Page 78 - E&B_septemvri 2015 ENG.indd

WRUOBRRLIKDA

Sem Vaknin

The author is an analyst

WHAT IS GOING ON WITH
THE CHINESE ECONOMY?

Two days after China allowed the na for quite a few years now as rural folk
free market to find an equilib- moved to burgeoning cities, bad loans pro-
rium price for the ostensibly liferated, and consumption remained sub-
convertible yuan, the currency dued as savings rates reached malignant,
dropped by 4%. It is a reflection self-defeating levels. In an effort to sani-
of the coming economic collapse of China, tize humungous export proceeds, China
which I have been predicting since 2011. I amassed trillions of dollars worth of for-
use the word „collapse“ rather than „cri- eign exchange reserves, mostly invested in
sis“ judiciously. American treasury bonds, creating a dan-
gerous exposure to the vicissitudes of the
Mounting sovereign debts crises in Eu- increasingly-more decrepit US dollar and
rope and an anaemic rebound in Amer- to America’s downgraded sovereign credit
ica‘s economy were more than offset by rating.
the emergence of Asia – and, in particular
China and India - as a global powerhouse. The Chinese authorities‘ attempts to
Yet, the warning signs are there: China‘s clamp down on rampant speculation and
economic „miracle“ has long been based price gouging are too little, too late, not to
on an artificial rate of exchange for its cur- say irrelevant. The economy will screech to
rency, the yuan (RMB); on unsustainable a shuddering halt in the mother of all hard
dollops of government largesse and mon- landings. The Chinese house of cards and
etary quantitative easing which led to the hall of mirrors will collapse ominously and
emergence of asset bubbles (mainly in re- swiftly. This will bring the entire global
al-estate) and to pernicious inflation; and, economic edifice into disarray with mount-
frankly, on heavily-redacted statistics. ing imbalances and increased risk-aversion
among investors. The second phase of
Real wages have been declining in Chi-

Yet, the warning signs are there: China’s economic “miracle” has
long been based on an artificial rate of exchange for its currency,
the yuan (RMB); on unsustainable dollops of government largesse
and monetary quantitative easing which led to the emergence of
asset bubbles (mainly in real-estate) and to pernicious inflation;
and, frankly, on heavily-redacted statistics

78 September 2015