China... China... China - soon the planet's third biggest economy - is now, mostly minding its own business, like America until 1917. But how long will it be before China begins to throw its weight around?
The Crack-Up Boom is a two-faced beast. To the United States of America it is 80% crack-up... and 20% boom. To China, it is 20% crack up... and 80% boom. The Chinese work hard. They save money. They invest in new factories and new infrastructure. They make things. They sell them. They earn a profit... save it... and re-invest it. Chinese wages are rising. Living standards are shooting up. The Chinese people are getting richer; the Chinese economy is becoming more powerful. That is what a real boom does.
That is not to say that China doesn't have its problems; it has plenty. And no boom happens without a correction. Given the size and speed of the boom in China, and given the Chinese government's tendency to err, the correction ought to be a doozy - perhaps as bad as the Great Depression in the United States. But the savings, skills, infrastructure and industrial capacity in the Middle Kingdom will not disappear.
The problem for China will come when Americans finally realise that their Crack-Up Boom is not all it's cracked up to be. That may be happening now (though this is not the first time we've thought so) with the deepening slump in housing and housing-credit. When it begins, we don't know... but that Americans will begin to buy less from China sooner or later we have no doubt. And when that happens, the Chinese will find that they have overdone it; that they have built capacity for buyers with no money.
Still, there is a huge, rising domestic market in Asia. After a difficult transition, China, as low-cost producer of practically everything tangible, will probably be able to shift production to this new, emerging consumer market. Then, it can continue to grow... and eventually do to the New World what the United States of America once did to the Old World - upstage it.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Geoff Shapowloff on 19 July 2007:
Re: China's crackup boom
Forgive me for thinking that Exports over Imports contributes to a Countrys wealth.
Internal consumption is just money going round & round internally, producing no new wealth for the Country.
Pop press in the US has espoused a 12 Trillion economy with 70 % internal consumption for years now.
What does this mean? 3.6 trillion is due to export revenue ??
Seems to me that if the US ceases to be China's major importer, then it is probable their Internal consumption will take up the slack as you suggest, but that will not contribute to an increase in China's wealth as a Country.
It will undoubtedly lead to inflation in that Country and in 50 years it will go the same way as the USA ----phut.
Most likely sooner since the price of rice doubled in one provence last Month!
Comment by Jeoff on 20 July 2007:
There is one hell of a crack up in China as well driven by massive cheap liquidity entering the country as FDI to take advantage of China's comparative advantage driven by cheap labor(low currency). They are in quite a pickle being dependent on exports/low currency whith their wealth being held in foreign reserves.
Wealth distribution is also extremely skewed and the domestic market is far from being healthy. It takes many years for this to happen. Consider what the average person in china makes and then take a look at asset prices in china's big growth cities. You will see the same trends as in western countries, that being...prices disconnecting from fundamentals.
Comment by Dimitri Kay on 26 October 2007:
Assuming China took all their reserves and then some by allowing the Yuan to appreciate and went on a buying spree of US European and other companies. Can someone fathom the enormity this? The power and influence China could have?
Is there someone out there that can calculate this?
Comment by ithatheekret on 13 December 2007:
Yes Dimitri , it is easy to calculate , once you have the correction revaluation .
Achieving the product of that sum is one thing , but reality says , the only sum that will come out is National Interest Policies . A.K.A. Protectionism
Then it usually gets nasty sometimes on a global scale , let's just hope the future fashion in vogue is not khaki .