China’s influence on the global economy is well documented. If you don’t know what it is; since the mid 1990s China has basically become the straw that stirs the drink that is the global economy. Why? After all Europe as a whole and the United States are technically bigger players with more liquidity in the markets.
The reasons are how much money has been moving into China because of their precedent busting annual economic growth rates, in addition to their purchasing of US government debt. All major international economic players have been investing in China two decades, and they basically own the United States the way a bank owns your mortgage or your credit card debt. China is the world economic HBIC whether people like to admit it or not, and they don’t.
They don’t like admitting it, but they’ll put their money there. Manufacturing, real estate, consumer goods purchases, GDP, and every economic indicator in China has been going one direction since the Clinton administration, up…until now.
To maintain their status of belles of the ball in addition to maintain what has appeared to be unmaintainable growth rates, China’s government has essentially been cooking the books to make their economy look stronger than it actually is. Ironically their downfall may be identical to the downfall of the US economy circa 2008, real estate.
Last season on VICE on HBO, the ghost cities of China were explored and showcased in crystal clear high-definition for the world to see. The Chicago Tribune recently did a feature on Chicago architecture firms building skyscraper after skyscraper in an architectural arms race in the new metropolises of China. The very well researched and written article showed the highlights and low lights of the urban migration of the Chinese population. Some of those low lights included more ghost buildings, ghost towns, unemployment, and environmental problems.
The economic numbers on paper aren’t matching up with the physical reality of the external world. Wow, I guess China is becoming more like the US every day. I kid, I kid, they are actually becoming more like Japan every day by taking steps very similar to that of the Lost Decade.
The other economic catastrophe shoe may be getting ready to drop. Although GDP growth grew, it is at its slowest pace in 15 years. Manufacturing and trade are both down, two cornerstones of China’s economic darling status. The only things that are sharply moving up are industrial bankruptcies and inflation.
If you’re still reading you’re probably wondering why you should give a shit. The answer to that is simple. If China goes into a recession or depression, so does the rest of the first world because anyone who invests has money tied up in China. If a run on the bank occurs in China, what is to stop them from doing a margin call on the US debt they’ve been purchasing since the 90s? And if that happens, what exactly happens?
It may not be time to move all of your money into canned tomato soup and shotguns…yet. But it looks more and more like buying American may not just be for cars and furniture anymore. It might be time for anyone with a mutual fund to make sure their assets aren’t being remedied with any eastern medicine.