There are not only one "fiscal cliff" facing the United States, but four: the tax cuts in the Bush era, the budget cuts in the Pentagon, the cuts in social project spending, and the ongoing debate about the Obamacare reform. However, China faces bigger problems than the United States.
Five months ago, we quoted a warning from the World Bank President Robert Zoellick. He said that China is facing a "sustainable proliferation crisis" that could have a major impact on the $75 trillion global economy. At that time, we asked bluntly: Who will take the lead in killing the global economy? China or the United States? What we thought in our minds at the time was: China.
Keith Bradsher of the New York Times reported that China’s economy, with 1.3 billion people, is still slowing down according to the latest GDP forecast by Premier Wen Jiabao.
Earlier this week, MarketWatch's Carla Mozee reported that China's economic slowdown has affected Brazil's stock market, one of its major trading partners.
The slowdown in China’s economic growth has caused anxiety in the global market. Let us temporarily ignore the mutual attacks of the election year and ask: Will China push the United States into a recession and let the United States usher in a new wave of bear markets?
Trefor Moss's "Flags of the Chinese Economic Apocalypse" published in Foreign Policy magazine reminds people that China may have entered a recession. In fact, China may fall into five huge disasters. The article pointed out that the following data shows that China's widely spread economic growth engine has stalled: corporate borrowing has decreased; manufacturing output has fallen; interest rates have been cut unexpectedly; import growth has stagnated; GDP growth expectations have been lowered. Wen Jiabao's forecast for the 2012 growth target is 7.5%. If the actual growth rate is so, then it is China's lowest annual growth rate since 1990.
Moss further studied this and found out five signs he said. You don't need to play poker at the Las Vegas casino. You will think that the disaster of five cards in China will win the "fiscal cliff" of four cards in the United States.
We know that the downturn in the Chinese economy has affected the stock market in Brazil. Then, the next one to be affected will be the United States.
Disaster 1: Chinese local government is being overwhelmed by debt
Remember the hundreds of billions of dollars that flowed into the US banking industry? Well, the Chinese central government gave the local government a $586 billion stimulus.
This alleviated the pain in the difficult global economic crisis in 2009. But the stimulus only delayed the pain. Moss wrote in Foreign Policy that it is time for the local government to pay off debts, which means that local governments must seriously tighten their finances. Sounds familiar? Is it like the situation in the Eurozone? Or is it the status of a US local government?
During the boom years, many local governments in China were as crazy as American pension funds, buying a lot of luxury cars. But what about the current situation? For example, Moss said that Wenzhou is planning to auction 80% of the cars this year, and there are 1,300 cars counted. There are also similar losses in other parts of the country.
In addition, the Chinese central government has decided to cool the overheated real estate market. Home sales and sales have fallen, resulting in cash shortages and insufficient buyer confidence. Sounds familiar? Is it the same as in the United States (in the United States, government revenues have fallen as taxpayers and investors' incomes have fallen)? Yes, China’s economic growth is slowing down. In fact, China is likely to have fallen into recession and will export the recession to the United States.
Disaster 2: China's economic crisis may cause social instability
As we have seen from Foreign Policy, Chinese experts warn that a slowdown in the economy could cause social instability. But so far, according to Hong Kong-based writer Moss, China’s medium-speed economic growth is enough to satisfy most people.
However, as China moves from a "developing country" to a "superpower," it can be expected that China's economic growth will slow down. This shift has already begun, Moss warned that China’s social structure may be under pressure for the first time in years, with GDP growth below 8%, especially in the tens of thousands or even millions of foreigners. Workers will find that their work is at risk.
Disaster 3: China's super rich begin to "export" capital
Moss said that although the billionaires in the United States stubbornly believe that "more is better" and do their best to manage the US government in the way of the CCP, China's super-rich people hold the idea that if the big thing is not good, take the time to run.
Luxury goods sold strongly in China, but at the end of last year, it became clear that many Chinese wealthy people began to lose confidence in the domestic market. They began to invest in readily convertible assets such as foreign exchange, rather than fixed assets like Chinese real estate.
It’s true that China’s billionaires have turned to investing in high-end properties overseas, creating a wave of Chinese wealthy people buying homes overseas. Why is this so? Because there are good deals abroad, and there are not too many restrictions like the domestic ones.
Disaster 4: China's environmental crisis
The Chinese population is experiencing an astronomical growth process: it is now 1.3 billion, and the United Nations expects that the next generation of Chinese people will increase by another 300 million by 2050. Nobel laureate economist Fogel (Robert Fogel) predicts China's economy will overtake the United States rapidly, reaching 123 trillion US dollars of scale surprising. In other words, China’s economy will account for 40% of the global economy in 2040, while the United States only accounts for 14%.
However, this growth will pose a huge challenge to China's “central planners†and the Chinese environment. For example, in order to meet the growing demand for energy, China has already begun to import energy. But now, the coal at China's terminals is piled up, and these coals should have played a role in China's power plants. Why is this happening? Moss replied because the manufacturing output is low. Last year, central planners thought that coal should be mined for urgent needs. Now demand for electricity continues to decline, because the people, businesses and factories are forced by economic pressures to cut electricity consumption in order to reduce expenses.
It is clear that China has encountered real problems in reconciling central planning with free market capitalism. In the global market, everyone is fighting for the same scarce resources. The way in which China learns these lessons is painful. In the past year, coal prices have fallen by 10%. The fall in coal prices may further weaken the global economy and reduce demand for exports. In Moss: What is globalization? It is a Chinese who turns off the air conditioner and the world economy will catch a cold.
Disaster 5: Chinese people's lifestyle change demands inflation
As the Chinese people's living standards explode and the economy grows rapidly (which can be said in general) and the demand for luxury goods increases, small changes in the Chinese economy will increase the price pressure of a competitive global market.
Moss wrote that China is consuming more and more meat products, and that the price of poultry and beef is also rising due to continued demand, which makes inflation a top priority for Chinese policy makers. But the Chinese market is also trying to make self-corrections: rising prices, falling demand, and then oversupply, the Chinese government will step in and buy pork to stabilize prices. But Moss also said that by that time, egg prices had soared.
Conclusion: China's economic downturn has caused tremendous damage to Chinese consumer confidence in recent years. Considering the rich people running, the investigation of illegal officials, food safety scandals, and inflation, debt, energy and environmental issues, people can't help but ask: Is it possible for China's five major disasters—just possible—to reach a tipping point? explode at any time and quickly transmitted to other countries, exacerbating the impact of the four major US financial crisis, the US recession and once again usher in a new wave of bear market?
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