Will China implode?

[sevent]

http://globalguerrillas.typepad.com/globalguerrillas/2006/09/journal_is_chin.html

Perhaps some of the folks on the board from China or HK could weigh in on this? I'd like to know if this is really a possibility as it would effect my portfolio value like this :brick:

 

[whitebark]

That's a good question and one that is far too hard to explain briefly.

Their economy has been overheated for some time, and shows little sign of slowing down. America is urging them to revalue their currency, but it is not to their advantage to do so. As well, they have America by the nuts in this regard because if America gets to uppity over this, they just need to call America on its own growing debt to which they hold an ever increasing amount.

Further to the above, China by latest accounts has the largest cash reserves in the world currently - recently passing Japan. That helps them should they ever need to weather some type of internal storm, but is of little value in a world-wide depression. I suspect the authoritarian rulers of China are not stupid and have been busy beavers buying up gold with all that cash reserve they are sitting on.

China is also at the mercy of energy markets. As they continue to eat up massive amounts of energy during their own industrial revolution competition for remaining oil reserves is sure to bring conflict sooner rather than later. I'm personally convinced this is currently being played out in the Middle East and Africa as we speak. China has been making oil/energy deals as fast as they can with pretty much anyone they can. As the number two user of oil right behind America they need to secure their share to continue their rise to being a world power. They have even started investing here in Canada into our oilfields and pipelines. China does this around the world with their - non-intervention policy - when doing so. That makes them fast friends with many shady regimes or those on the wrong side of the Western powers.

Internal strife is nothing new in Chinese history, and is actually a characteristic of almost any country undergoing industrial growth like they are. Their system of government does allow them much leeway in keeping these internal pressures under control - at least for now.

China is changing there is no doubt about that. I think that with enough time they will become a world player and one that is actually benign unless pushed to be otherwise. Flash-points will be with Japan over oil/gas on their collective coasts, Taiwan of course and Middle East oil - especially that of Iran which China has a real vested interest in seeing being developed in their favour.

 

[WorldRadio.mobi]

Thanks for a wonderful, informative reply WhiteBark!

Yes, China's currency is not easily convertible apparently to US dollars, as there is no
exchange rate listed often on the financial network channels..

So China, and Asia, has financed largely the American debt?

Still learning here.. Thanks

 

[loscocco]

You can bet China has been buying up Gold as quickly as possible. They are forced to trade their goods for our endless supply of freshly printed 10dollar bills, which are worth less and less. Silver and Gold are good investments.

 

[touchring]

Implode? Iraq is imploding now.

 

[Beachie]

Silver and Gold are good investments.

Personally, I've always been dubious about the true value of gold in a major global depression. Although gold has it's industrial uses, it's main use is purely cosmetic, and in a major economic downturn people aren't buying jewelry. Human life requires food, water and shelter (and possibly personal security to protect those). I can understand a stockpile of oil, canned food, water - things that have a use - but not gold. Gold only has value while people continue to believe it does. You can't buy food using gold if the man with the food doesn't have a use for your gold.

Or, put it this way; if you knew there was a major economic disaster coming in 1 month and you currently have $50,000 cash, would you buy a $50,000 bar of gold in the hope that someone will trade with you when the time comes, or a shipping container with $50,000 of canned food that would last you for five years? Bear in mind that the food is a tradeable commodity, just like the gold, only the food has an inherent value that you can eat it and survive, whereas the gold is just heavy and yellow.

 

[touchring]

Personally, I've always been dubious about the true value of gold in a major global depression. Although gold has it's industrial uses, it's main use is purely cosmetic, and in a major economic downturn people aren't buying jewelry. Human life requires food, water and shelter (and possibly personal security to protect those). I can understand a stockpile of oil, canned food, water - things that have a use - but not gold. Gold only has value while people continue to believe it does. You can't buy food using gold if the man with the food doesn't have a use for your gold.

Or, put it this way; if you knew there was a major economic disaster coming in 1 month and you currently have $50,000 cash, would you buy a $50,000 bar of gold in the hope that someone will trade with you when the time comes, or a shipping container with $50,000 of canned food that would last you for five years? Bear in mind that the food is a tradeable commodity, just like the gold, only the food has an inherent value that you can eat it and survive, whereas the gold is just heavy and yellow.

You're right in some ways, but at this moment, even gold is still better than the american dollar, at least it won't erode away. :greenconfused:

The aussi dollar, however, is good buy.

 

[whitebark]

Food might be a good temp buy but it rots - gold doesn't. And no economic downturn lasts forever. Gold will always hold its value in an economic downturn, and will depreciate very little when things start to pick back up. Money on the other hand might take a very long time to recover.

 

[Duckinla]

Human life requires food, water and shelter (and possibly personal security to protect those). I can understand a stockpile of oil, canned food, water - things that have a use - but not gold. Gold only has value while people continue to believe it does.

I always say that Batteries and Bullets will be the currency of choice when the world becomes Bartertown.
However, gold has proven itself time and again as pretty much a universal medium of exchange regardless of it's lack of tangible value. It's just some little silliness that everyone seems to have agreed to.

As for China, I think they have a few issues:
1) How long will people be willing to remain producers and not consumers? It's one thing if you don't know a better life exists. It's another thing when you're physically making the products consumed by the rest of the world.

2) Their financing is a house of cards that is allowed to exist by other countries. Government there invests in private industry requiring little to no return. The exchange rate is set arbitrarily to best benefit the production economy. the major consumer nations of the world could agree overnight to no longer allow China to artificially control their exchange rate. The cost of goods being brought into the U.S. would go up by something greater than 50%. A T.V. that was being brought in for $800 would immediately cost $1,200. I think in many other countries it would be even greater. This would immediately stop to export of production jobs to China and bring many production jobs back to other countries. Weak currencies drive producer economies. When the currency gains strength, it can become to expensive for other countries to import from you.

China is also heavily invested in long-term U.S. treasury bonds. Very bizarre given these bonds are at pretty much historical low interest rates. These bonds will lose significant value with even a moderate rise in rates.

 

[denny007]

Personally, I've always been dubious about the true value of gold in a major global depression. Although gold has it's industrial uses, it's main use is purely cosmetic, and in a major economic downturn people aren't buying jewelry. Human life requires food, water and shelter (and possibly personal security to protect those). I can understand a stockpile of oil, canned food, water - things that have a use - but not gold. Gold only has value while people continue to believe it does. You can't buy food using gold if the man with the food doesn't have a use for your gold.

Or, put it this way; if you knew there was a major economic disaster coming in 1 month and you currently have $50,000 cash, would you buy a $50,000 bar of gold in the hope that someone will trade with you when the time comes, or a shipping container with $50,000 of canned food that would last you for five years? Bear in mind that the food is a tradeable commodity, just like the gold, only the food has an inherent value that you can eat it and survive, whereas the gold is just heavy and yellow.

I couldn't write it better !

 

[typist]

China is also heavily invested in long-term U.S. treasury bonds. Very bizarre given these bonds are at pretty much historical low interest rates.

Makes perfect sense to me. Chinas investment in U.S. bonds is one of the reasons why interest rates can stay low. The low interest rates again assist in keeping U.S. demand (for everything, including Chinese imports) up. Chinese money going in to U.S. currency bonds is funding purchases from China. It's a circle.

 

[Duckinla]

The low interest rates again assist in keeping U.S. demand (for everything, including Chinese imports) up. Chinese money going in to U.S. currency bonds is funding purchases from China. It's a circle.

But it's a trap. It's the same trap the internet companies from the 90's ran into. Remember all the incentives and all the money they were spending to get customers. Sometimes giving things away for free, sometimes below cost. You trade quarters for dimes too long and eventually it catches up with you.
Consider what would happen even if interest rates don't change but the U.S. and other countries forced a revaluation of the chinese currency (by imposing a tariff). 100 million chinese yuan maybe bought a 1 million US$ bond. But when you go to exchange that money back after the revaluation, the $1 million only buys you 65 million Chinese Yaun, or 65% of what you invested. If you then add in the possibility of rates rising even as little as 2 percent...the long-term investment by China in US bonds could quickly lose 50%-60% of it's value.

I'm not saying it's all bad news for China in the future. These are just possibilities. I'm just saying the U.S. is not helpless to just allow whatever may occur. On the other side, their officials aren't elected, so they can do what they need to do without worrying about the populace. The people probably have a pretty high tolerance for pain as well. And many in the rural areas are starting from so low that even small improvements in standard of living are large from their perspective.

 

[typist]

And many in the rural areas are starting from so low that even small improvements in standard of living are large from their perspective.

True. I can confirm that. Many are living on 1$ a day.

 

[Beachie]

Food might be a good temp buy but it rots - gold doesn't. And no economic downturn lasts forever. Gold will always hold its value in an economic downturn, and will depreciate very little when things start to pick back up. Money on the other hand might take a very long time to recover.

Canned food never rots. Gold will only hold it's value while there is a moderately strong economy. Once the economy drops to the point that people care only about survival and don't care about jewelry, gold becomes worthless. Gold is only valuable because we've all been conditioned to believe that it's valuable, and hence we make shiny things out of it. You can't eat it, nor can you trade with someone who needs food just as badly as you. The only constant is we all need food, and we don't need gold.

Perfect example, in the Australian gold rush of the 1800's, water was more valuable than gold. If two people are dying of thirst in the desert and one has a bottle of water and one has a $100,000 gold nugget, who gets to drink the water?

 

[Duckinla]

If two people are dying of thirst in the desert and one has a bottle of water and one has a $100,000 gold nugget, who gets to drink the water?

This is a trick question. Whoever smashes the other over the head first will have both the gold and the water.

 

[whitebark]

This is a trick question. Whoever smashes the other over the head first will have both the gold and the water.

Hopefully nobody has to make these types of choices. Even if the world goes downhill, I would hope that people remain civil towards one another. Though as we know, it's always good to have a backup... firearms, lots of friends, secret stashes etc.

But bringing it back to the original question - if China implodes it could bring down everyone with them. The last time an economic flu hit Asia it hurt the entire world. It started in Thailand with the re-valuation of their own currency and look what happened. They have a tiny economy compared to China.

 

[Beachie]

Hopefully nobody has to make these types of choices. Even if the world goes downhill, I would hope that people remain civil towards one another. Though as we know, it's always good to have a backup... firearms, lots of friends, secret stashes etc.

New Orleans last year.

This is a trick question. Whoever smashes the other over the head first will have both the gold and the water.

It's a double trick question, because neither of them have arms or legs

 

[loscocco]

Personally, I've always been dubious about the true value of gold in a major global depression.

Or, put it this way; if you knew there was a major economic disaster coming in 1 month and you currently have $50,000 cash, would you buy a $50,000 bar of gold in the hope that someone will trade with you when the time comes, or a shipping container with $50,000 of canned food that would last you for five years?

I agree, canned food and water is a better investment in a global crisis. The only crisis we are facing now for sure though is a US economic crisis, the dollar is losing value while gold and silver appear to be increasing.

I'm just saying, if you have 50,000 dollars, its alot more safe to get yourself gold, foreign currency etc. because in 5 years goodluck getting a sandwhich out of a vending machine for 50k.

 

[msl]

china is a safer bet than us at the mo.... copper / orange / gold / platinium in fact are all safer! the economy in east is booming and will only really get more profitable as time goes on.....

our 2c

***************

loscocco
could you PM us thx

 

[fatter]

Personally, I've always been dubious about the true value of gold in a major global depression. Although gold has it's industrial uses, it's main use is purely cosmetic, and in a major economic downturn people aren't buying jewelry. Human life requires food, water and shelter (and possibly personal security to protect those). I can understand a stockpile of oil, canned food, water - things that have a use - but not gold. Gold only has value while people continue to believe it does. You can't buy food using gold if the man with the food doesn't have a use for your gold.

Or, put it this way; if you knew there was a major economic disaster coming in 1 month and you currently have $50,000 cash, would you buy a $50,000 bar of gold in the hope that someone will trade with you when the time comes, or a shipping container with $50,000 of canned food that would last you for five years? Bear in mind that the food is a tradeable commodity, just like the gold, only the food has an inherent value that you can eat it and survive, whereas the gold is just heavy and yellow.

I think in this scenerio toilet paper will be better than currency, I allways tell people stock up on TP, you dont realize how important it is till you run out