Thursday , 17 August 2017


Richard Duncan: China Headed Into a Serious Crisis

China’s miracle is driven by one thing and one thing only: its trade surplus with the U.S., which went from zero in 1990 up to now more than $300 billion a year [but] since the darkest hours of the 2008 global economic meltdown, China has made little progress in shifting its reliance away from exports, and, as a result, the Chinese economy is dangerously exposed to a renewed downturn in global trade. Words: 500

So says Richard Duncan (www.richardduncaneconomics.com) in edited excerpts from an interview* with Chris Olive  (http://blogs.marketwatch.com) entitled China consensus is dead wrong, says Duncan

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Olive goes on to say, in part:

Bangkok-based economist and author Richard Duncan says a chorus of economists pointing to a rebound in China may well be proven wrong, as he believes the nation is headed into a serious crisis.

“I think China is in very big trouble,” Duncan told MarketWatch in a telephone interview, saying those focused on improvement in select data points such as manufacturing and retail sales are missing bigger trends in the global economy.

Problem #1: Contracting Global Trade

Global trade has contracted in each of last three months on an annual basis, according to the CPB Netherlands Bureau of Economic Policy, signaling what Duncan says is the sputtering out of the “recovery phase” that got underway in 2010 [going on to say, “The rebound in global trade is beginning to fizzle out to the point now where we are hitting the zero line on growth in terms of trade, if not negative. China’s imports and exports are grinding to a halt as well. It’s only a matter of time before the weaker export environment results in Chinese newspaper headlines about big job losses and pay cuts.”

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Problem #2: Weakening Job Market

In fact, some signs backing up Duncan’s view are beginning to surface. China’s Vice Minister of Human Resources and Social Security Yang Zhiming, for example, told the state-run Xinhua news agency Monday that weakness in the job market is “starting to emerge.”

Problem #3: Fading Construction Boom

Duncan said his own visits to Shanghai and Beijing in April this year brought further confirmation of brewing trouble. While strolling in the nation’s capital, he counted a single construction crane, an unusual sight for a skyline normally cluttered with building activity. “They have reached the stage where they realize there is no point in building skyscrapers that no one can move into, at least in these large cities, so the construction boom is rapidly fading out,” Duncan said.

Problem #4: Troubled Financial System

On the financial side, Duncan believes that China’s banks are starting to feel the ill-effects from ramping up total system lending by 60% during the two years following the outbreak of the global crisis.

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Problem #5: Lagging Domestic Consumption

…China’s push to transition to domestic-driven growth hasn’t gone according to plan, with little evidence of progress in boosting internal consumption. Beijing appears to have the missed the window of opportunity to introduce a nationwide minimum wage that would have led to a meaningful rise in the spending power, he said. “Now that the stimulus is fading, I reckon that the upward pressure on wages is also fading,” Duncan said, and without strong demand at home, China’s fate remains very much tied to what U.S. consumers end up doing.

Concluding Assessment

“My view has been that China’s miracle is driven by one thing and one thing only: its trade surplus with the U.S., which went from zero in 1990 up to now more than $300 billion a year,” Duncan said.

*Sources: http://blogs.marketwatch.com/thetell/2012/11/13/china-consensus-is-dead-wrong-says-duncan/ and http://www.richardduncaneconomics.com/2012/11/13/china-consensus-is-dead-wrong-says-duncan/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Other Articles Referencing China:

1. The China Syndrome – Fully Understanding China’s Economic Prospects: Michael Pettis

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In order to argue that we will not see a sharp slowdown in Chinese growth, it is not enough to claim that a) some expert or institution has predicted that Chinese growth will not slowdown, b) that China has enough savings in its coffers to bail itself out of a crisis or c) that Beijing leaders cannot tolerate growth below 8%, so of course growth will not drop below 8%. As greater evidence for the bear camp surfaces, China bulls need stronger justifications for their positions or risk losing credibility. [In fact, they need precise answers to 3 questions put forth in this lengthy but extremely insightful (dare I  say, absolute best, article on the China sydrome to have ever been written!) article.] Words: 4130

 

2. 18 Countries Now Have More Economic Freedom Than U.S. – Here are the Details

 

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This year’s Economic Freedom of the World Index, which lists countries by most to least free using every available objective criterion, contains a real shocker when it comes to the United States. We aren’t just slipping on the index, we’re falling off a cliff. In many parts of the world, life is freer than in the “land of the free.” What this reports says about the United States should be front-page news. Instead, it has received barely any attention at all. The U.S. has fallen from a high of 2nd to its current 19th. Here’s why. Words: 1040

 

3. This Indicator at a Crossroads As to Direction of Future Global Growth

 

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The Shanghai Stock Exchange Composite (SSEC) index is at a crucial crossroads with serious implications as to whether or not slower global growth is at hand. Take a look at where it currently is and continue to watch closely in the days ahead.

 

4. Next Move of the SSE Extremely Important to Commodity Investors – Here’s Why

 

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The next move of the Shanghai Stock Exchange (SSE) will impact how investors will want to structure their portfolios, especially in the commodity complex. Words: 226

 

5. Certain Hard Commodity Prices Will Drop By As Much As 50% By 2015 – Here’s Why

 

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I have been bearish on hard commodities for the past two years and, while prices may have dropped substantially from their peaks during this time, I don’t think the bear market is over. I think we still have a very long way to go and there are four reasons why I expect prices to drop a lot more. Words: 3978

 

6. Continuing Economic Problems In U.S. and Eurozone Suggest Investing In Economies That Work, Like China – Here’s My Rationale

 

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I believe that the engine of global economic growth for the next five-year period will be China. I firmly also believe that it’s not only appropriate, but critical for investors, even those whose focus is trading rather than investing to now take a look at China equities based on long-term investment horizons. [This article does just that with some specific investment suggestions.] Words: 1581.

 

7. Here are Some Good Reasons to Consider Investing in China Again

 

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With negative sentiment toward China reaching an extreme in recent months, patient investors have been rewarded with this week’s news of improving data from the Asian giant. [In fact, according to BCA] this appears to be a good time to be investing in China, as stocks are historically cheap. Words: 760