>>China does the opposite. They're spending $1 trillion on infrastructure in other countries.<<
Well it may not be as sound as they sound ...
" In late 2009/early 2010, China was feeling the crunch of the global credit market crisis and made an attempt to push easy credit out to internal and external infrastructure projects in an attempt to keep the manufacturing and export sectors in China clicking right along. The objective was to keep building, while the capability was available and the supply was plentiful. The only thing China needed to do was to make it easy for capital (loans) to be acquired for builders and buyers. Much like what happened throughout most of the world, China took advantage of an already steady economy to avoid any contraction in real economic output by creating capital out of thin air and allowing their banking institutions to loan capital for massive projects. This fueled a huge wave of investment and speculation throughout most of Asia – including external projects like those in Malaysia, Africa, India and many other countries. What we are learning, though, is that the projects may have been much more nefarious than we originally thought.
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China made a capital commitment to loan a portion of capital for an international project with the commitment being to purchase materials from Chinese manufacturers where the host country would also have a capital repayment agreement as their joint partnership in this project. The problem was that China never really delivered on the materials and the host country, in some cases, has already paid for 80%+ of the project costs. This is a classic “I’ll gladly pay you in advance for materials and work that I may never EVER see."
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For example,
" China just “booked” a $400 billion project where China must contribute 10~15% of the capital costs and the host country contributes the rest. This results in a “sale” of $400 billion on the books with additional sales going out to manufacturers and suppliers. As the host country begins payments for this project, China can quickly recover actual costs because they have not delivered much in terms of raw materials or actual building materials for this project. Meanwhile they are bilking the host country out of hundreds of millions or billions on a “phantom project” that may never be completed.
It all seems to work well for the books because as long as no one actually finds out what is happening, China is selling “vapor projects” to other nations and booking profits for simply making a commitment – a shell game with billions, possibly trillions, at risk"" |
