China’s Economic Crisis Creates Uncertainty

(Photo: Reuters)

I believe that China will be the next region of economic volatility, post slow Euro-zone improvements. A massive housing market has been artificially created, where billions of dollars of investment into infrastructure have been spent on ghost towns that are struggling to stay alive. The Yuan currency peg has cultivated an unsustainable economic liability that will greatly damage the global recovery. China’s “economic growth” has been created by dumping their exports into developed economies, where national workers cannot compete with production costs. By tying the Chinese Yuan to the US Dollar, they gorge the international market by trading with an abnormally and consistently low valued currency. Like the gentlemen in the video suggests, I believe that the Chinese government intervention and regulation will ultimately polarize major groups of societies — with the majority of the negatively affected working in the lowest income bracket.

Wall Street Journal reporter Bob Davis recently posted two articles on this topic. In the first, he suggests that the hope for Chinese economic reform lies in the government allowing private companies and entrepreneurs more opportunity. The latter article is appropriately named State-Run Firms are the Giants of China’s Economy, with the government owning about 45% of the economy.

“The report warns that China’s growth is in danger of decelerating rapidly and without much warning. That is what has occurred with other highflying developing countries, such as Brazil and Mexico, once they reached a certain income level, a phenomenon that economists call the “middle-income trap.” A sharp slowdown could deepen problems in the Chinese banking sector and elsewhere, the report warns, and could prompt a crisis, according to those involved with the project.

It recommends that state-owned firms be overseen by asset-management firms, say those involved in the report. It also urges China to overhaul local government finances and promote competition and entrepreneurship.” 


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