Home
>
Political
>
The Economic Giant-- A Closer Look at China

The Economic Giant-- A Closer Look at China

IT'S NO LONGER NEWS THAT CHINA IS BECOMING A MAJOR player on the world economic scene. Yet, as we've noted in past editions, investing in China is fraught with uncertainty, due to a still un-free political situation, and insecure property rights. Despite our current lack of interest in Chinese stocks, China's renaissance clearly has implications for investor decisions worldwide, simply due to its market's enormous size.

Recently, China's newfound economic strength has become fodder for political electioneering, and talk of protectionism is once again rearing its ugly head. Candidates are falling over each other to see who can blame the Chinese more effectively than their opponents. Of course, our readers recognize such ranting as nothing more than political gamesmanship. Nonetheless, all efforts to "save jobs" at the expense of free trade can only be dangerous to the US economy. Looking back in history, identical rhetoric led to trade barriers, and the Great Depression.

For the moment, the greater issue may be what the future holds for China, and what impact that may have globally. The key to the future centers on China's currency and their banking system. Trade with the US, while important, is truly a secondary issue. So far, every story in the press involving China's economy seems to focus on trade issues, business growth, and cheap labor. Those are interesting. But an issue that is getting little or no press dwarfs them.

China has two overwhelmingly significant flaws in its economic structure that must converge in the relatively near future to cause a devastating collapse. When that happens, politicians and reporters who have focused on trade issues will look silly at best. Only recently have we begun to see unfocused stories about China's economic bubble. They cite skyrocketing real estate prices, and over-investment in specific industries such as automotive or aluminum, but they miss the bigger picture. Blame is cast upon Chinese peoples' penchant for gambling, as though it is the citizens who have brought this upon themselves.

As usual, we know to look to the government for most of the fault. China's financial system is a relic from the past: a dinosaur from the days before competition entered the economy. The nation's financial system primarily comprises four government-owned banks, which may be privatized in the near future. Thus far, these institutions have been shielded from competition and guaranteed by the government. Those who remember the savings & loan fiasco here know that thrusting such incompetent institutions into a competitive world is disastrous. Long overdue for reform and utterly unprepared for the pressures of competition, the problem with China's financial system doesn't end there. China's economy has grown impressively over the past decade but much of that growth has resulted from tricks played by the government related to its currency and exchange rates. Over the past decade, the Chinese government has carefully "managed" exchange rates in such a way to devalue its own currency. This has made Chinese goods unnaturally cheaper for foreign currency holders, simultaneously impoverishing segments of the Chinese population.

To accomplish this valuation, China has had to hold vast sums of dollars, yen, and other currencies, instead of exchanging them for yuan. This leaves other countries holding their yuan, and causes their value to fall. The falling yuan makes Chinese trade goods more attractive to the rest of the world, but the citizens suffer in the short-term, due to their weak currency. We hear that the "new" administration in China (which is directly related to the "old" administration) has an interest in seeking a more responsible balance of payments and reducing inflation, but we find this unimpressive. Until actions follow the talk, there is little evidence that any real change will develop.

The combination of currency disruption and a weak banking system is a recipe for near-sure collapse. This leads us to recommend against the rush to Chinese stocks. However, the bigger question is what impact this collapse will have on the world economy. It is difficult to determine how devastating the repercussions would be, but suffice to say, it won't be good. We'd imagine that stable economies will hold up best, but the very size of China's economy would likely affect everyone. On the other hand, due to the nation's relative isolation, it is possible that problems will be somewhat muted. The greatest threat would normally be a trade disruption. We might see some price increases in Chinese-produced goods, but the impact on the U.S. economy or those of other developed economies would not seem to be incredibly susceptible.

The greater fear may be that when China runs into trouble, it will start spending all those dollars they've been holding. The result may be further pushes toward inflation in the US, an outcome we've already predicted. In these days of rabid spending, and increasing debt, an inflation rate that pushes interest rates higher cannot be good. These concerns are not immediate, but a long-term investment plan requires some foresight.

Despite our concerns about the longer term, we are still quite confident that the economy, and hence the market, will perform relatively well through the elections in November. As a result, we strongly recommend making the best of it, as the longer-term outlook is uncertain. Perhaps when November comes, we will have a clearer view of the future, but for now, investing for the present is all that can be done.

To send comments or to learn more about Scott Pearson's Investment Management Services, visit http://www.valueview.net

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.

limo prices to midway Crystal Lake west of Randal .. Lockport Chicago limo O’Hare

In The News:

Creating an email alias can help clean up your inbox by organizing emails based on purpose, like creating different aliases for shopping, newsletters and work.

A multipurpose robotic system promises to transform how items are stacked onto pallets, aiming to maximize space utilization and reduce shipping costs.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The number of people affected by a UnitedHealth data breach in February 2024 was actually higher than previously reported and was the largest medical data breach in U.S. history.

A phishing campaign uses Google Calendar to schedule fake meeting invitations that appear legitimate, redirecting targets to phishing sites.

Toll road text scam: Fake messages claim unpaid fees, seek payment via fraudulent links. Kurt “CyberGuy" Knutsson says this scam is becoming increasingly sophisticated and widespread.

Kurt “CyberGuy" Knutsson says these steps ensure that your friends and family get to the exact moment you want them to see. Try it out and streamline your sharing experience.

Tech expert Kurt “CyberGuy" Knutsson offers tips on how to protect your identity: Be vigilant, monitor accounts, use smart security, know theft response.

Tech expert Kurt “CyberGuy" Knutsson says cybercriminals are exploiting iMessage phishing protection, tricking users to reactivate links.

It's hard to imagine life without in-flight Wi-Fi these days – but sky-high web surfing comes with its own set of privacy concerns. Here's how to protect yourself.

Over 400,000 cases of credit card fraud were reported in 2024 to the Federal Trade Commission. The CyberGuy explains how to protect against becoming another victim.

A nondescript metal box transforms into a fully functional electric motorcycle that blurs the line between vehicle and urban infrastructure.

Many apps unrelated to location still ask users for tracking permission, and Texas Attorney General Ken Paxton has filed a lawsuit seeking to end this alleged practice by Allstate.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Melody, the artificial intelligence-powered robot, is life-sized and represents a move toward creating robots that resemble people in appearance and interaction.

Here are five easy smartphone rules from the National Security Agency that you can follow to better protect your mobile device from hackers and scammers.

A U.S. robotics company has developed "Jennie," a robotic pet powered by artificial intelligence that's designed to comfort those facing mental health challenges.

Healthcare records for more than 184 million Americans were breached in 2024, but you can take steps to minimize that risk. Kurt the CyberGuy explains.

The Skyrider X1 from Rictor claims to be the "first amphibious flying passenger motorcycle," and it combines land and air travel in one sleek design.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Home inventory and restoration apps help itemize and track every item in your home in the event you have to make an insurance claim after a natural disaster.

The White House launched a new cybersecurity safety label, the U.S. Cyber Trust Mark, intended to help consumers make informed decisions on smart device safety.

Today's tech can help make life so much easier — if you know how to use it. Here are a few tips on the quickest and best ways to make your phone, laptop and other devices work for you.

Tech expert Kurt “CyberGuy" Knutsson offers Windows 11 restart fixes: Update drivers, run system scans and check hardware.

Sony and Honda's Afeela 1 EV launches with advanced tech and entertainment for $89,900. Tech expert Kurt “CyberGuy" Knutsson gives his takeaways.

The Economic Giant-- A Closer Look at China

Political