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.
The Daily Reckoning Australia