Here's an interesting prediction of Asia collapse spreading
to China. source STRATFOR.COM
Asian Economic Crisis Catches Up With China
At the same time, the Asian economic calamity continues unabated.
Predictions that the worst is over have consistently been proven
false. We
wrote in our Second Quarter Forecast that, "The region appears
about to
enter phase three of the crisis. The first phase was the long, slow
deterioration of the Japanese economy. The second phase was the
sudden
implosion of the Korean and ASEAN economies. The third phase
will be the
intensification of the Japanese crisis and its spread to China." This
continues to be our view. We have certainly seen the
intensification of
the Japanese crisis. We have not seen the problem spread to China
as yet.
More precisely, the problems have spread but the consequences
have not yet
followed. As we pointed out in a recent Weekly Update, we
remain convinced
that the pressure on Chinese exports will force a devaluation of the
yuan,
which will, in turn, trigger economic crisis in China.
China, of course, is working diligently to avoid this. One of its
strategies is to encourage a continued inflow of Western
investment. In
order to achieve this, China must create the illusion of
invincibility.
Part of this requires that economic statistics be presented in such a
way
as to encourage investors. China, for example, has emphasized the
continued growth of industrial production at pre-crisis levels.
Unmentioned has been the fact that inventories in China are
soaring, as
unsold products pile up. By emphasizing industrial growth over
other
variables, the Chinese are leaning on the one variable they can
control, in
the hope that Western investors will continue to pump in hard
currency with
which the yuan can be supported.
The other part of this strategy is an extremely aggressive foreign
policy
stance, in which China appears to be utterly self-confident and
even cocky.
China is doing everything it can to maintain the illusion of the
robustness
of the Chinese economy. It has worked so far. We do not believe it
can
work indefinitely and we believe that Japan's problems will take
down the
Chinese economy in the coming months. We see Chinese
management of
Clinton's recent trip to China as part of this strategy. Clinton, by
affirming Chinese power and treating China like America's senior
Asian
partner, helped minimize China's risk in the eyes of Western
investors.
Now, Western investors already exposed in China are certainly
hoping that
the Chinese can pull of their strategy. This is the origin of the
heavy
pressure on Clinton to minimize friction with China. The hope is
that
China will invest its way out of its crisis. We do not think it will
work.
We expect China to join the rest of Asia shortly.
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