How China Fooled The World With Robert Peston – YouTube. In this BBC World News Special (58 min.) with Robert Peston entitled “How China Fooled the World”, Mr. Peston feels that China is on verge of economic collapse. With music and tone that makes it sound like it will happen at anytime, Mr. Peston does have a point. In 2008, the United States caused a worldwide recession due to the Big Bank failure. The U.S. compensated by a small stimulus to help the economy. Whereas, China did the bigger and bolder thing, they did a “Great Stimulus” with massive building in infrastructure: airports, freeways, high speed rail, skyscrapers and apartments. The problem is that after several years of rapid expansion financed by the Central Banks, the government ordered the slowdown of the expansion. But “shadow banks” – lenders from the local governments (bypassing the government controlled central banks) lent even more money for more needless projects. This has left China with a debt twice of their GDP. And it is only a mater of time that Chinese real estate values will decrease (prices had been increasing by 10 – 20% per year) and the 30 year China Bubble will burst. (The only bright spot that might prevent this bubble from bursting is the fact that the Central Chinese Government has extreme financial control and control of its Great Banks -that’s right – it’s a knock on Free trade).
Will this happen,? I had predicted that it will. Some Free Trade magazines like Forbes, say, maybe, it won’t, but then they never predicted the Big Bank Failures either. The Chinese government has been hoping that their economy will gradually change from an export oriented economy to an economy based on spending like the Western Nations (spending accounts for 66% of the GDP in Western Nations). However, the Chinese people are notoriously frugal, and they save about one third of all they make. Spending makes up only 30% of Chinese economy (GDP) while investment presently makes up 50%. So, good luck Chinese government in getting your people to spend their hard earned money. What would happen if China goes into a recession? Just about every nation will be effected, and, that is correct, the US will have another recession.
But what if China does not go into a recession? Then everybody will have learned a new way to build an economy. Results from the 2008 recession: Europe – austerity = prolonged recession; USA-tiny stimulus = slow recovery; China-massive stimulus = massive growth (and no backlash, yet).
If you are an Economics geek or if you want to see the amazing Chinese transformation, watch the video (click on the upper link).