Brian Klein tells us a “Great Crash” is approaching China. He differs sharply from both George Soros and Niall Ferguson, who regard US be markedly weakened and China steadily strengthened by the current financial crisis. Brian Klein reminds us that China has a much bigger reliance on foreign markets than what is normally reported, and the shrinking governmental construction in the post-Olympic era will limit the domestic consumption volume to fill the vacuum left by the foreign export markets. Consequently, the financial crisis–causing the foreign markets shrink and the domestic investments drop–will drag Chinese economy down to a deep pit.
Is There a Great Crash Approaching China? Or shall we ask, without the US export market will China survive the financial crisis?
My intuition is China will survive. No matter how the financial crisis is going to be handled, foreign financial institutions will need a place for profit-making investments. Given the record of their investments in the past, it is hard for them to find a better place. Indeed, if there be a single place in the middle of this unprecedented financial turmoil that investors still have confidence to pour their money in, it would be China.These investments will fill in the vacuum left by the Olympic construction budget. As for the foreign export markets, India, Europe, Africa and Latin America will likely have a big increase to make up the shrinking US market. China will survive simply because of its productivity and expanding export markets outside of the US one.
A warning of “Great Crash” of economy will not stop the future investors–most of whom are desperate now, but will soon start to consider their next step–from moving to their last resort. Their haunting fear rather lies in the political instability–a political “Great Crash.” Collectively, these investors need to make sure there is no such “Great Crash”, and in the coming years they will have to invest much more on China’s better governance.
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Klein is a China-basher. Check out who his employer is and their agenda. He doesn’t know what he is talking about. Check out what really drives China’s GDP. Exports is the smallest component of expense measured GDP. He’s lame, and will be proven wrong. The FEER should have higher standards.
World finance is fully connected. That’s why we are having this financial crisis. America is ruining the rest of the world. So china will be destroyed with the sink of america!
China will survive. This survival will be problematic for the Chinese citizenry though. Where as the West has market input and influence, ultimately the entire input (destiny) is controlled by the Chinese Government. Meaning, if and when (they surely will) things get bad, the Communist government will rule as they do — with an iron fist. As usual in Communist domains, the people will ultimately get the short end of this very pointy stick.
@Lance Atkinson. America is not ruining the world. You would be well served to at least try and understand complex issues.
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While it is true that the US economy is tied in with the rest of the world, it is inaccurate to say America is ruining the world. China does depend heavily upon exports to the US, but it also has a quick-reacting and iron-fisted government that can change economic regulations at the drop of a hat. It can also toy with its money and exchange rate, making it incredibly difficult to exchange even small amounts of currency from the yuan to others. As mentioned by always alpha, the Chinese people will feel the brunt of any economic crash. China has been through much, much worse and survived somewhat recently, through the suffering of its own people (Great Leap Forward, 1959-61, estimated 30-60 million died of starvation). The CCP is not communist at all anymore, but it is still authoritarian and directly controls the military. So, even if there is a crash, China will not collapse.
Scott,
Peking University professor Michael Pettis, who has a brilliant blog called “China Financial Markets,” would disagree with both of your points. He would strongly reject the idea (as would, by the way, most China-based economists) that China has a “quick-reacting and iron-fisted government that can change economic regulations at the drop of a hat.” On the contrary one of the big problems Beijing faces is that factional infighting has created policy paralysis, in Pettis’ words, and even when policy is agreed to it is often nearly impossible for Beijing to enforce it in the provinces.
Second they cannot easily “toy with its money and exchange rate, making it incredibly difficult to exchange even small amounts of currency from the yuan to others.” They have got themselves caught in a monetary policy that they are desperate to control but cannot get out of, and it seems that speculative inflows this year were the highest ever recorded in history. They tried everything they could to stop it, but to no avail.