It is hay fever season again. I know it is because my eyes are streaming. I look at my son and see that I have passed on the nasty hay-fever gene to him too as he struggles with puffy eyes, itchy throat and constant sneezing and wheezing. For the next while, we’ll be watching the pollen count like hawks, but the hay-fever season will pass. It always does.
The horrible blocked-up feeling we hay-fever sufferers have to endure comes in without warning, stays right through the Leaving Cert and hangs around for most of the summer. At least we can comfort ourselves that it is seasonal.
A few years ago on a visit to China, I suffered the same allergic-type symptoms. But there was no pollen. It was pure industrial pollution. This type of pollution is not seasonal and as the Chinese economy slows down rapidly, one of the permanent legacies of the 30-year boom is mass environmental degradation.
China has had the mother of all booms, which lifted incomes dramatically but left behind debt, political corruption and massive environmental mess. Like Ireland, when the economy falters, China will have to a deal with a huge debt burden and the Communist Party will face a significant battle for political legitimacy as the dodgy deals of the past 10 years come into view. Writing from China in 2010, I suggested that even though America then was on its knees suffering from a huge post-boom hangover, which people compared to the 1930s, it was China that might come to reflect Steinbeck’s ‘Grapes of Wrath’.
In 2010, China was booming like the “Roaring Twenties” in the US; clubs were opening in Shanghai, people were borrowing for flashy cars, luxury goods and high-end apartment developments. All the while, millions of poor workers flooded into the cities looking for work.
Yesterday, I hopped into a taxi and the driver was a polite young man from Shanghai. We got chatting and I asked him why he was here.
He laughed and stated bluntly: “China is over”. His friends back home were up to their gills in debt and the prices of their apartments – which they had paid small fortunes for – were falling. Does this all sound familiar?
It should sound like a similar playlist to ours, because China is about to experience a massive credit contraction, leaving not ghost estates but ghost cities and millions, not thousands, in negative equity. This development will have significant ramifications for the entire globe. It will not reverse the big trend of more and more of the world’s economic activity moving to Asia. Nor will it change the fact that China will overtake America as the world’s biggest economy within a generation; but it will make the ride bumpier for all of us. After three decades of annual economic growth averaging around 10pc, growth has slowed to 7.7pc. In China, retail sales growth last month slid to 12.6pc from 15.2pc at the end of 2012.
This does not sound too bad, but as we saw in Ireland, economies where there is a lot of debt, can move from rude health to extreme fragility very quickly.
China continues to have one of the world’s fastest-expanding economies, but annual growth rates are now half of the 14.2pc in 2007. Demand for Chinese goods abroad and breakneck investment at home have since slowed. Like Ireland, China could be facing an investment-led slump, where the massive and reckless investment of the boom ends up not being used.
Politically, this change is having significant impacts. The Chinese top brass are altering their behaviour as they look forward to a post-boom world.
In a recent official visit, President Xi Jinping stayed at a small hotel in Hubei Province. His humility is contagious. After all, mimicking the boss is the best way to keep your job in one-party dictatorships. Reports from China indicate that to avoid appearing flash, lower-ranking officials are suddenly shunning five-star hotels. The new austerity is deflating luxury markets for art, entertainment and clothing.
According to a recent ‘Wall Street Journal’ account, Louis Vuitton and Hermes products are being sold second-hand by people who need cash quickly to pay huge debts.
The mainstream press in the West (and many of the mainstream economists) have not picked up on the transformation and are still raving about China.
They have not twigged – even after everything that has happened – that a country with the world’s largest foreign reserves can actually experience a debt crisis. So even though China holds $3 trillion in foreign reserves (largely in US Treasuries) its internal debts are estimated at a menacing 20pc to 40pc of its economy. This is an enormous range and could be anywhere from $1.6 trillion to $3.2 trillion!
Apart from possibly more Chinese taxi drivers in Dublin, what would a sharp slowdown in China mean for the world? First, the Chinese property market would slump, and then the banking system would implode. This will force the Chinese government to divert enormous resources into propping up the banking system.
The prices for commodities all over the world will continue to fall because, without Chinese demand, who will want all the world’s commodities? In addition, those countries that supplied China with technological know-how and capital goods, such as Germany, will see its export growth slow sharply. Likewise, international trade will slow down around the world, leading to fewer industrial orders.
This will imply that the growth forecast of the EU, which has always been hopefully optimistic, will slip from here. On the plus side, this implies that the austerity agenda, which is already in retreat, will be knocked back further, not just here, but all over Europe.
Politically it remains to be seen whether the Chinese Communist Party will survive a slowdown in growth. Having replaced the Maoist slogan of “equality for all” with “prosperity for all”, if they don’t deliver on the latter can they fall back on the former?
Expect lots of change coming from the East – possibly before the next hay fever season is upon us.
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Sounds like there might be more than the economy changing in China, could we see something like the Arab Spring starting? The Falun Gong who were behind the Tiananmen Square protests have not hone away.
The global economic system is very unstable, I always believed a “black swan” would appear. This is a possible candidate. The old J.P. Morgan (?) wisdom “buy land God ain’t making any more” , seems to be the root of Irelands and now the world’s economic problems. The root problems (of course) are even deeper and concern mans wish to enslave others. Example of slavery, Irish state and semi-state (Civil Service, ESB, Aer Lingus, Board Na Mona, TSB, AIB etc) , huge (60% of end pay) guaranteed pensions, guaranteed by my work, while my own pension is now almost zero.… Read more »
Now, DMcW posters…. …imagine the Chinese equivalent of Joe Duffy’s radio show. …imagine countless Chinese calling in, complaining about how they are finding it so haaaaard to pay for the Mr and Mrs BMW and Merc the couple bought last year, how the bank won’t give them yet more debt to help them pay off their existing mountain of debt, and how the banks are at fault for giving them money to buy Louis Vuitton handbags, holidays in Europe, family outings to the Chinese Disneyland, private tuition for grinds and gymnastics lessons with the top teachers for little Li or… Read more »
Sustainability and balance. Seems we cannot get these right – ever. We seem to flip flop from one extreme to another. Boom/Bust, Export oriented/ Import Oroented. The idea of every economic region being capable of being self contained to a “reasonably” large degree does not seem to exist. You can see the collapse…Example, US collapses to Asia which collapses and bring down export oriented Germany which collapses Europe and so on. Now, I can see Glas Steageall being waved around the place suggesting it can all be done by fixing banks. And the metallists will be telling us that we… Read more »
Not certain it’s only the Chinese (or any other nation, for that matter) that needs the ‘lessons learned’ approach. These are lessons learned at your granny’s knees. Never trust salesmen bearing the nuclear holocaust of derivative ‘gifts’. Had our natural talent for greed not overtaken our lessons learned, we’d have all been a lot more comfortable than we are today.
Eireannach- you say that the people of the world are “uneducated suckers” or “rats”. Does this not mean that you need the educated decision makers to create an environment in which the “uneducated suckers” cannot get such easy credit and destory themselves and the economy? It`s hard for the “uneducated” to turn down half a million in easy credit especially when it becomes the norm. The Irish government created an environment where ‘everybody is doing it so it must be the right thing to do’.
Chinese and American Dreams: Christopher Lewis May 7, 2013 (LPAC)–Chinese President and Party Head, Xi Jinping, has taken up the theme of the “Chinese Dream” of economic, social, and political progress in China, erasing the echoes of colonial humiliation dating back to the Portuguese in Macau. The Global Times, a publication of the CCP, asked an array of Chinese and internationally known experts about relevant aspects. They included retired American Ambassador Charles W. Freeman; Wang Huiyao, director general of Center for China and Globalization, a think tank based in Beijing; and Christopher Lewis, “an expert with the Schiller Institute in… Read more »
Looks likes David is ahead of the game again. I can’t help but note that China has huge amounts of debt to add to the huge amounts in America and Europe. Everywhere you looks there’s debt and yet if banks lent out other people’s deposits there’s no way this could be the case.
Of course banks create the money they lend and hence every euro, dollar, yuan etc. has a matching debt. Why are economists surprised that economies have debt problems?
DMcW, I must wonder what you are up to. Referring to the report How London, Wall Street Backed Japan’s War Against China and Sun Yat Sen by Mike Billington. we have a quote from Liang, arch enemy of China’s Sun Yat-Sen : Like Mazzini, Liang admired, above all others, the British Parliamentary system and the Anglo-Saxon race (“a race greatly endowed with the spirit of independence and self-reliance—the Chinese must learn from the Anglo-Saxons”). Taken from Tang Xiaobing, Global Space and the Nationalist Discourse of Modernity: The Historical Thinking of Liang Qichao, 1996. Is the lead a parody of British… Read more »
China is not finished. They made mistakes. The issue is how will the fix them. Will they do like most of the Western World, and pump the populace with positivity on the Orwellian crowd mind control device ? Will they do like Japan, France, the UK and the US, and borrow and stimulate ? Will the do like South Korea, Malaysia, Taiwan, and Thailand, and burn the malinvestment ? I reckon that we are underestimating China. Forget the overestimation hype from the “news” media, over recent years. That is all designed to encourage the Chinese to buy overpriced rubbish from… Read more »
A lot of talk about China, and no-one making any effort whatsoever to talk about China. Sun Yat-sen is the key. The battle between Confucianism and Legalism, best explained for us collapsing transatlantic’s here is the dynamic that gets lost in London’s statistics.
Sweeping liberal opinions, which look quite humorous seen from China with its very long memory, are typical of ex-Tigers.
To claim an “intellectual hole” is really a personal statement of choice, a liberal limp hand-waving excuse. The same excuse for making no effort whatsoever to talk about China.
Great article, immediately I am compelled to search for ‘China Crisis’ on Spotify, what a great song. Haven’t heard it since the eighties. Economics is good for something after all (only joking) – always enjoy your articles David. Hopefully your predictions of doom in commodities are off the mark as we are entirely exposed here in Aussie
We cannot change other people, Bonbon. I can’t change the bankers’ behaviour. I can’t change your behaviour, and get you to talk about something other than Glass Steagall for a change. We can only change ourselves, our conditionings, our attitudes, our behaviours, our expectations. If the masses of the people changed themselves, bankers could no longer prey on them, nor politicians with false promises, nor Hollywood marketers, etc, etc. If the masses of the people think the problem lies outside of themselves, that they do not need to change inwardly, their behaviours, attitudes, etc. then we will have learned nothing… Read more »
China either becomes a super techno cyborg swarm tooled up for leanand green GDP or it will go to war with Japan to disguise its’ failure to move up the added value food chain. as ‘onshoring’ returns the next wave of semi-robotic robotic production to America and Europa in respnse to Peak Cheap Oil, the factories of the Pearl River Delta either re-tool for a self-generating internal Chinese economy and civilisation or those released from Foxconn by drone iDevice makers will riot. China’s biggest challenges are Water and Energy: unless they becomecsuper efficie t with both they will fail .… Read more »
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130115000022&cid=1202 It would seem that the savings rate in china is an unprecidented 50% of gross income. This is a major difference between the east and west. China has room for more consumer demand internally and will be less reliant on western demand. China is accumulating gold at a speedy rate on a national basis. It is estimated to be growing at well above a 1000 tonnes a year, but China hides the true figures and the rate could be double or triple that 1000 tonne PA. Chinese citizens are ascrambling in aquiring gold for personal savings. Supply is running… Read more »
DmW you sound a bit like an ambulance chaser in search of the next fatality if everyone was of like mind humankind would live in stasis, this maybe a good thing, but we are not build that way, most HOPE for better. 3D printing is a new industrial tool that will revolutionise manufacturing and building construction. Raw materials will play bigger role as these machines will eat up more resources, the need for human labour will reduce and those that sit on raw materials will have more control along with those with the biggest gun, but HOPEFULLY “money” will become… Read more »
China is not a rich country and is not comparable to Ireland there a very few lessons the Irish could teach China these ancient people don’t need lessons from us.
According to the world bank 2012 Ireland is the 14 richest country $42,000 per-capita in the world, we have not got a clue when it come living an austere life while China is 93rd richest $9,000 per-capita.
We are the elite
For those who have not heard, Washington State USA has recently passed two controversial social reforms into state law.
They legalised gay marriage and marijuana.
The fact that both were legalised on the same day makes absolute sense according to the bible which states; in Leviticus 20:13 “If a man lies with another man they should be stoned
glass seagulls may have their place but that base human nature called greed is the ultimate culprit to most of the ills discussed.
The Irish voter reminds me of someone buying a used car. Most voters will only vote for main stream party’s ,much the same as only buying a used car of a garage and not a private seller. Some voters will only buy from private sellers who tend to sell at a lower price and will only vote for independents in the elections . The 3 main party’s have proved to be very disappointed and useless is it about time the public gave the independents a turn at running the country and they must have a referendum each time there’s a… Read more »
Just had time to pick up on this article which, in my opinion as a contributor here for a number of years now, is quite seminal.
The economies of scale between Ireland, Iceland or for that matter, any other Western European country, Germany included, going pear shaped pales into insignificance when social upheaval on a level expressed in this article is actualised. The renowned social and economic Historian, Duncan Ferguson, I am sure, will reference this article sometime down the line.
Ireland has been a microcosm.
The failure of
china has done the easy part of economic development, cheap manufacturing and rapid industrial development. Now comes the hard part can China produce high value products and services that the rest of the world wants to buy, china still has no world class companies like apple, samsung, toyota or bmw. It does not respect intellectual property so is unlikely to produce one.
Truth is, the people don’t need banks or governments at all. Governments and Banks are hallmarks of societal failures, masking the truth about where ultimate accountability should lie, with the individual, raised to know these things, the knowledge passed down from one generation to another, so that those people might remain free, and living apart from the serpents.
http://www.fourwinds10.net/siterun_data/business/currency/news.php?q=1367506744
Arizona lawmakers pass bill making silver, gold legal tender.
Taxi driving is the least of our worries. That said the Chinese are known to be terrible drivers but no one is a worse more careless driver than Paddy so that could be a good thing. What all of you are missing is when they flood Ireland and live six to a room and start crime gangs, that the Eastern European scum will have to oust the local Paddy scum and then the Chinese scum will have an all out war with the Eastern scum, this aint gonna make you happy. Control your borders now or in less than a… Read more »
Hi,
I know this is a platform to comment on David’s great commentary but I just thought I’d throw a comment up here to let you know that there is an Android app out now that updates when David has published new articles. It also tracks a lot of other top commentators including Max Keiser, Peter Schiff and Gerald Celente to name a few. It is available in the Play Store and is called ‘Offstream Media’.
Hope you like it!
Cheers,
N.
Given that the amount of debt issued has resulted in so much extra economic activity and also given the fact the so much remains unpaid due to lack of current income/ savings in many of the western economies, could China be the one location to buck this trend as a result of their massive deposit and current income surplus. OR Could it be said that China’s income and deposits are nothing other than the debt raised by western economies which of their own accord must be recirculated back into buyer nations and stimulate those economies. How this happens – by… Read more »
Asmussen Tells Euro Parliament Hearing, EU Banking Union Will Take Over Troika Job May 9, 2013 (EIRNS)–Joerg Asmussen, directorate member of the ECB, told members of the European Parliament in a hearing yesterday, that in his view, the Troika (IMF, European Commission, ECB) was a child born out of the euro crisis moment, which will be replaced by the planned Banking Union and its functions, which he said would be more efficient. Asmussen defended the Cyprus template, including bail-ins, adding that the Cyprus crisis was an urgent reminder to the rest of Europe to implement the Banking Union as soon… Read more »
Statement in Support of Glass-Steagall from Veteran City of London Fund Adviser Stephen J. Lewis May 9, 2013 — We quote his statement: “The reintroduction of bank regulation along the lines of the Glass-Steagall Act would materially strengthen the US financial system. It would ensure that the banks’ essential function of providing credit to support productive activity was insulated from the risks that arise from speculative financial activities. For the moment, US banks may appear to be recovering from the 2007 09 crisis. But as long as banking and financial speculation remain bundled together, the threat of another, possibly even… Read more »
When we along with the USA pass Glass-Steagall, China will take notice. President Jiang Zemin already told Clinton that the new China took FDR as the model.
But when asked by a local yokel there whether China was capitalist or communist, Jiang Zemin repled “We are Chinese”!
So China takes notice, Ireland must too.
Never mind some transmogrified “moral play”, China learns from the positive things Europe, Ireland and the USA have accomplished.
Why is it goldbugs, monetarists turn real economists into a morality pantomine more at home in church? Replacing religion with money, Mammon, perhaps?
Forget the fake “morality” of “sound money”, icons of pentecostal puritan or charismatic catholic gallops, China is interested in positive lessons to learn, in the Confucian style.
Give the world more of what European culture did actually deliver in spite of rabid regressives (China has them too).
There is a very good book about the China Production Game, concepts on their thinking, and how their economy works.
Its called “Poorly Made in China” by Paul Midler.
Its a little about human nature that is found in all of us, and the big downfall of the current lifestyle, “Greed”.
Well worth a read.
Now that the imbibers have fallen over their iPad’s, can we talk seriously?
The blog has a hangover!
After Germany’s prime-time tv ran a poll this week with 80.7% in favor of a return to the DM, against 19.3% who want to keep the euro. That is a big change from a 50-50 Die Welt poll last year. Now a major breakthrough. Focus Exposes Quantitative Stealing, Reader Pushes Trennbanken May 10 (EIRNS)–Germany’s Focus magazine has exposed the planned European Union “bail-in” scheme as a Cyprus template for the EU aiming at stealing all deposits. Insurance protection for smaller deposits (under EU100,000), which the eurocrats proclaim, {Focus} writes, is just a fig leaf, and ultimately, the EU Commission will… Read more »
Blogs often cease to be interesting when groups of political extremists get involved. They are all exactly the same, all use exactly the same methods, and to a very large extent, say exactly the same things. The final goal of these groups is always the same: to get into power. They purport to support democracy, but it isn’t the sort of democracy that most of us understand, universal adult suffrage, it’s democracy of the committed – only those with ‘advanced’ understanding have a say. As a result, it is essentially pointless for them to suggest solutions within the current system,… Read more »
Knowing the country is infested with “brotherhoods”, here is a wake up call : Head of French Grand Orient Freemasonry Calls for Ending Banking Dictatorship PARIS, May 10 Nouvelle Solidarité–In an interview with the weekly Lyon Capitale of March 4, José Gulino, the French head of the Grand Orient Freemasonic lodge, accuses financier power of infringing on the freedom of citizens. In an April 18 interview with BFM Radio, Gulino was asked if this meant separating the banks. He replied, “Yes, and this is already under consideration in the U.S. and the U.K.” His statement reflects the growing anger, including… Read more »
The Sad Truths of Internet Trolls: (Note Point 6). 1.Trolls are immune to criticism and logical arguments. True trolls cannot be reasoned with, regardless of how sound your logical argument is. 2.Trolls do not feel remorse like you and me. They have sociopathic tendencies, and accordingly, they delight in other people having hurt feelings. 3.Trolls consider themselves separate from the social order. 4.Trolls do not abide by etiquette or the rules of common courtesy. 5.Trolls consider themselves above social responsibility. 6.Trolls gain energy by you insulting them. 7.Trolls gain energy when you get angry. 8.The only way to deal with… Read more »
Bycott the blog until it is free of bon bon. Best way to ignore a troll.
Have followed this site for many years without posting. It is irritating to see effect of a troll/thread hogger, and how some excellent contributors allow themselves to engage with .. ?
On ADVFN there was a filter option where users could choose not to see contributions from certain individuals. And save people such as myself the nuisance of fast scrolling through yes, ‘bonbon’s posts.
@webmaster — Perhaps that may be an easy to implement solution here?
Sorry, My first post is on a negative subject.
Welcome to fox news where we decide what your opinion should be. mass and moneyed media has been at work here it has influenced group think. Welcome to a groupthink and a conformation biased blog North Korea is backed it to a corner how does it respond? The bullies dictate the response and they cannot see this. People should learn not to dictate as the response from the Mr Sweets is inevitable. This site would boring if not for Mr Sweets input “liven up your selves” “Ban the hot press” the cheapest and most effective advertisement circa 1977-1981 Ban DmW!… Read more »
Many in Ireland have campaigned for the separation church and state, especially after the local scandals.
Why is that the “intimacy” of commercial and investment banking has become more sacred?
M. José Gulino, Grand Orient Freemason head, has in his way exposed the problem.
When I heard about ‘Syrian’ bombs going off in a Turkish market the first thing that came to my mind was ‘the CIA have done that to get the Turks to take the bait and deal with Syria for American interests by proxy’.
Jeremy Warner of Daily Telegraph : Spain is officially insolvent: get your money out while you still can
But notice, and I quote JW :
“PS. I don’t include creditors of the British arm of Santander in this warning, who are ring fenced from the mothership back bome in Spain, theoretically at least.”
A number of euphemisms here, insolvency is papered over waiting for Banking Union, but Ring-Fencing? As most know by now this not the real deal. How many feel that EU bank number 1, Santander, is safe?
Europe is still the problem, not China. China’s demographic profile means growth until 2015 plus a lag of two years. So pencil in 2017-18 for your doomsday senario. The credit won’t fold until real growth folds. The sub prime crisis didn’t occur until the steam had run out of the American housing boom, and that didn’t happen until the US demographic curve had turned downwards. I heard some very encouraging comments reported from the leader of the SPD speaking in Poland, saying that German voters need to be told that Germany relies on growth in its’ European trading partners. i.e.… Read more »
This government plan is there is no plan.
It now looks like the public service could bring down this government ,I always reckoned it would be the Irish people in there big movement would march on the dail.
It now seams that the public sector will unite in a common goal to shut this country down ,i don’t care who does it as long as its done.
As of 21.50 258 comments – how many from bonbon. I’m reading the comments on this site less and less because I get bored by bonbon the those who reply to his verbal barrage. Please set up some filter
regards
Ban Goldschlager! Tequila! And anyone you says it’s the governments fault oh and there some annoying man on here called ‘David’ he always first to comment.
Bring back Connor Cruse O’Brian section 31
In the new Star Trek movie “Khaaaaan” blows up section 31
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Ban human foibles or drink lots Goldschlager / Tequila to dilute to effect of foibles.
++++1