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The Bull in The China Shop - The World Can No Longer Absorb China's Surplus

Economics / China Economy Jun 09, 2016 - 11:10 AM GMT

By: Gordon_T_Long

Economics

ISSUE #1

The good news is that China produces more than it consumes. This is the opposite of the US which consumers more than it produces.

The bad news is that the world can no longer absorb China's surplus (Production minus Consumption). Global trade has slowed dramatically impacting Chinese exports. The problem is further compounded since China as the new global economic engine, has become the dominate importer of other countries production.


The root cause stems from a "tapped" out American consumer and the "gutting" of the US middle class - the long time global economic engine.

The World Can No Longer Absorb China's Surplus

This economic slowdown has left China with falling growth in FX reserves and has forced the selling of FX reserves to sustain elevated run-rates which were financing massive infrastructure expansion and investment. Construction has been a major employer and absorber of a growing Chinese worker force even though recently more and more have been employed building ghost cities and malls to keep workers employed.

ISSUE #2 - Insufficient New Capital Formation

Additionally, Capital movement has reversed in China. China now faces a "capital flight" versus new Capital Formation coming into the country which has been powering the Chinese Manufacturing and Industrial explosion over the decade and half.

Chine Hot Money Flows

CONSEQUENCE - China Likely Needs to Devalue the Yuan

The consequence is that China needs to stop capital flight and increase exports and foreign capital investment the country is so dependent on.

United States and China GDP Breakdown

China has only a limited number of options which Charles Hugh Smith and Gordon T Long spell with aid of 21 charts.

Devaluation

There is much, much covered in this 36 minute video discussion.

Gordon T. Long
Publisher - LONGWave

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments. © Copyright 2013 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.

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