Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Can China Save the World Economy?

Economics / China Economy Jun 14, 2010 - 03:16 PM GMT

By: Graham_Summers

Economics

Best Financial Markets Analysis ArticleNope. No chance.

For starters, let’s look at the basic numbers. China’s GDP is now $4.3 trillion, making it the fourth largest economy in the world. However, there’s a HUGE drop off from the first two economies (Europe $16.4 trillion and the US $14.2 trillion) to the third and fourth (Japan $5.0 trillion and China $4.3 trillion). 


As an aside, YES I know that Europe’s economy, and the US’s for that matter, is a disaster. But for now, let’s just focus on China’s role in the world.

Based strictly on plain GDP numbers, the idea that China could somehow pull the Europe and the US’s economies (let alone the rest of the world) into growth is ridiculous. China’s GDP is less than one sixth of the two largest economies’ combined GDPs.  The idea that this country could somehow grow so rapidly as to move the other two economies is like saying that one leg from the knee down could take your entire body for a walk.

It just ain’t gonna happen.

But let’s ignore this for now and take a look at China’s “incredible” GDP growth in 2009: the year the whole world proclaimed that China would lead us out of recession.

China’s stimulus program for that year was $586 billion. That’s the equivalent of 13% of China’s GDP. In plain terms, that’s HECK of a lot of money thrown at the economy. It’d be like the US throwing $1.86 trillion at its economy (more than twice what we did).

Remember, China measures GDP in terms of production, not sales or revenue generated. So if they build a $1 billion skyscraper that no one rents, it counts as $1 billion in GDP growth. With this in mind, is it any wonder that China’s 2009 GDP numbers were incredible? Think about the impact that $586 billion stimulus package had on China’s economy. Just the stimulus alone could account for 10% GDP growth (again, $586 billion out of $4.3 trillion is 13%).

But let’s assume not all of China’s stimulus went straight to GDP. So where did the GDP growth come from? Well, 36% of China’s economy is based on exports. But with  its largest trading partner (the US accounts for 17% of Chinese export trade) NOT in economic recovery (unless you count imaginary jobs and accounting BS as economic growth), it’s tough to stomach China’s “miracle” growth coming from that.

What about domestic demand? Isn’t China shifting its economy away from exports and into domestic consumption? Yes it is. However, the average Chinese worker makes $5-6K per YEAR. The idea that these folks will start loading up on Big Macs and Starbucks’ lattes is ridiculous. Yes, I realize that Big Macs cost $2 in China vs. $4 in the US. But that’s only a 50% price difference for an economy in which the average person earns 1/10th as much as the average US worker. And don’t Chinese workers save 20% of their incomes? That means only $4-4.8K in disposable income, much of which goes to rent and food.

Again, how are you going to get miracle GDP growth out of that?

Finally, and this is a bit of an umbrella argument (one that encompasses everything), China is a centrally controlled, state-run economy. I know, that many commentators like to proclaim China as the ultimate Mecca of capitalism, but the facts are that state-owned enterprises (SOEs) control over 50% of ALL industrial assets in China and account for 30% of Chinese GDP. Again, China remains a state-run economy.

In a state-run economy, when the government says to do something, you do it. Case in point, when the Chinese government told state-owned banks to start lending, they did in a BIG WAY (unlike in the US where we funnel $ trillions into banks, ask them to lend, and then sit and watch them pass out this money to their employees in record bonuses).

 Given that China is posting incredible GDP growth despite all rational explanations indicating it should be showing an economy slowdown, what are the odds that China’s economic numbers are a little “massaged”?

I’d say pretty high.

Good Investing!

Graham Summers

http://gainspainscapital.com

PS. If you’re worried about the future of the stock market, I highly suggest you download my FREE Special Report detailing SEVERAL investments that could shelter your portfolio from any future collapse. Pick up your FREE copy of The Financial Crisis “Round Two” Survival Kit, today at: http://www.gainspainscapital.com/MARKETING/roundtwo.html

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2010 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ben Gee
15 Jun 10, 10:45
China and the world

China is not strong enough to save the world. But if China falls, it will take many economies along. If China's export falls, look for Japan, S Korea, Taiwan, Austrlia and many countries in Africa to fall and there may be a domino effect.

If the US suceed in killing China's export, be prepare to accept a world recession or even depression.



15 Jun 10, 14:40
depression

@Ben Gee

Sort of like the depression the US now has from the loss of jobs of all types to Eastern countries? What goes around comes around.


Shelby Moore (author of "End Game, Gold Investors Destroyed")
17 Jun 10, 17:19
China asset bubble bullish for silver?

No one knows when it will crash, could go on for some years possibly:

http://www.youtube.com/watch?v=99HNFCn5RP8

1) Law of diminishing returns (I had figured this out in prior posts), given that China is spending > 33% of GDP on fixed assets (which doesn't account for depreciation and maintenance).

2) 12.5% of GDP stimulost, does not account for the multiplier effect of the massive increase in fractional reserve lending by the banks (which did not occur in USA stimulost).

3) The concept that China is a land of savers is false (for example saving as being an owner of a condo in an empty building, or more generally the point of #1, where savings is overconcentrating in fixed assets).

Debate:

http://www.youtube.com/watch?v=_J4g-H--5yg

http://www.youtube.com/watch?v=lcqciLe8oV0&NR=1

I found this debate very informed and fascinating! Looks like we may get a busting of the China real estate bubble, followed on by a 5 year plan to stimulate sales of household durables! Can any one say "BUY SILVER"!! Yeah! The central managers will just keep creating 5 year bubbles and popping them along the way, trying to "pretend and extend". Eventually (many years or decades) it will all end horribly.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules