the “Sold to China” phenomenon.
Over the past few years, China’s borrowing has exploded. Today there is a huge $28 trillion of debt in China. This is the problem now. China is deeply in debt. Even though the debt is largely internal, it still has to be paid.
When the economy is growing at 8 per cent per annum, debts don’t matter so much, but when the economy slows quickly, debts become not only material, but hugely and horribly significant.
Now the process of too much debt, leading to bankruptcy, leading to more panic will take hold – as it did in Ireland. Good companies with too many debts will become bad companies with too much debt overnight. The money that flowed into China will flow out and the growth rate will fall. The problem for China is that after years of 7 per cent growth, a 4 per cent growth rate will feel like a recession.
We know in Ireland what happens to human nature when things suddenly turn for the worse. The Chinese are no different. Years of ridiculous optimism are followed by a bout of irrational pessimism. We are seeing this now in the Chinese stock market with greed rapidly giving way to fear. This torpor will spread to the real economy too – as it did in Ireland.
China is entering a recession not unlike that which afflicted Ireland and the US in 2008. This slump could well cripple China. I suppose, no better place to talk about cripples than Inishmaan.
Is this not a contradiction to a previous article a while back ? Anyway, I disagree. The main vulnerability of the Irish economy currently is NOT China. The main vulnerability is actually very obvious. It is the Nasdaq boom, and it’s secondary affect on the Dublin real estate market. The entire recovery is simply tagging along a record rate of US tech sector investment in Ireland. And investment that is completely at odds with the profit figures coming from that tech sector investment. The problem is that if you tell that truth, you undermine the Dublin housing market, in the… Read more »
I read recently that over 110 million Chinese were expected to travel overseas in 2014. I was on vacation in Paris in June, my first time there in about 10 years. I was amazed at the masses of Chinese everywhere, queueing up to visit Versailles, the Louvre, pleasure boats on the Seine. In Dublin, both Arnotts and Brown Thomas employ Chinese-speaking staff to cater for them. Golden times for well-known European holiday destinations.
2 articles today?
Off topic, I just saw this:
http://www.dailymail.co.uk/news/article-3216246/Barclays-UK-high-street-bank-accept-bitcoin.html
Hi all, Just testing the water with my first post – to make sure that I can do so again in the future. Interesting article and responses, as usual.
Why the real problem is ZIRP and not China.
http://www.zerohedge.com/news/2015-08-30/ron-paul-rages-blame-fed-not-china-stock-market-crash
The perennial policy repeat of endless ZIRP is not of any use to society, but it does feed asset bubbles that financially over-leverage the economy.
End result, more debt, less wage income. We are living in a policy framework where there is a continual series of policy initiatives to drive down real wages, whilst driving up debt.
That is the problem. It is a societal problem. It also is dodgy economics. But…..one sector of the economy gets massive profits, and bailouts for it’s losses.
Does Beijing have any idea what it is doing ? http://www.zerohedge.com/news/2015-08-30/policy-confusion-reigns-china-caps-muni-debt-uncaps-bank-debt-and-sees-bad-loans-soa In any case, this is not the main influence on the Irish economic predicament. The main influences are debt, cost competitiveness, a reliance on a Nasdaq bubble, persistent internal bottlenecks, policies that focus on driving up real estate prices, and state excess/inefficiency. Ireland is where those that work are regulated to work harder, and for less, so that the very wealthy can stay rich regardless of how useless they are. It economics to fit a perverse system of accountability. It goes back to the insiders versus outsiders theory of… Read more »
I heard one of the top Investment guys in The City comment last week on Bloomberg that The EU’s exposure to China was only 2% of GDP and hardly enough too precipitate a collapse in EU economies if things go “Tits-up” in the PRC.
I suppose sentiment and the cascade effect it can bring about might make things worse, but would it really put us all in penury ? How did world trade survive without the PRC miracle?
At least we’re not Australia.
We have to separate China and “the Chinese”. All over the world there are “Chinese” people but not necessarily from China. The Taiwanese people look Chinese and belong to the Chinese community but they actually hate the China Chinese for historic reasons and for the fact that the China Chinese people tend to be arrogant according to the Taiwanese locals. The Malaysian Chinese people would absolutely hate to be associated with China but they call themselves Chinese but certainly not Malaysians. Most people living outside China are most likely not from China, not even their parents. In fact you need… Read more »
WHAT IS CHINESE CONFIDENCE?
-> whatever THEY TELL YOU
.
.
THE GREAT CRASH OF CHINA?
BETTER WATCH WHAT YOU SAY
-> CAUSED BY EVIL JOURNALIST
DAVID -> WE ARE ALREADY LAME
http://www.washingtontimes.com/news/2014/dec/31/chinese-cannibalism-infant-flesh-outrages-world/?page=all
As Mike Marketing said we live or die by our exports. Our pharma and medical devices sector has moved us up the manufacturing value chain. The world has a billion more mouths to feed in the last 30 years.Our agricultural exports need to target the middle class mouths in that demographic. Our marine resources need to be reclaimed and processed through this Country and not Spain to add value for Ireland Inc. Ireland’s bulk milk exports for baby food is functionally equivalent to Australia exporting its commodities without adding any real value. Gold may leave the superpit in Kalgoorlie Western… Read more »
China crisis is over for this year, oil rising, Christmas coming.
Crash next year, maybe….
http://www.mint.ca/store/mint/about-the-mint/bullion-dna-8900026#.VeUeGSVVikq
Off Topic. Canadian mint perfects anti counterfeiting device . Each coin is identified with a unique laser inscription. Great guarantee of validity for Maple leaf gold and silver coins.
[…] Breaking China could cripple us all – Davidmcwilliams.ie Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – GoldSeek.com Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek […]
“Something” Just Happened.
I wish I understood it all and some of it appears to come straight out of Jim Corr’s little book of Conspiracy Theories but,it does sound scary. If true, it does put in perspective how China’s actions could damage the economy of the US – and thus that of Ireland. How much weight should we give to these “theories”?
http://news.goldseek.com/GoldSeek/1441037420.php
Peter
[…] Breaking China could cripple us all – Davidmcwilliams.ie Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – GoldSeek.com Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek […]
[…] Breaking China could cripple us all – Davidmcwilliams.ie Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – GoldSeek.com Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek […]
[…] Breaking China could cripple us all – Davidmcwilliams.ie Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – GoldSeek.com Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek […]
http://www.nysun.com/editorials/crazy/89270/www.nysun.com/editorials/crazy/89270/
This proposition going mainstream
More little coincidences. With immigration in the news (I nearly wrote ‘refugee crisis’ there) I have been thinking about the Father Ted episode where the Chinese take over Craggy Island, and the opening scene always shows Inis Oírr and the rusting hulk of that ship that was thrown up on the land in a storm. Only yesterday my son mentioned haikus and I was trying this for size: The Chinese people, A great bunch of lads. I can’t remember the name of the vessel but in one of my visits to the island in the early 90s the company operating… Read more »
Ok Another basic question.
So far people have been focusing on the need for a gold standard and the evils of the CBs.
My Question is this. How exactly will re-introducing the gold standard and dumping CBs make things better?
Put another way – What exactly is suddenly going to make the politicians start managing our economies properly/prudently and live by Mr McCawber’s rule.
Great graphics on the impact of China slowdown on rest of world.
http://www.theguardian.com/world/ng-interactive/2015/aug/26/china-economic-slowdown-world-imports
Peter
[…] Breaking China could cripple us all – Davidmcwilliams.ie Why a Fed Rate Hike Could Be a Blessing for Gold Prices: Brien Lundin – The Gold Report “Something” Just Happened! – Holter – GoldSeek.com Gold standard isn’t as crazy as today’s central banking – The New York Sun If China’s economy crashes, it will devastate the eurozone – and the UK – MoneyWeek […]
[…] Breaking China could cripple us all – Davidmcwilliams.ie […]
China is not the big worry.
We should be aware that the control of ther money system is control over the world.
The absolute control of money is absolute control.
Absolute control is tyranny.
A cashless society is absolute control of the money system, absolute control over the people and absolute tyranny.
There’s another very interesting meme starting to appear – that of an ‘anti-cash’ movement in the higher levels of the financial services sector. William Buiter- Chief economist at somewhere like Citibank, came out with a blistering attack against cash, and an FT editorial called cash a ‘barbarous relic’, and called for it’s complete removal. In the world of negative interest rates (e.g. Sweden), people simply take bundles of cash out of the bank, and out it under their beds. Remove the cash option, and people either spend their savings, ‘invest’ it in the financial markets, or lose it. Banning cash… Read more »
05:04 Macro Summary: China, posted lemetropolecafe and copied for you :) Markets: Greater Chinese shares end mixed: Greater Chinese shares ended mixed Monday. The Hang Seng and Shanghai Comp saw a late bounce to close up 0.3% and down 0.8% respectively, while Shenzhen closed near session lows down 3.1%. There were more reports that the government would scale back its share purchases, while reports that the government had asked brokerages to participate in a national rescue fund were cited as providing a boost to markets and those of continued regulatory crackdown on illicit trading as a headwind for brokerages. For… Read more »
In order to fix the currency system of the world we must first fix the political systems. The political system gave the CBs the power they have and it must take that power back. That’s it in a nutshell. Our conversation or my education regarding Inflation was mind blowing. I have put the same question to minds greater than mine and their blind acceptance of the 2% target was just as shocking as my own Eureka moment. The politicians most of whom don’t possess the same level of intellect have been duped too. (I’m giving them the benefit of the… Read more »
http://www.zerohedge.com/news/2015-09-02/its-tipping-point-marc-faber-warns-there-are-no-safe-assets-anymore “On Asian currency devaluation… and a Chinese economic collapse… Yes. These countries just followed the example of what Mr. Draghi and Kuroda tried to achieve with lowering the value of their currencies, which is actually to create a depression in real incomes and a contraction of world GDP in dollar terms, and a contraction of world trade in dollar terms, which is of course negative for economic growth around the world. Well, I mean, we have to put the achievements of China and also of President Xi in the context of what China was 20, 30 years ago, and… Read more »
http://www.globalresearch.ca/return-to-crisis-things-keep-getting-worse/5473321
Prepare for the worst and hope for the best.
Corporate executive share buy backs pump the markets enough to stop the fall—Temporarily.
” We expect the six year-long fake recovery to end much like it did in 1929, where one demoralizing selloff followed the other, and where the crashing of stock prices fueled the publics distrust of the central bank, the government and all of the nations main institutions. Here’s a brief summary from Galbraith’s masterpiece:”