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Tuesday, August 26, 2008

The myth of China decoupling and saving the world economy

Facts on China
China's Yuan has was pegged to the USA dollar for years, ensuring China production remains a constant significant cheaper than USA production. A year or so ago, China "decoupled" the yuan from USA dollar, but did so in a way to ensure the appreciation would be slow. China has wanted slow appreciation to the USA dollar, since it would adversely affect the symbiont relationship with China and the world.

My Spin
A UK article printed news (click) on China "on the sly" soaking up extra USA dollars. Probably to keep their currency from valueing higher and further hurting their economy. Also the impact of the Olympics to the China political sphere cannot be understated. I'm confident that China did everything possible to ensure best spin of Olympics at any cost.

Now that the Olympics are over, interesting to see how critical it is for China to take USA dollars and own our debt. China now has over 1.8 TRILLION USA dollars. Wow.
Even with China trying real hard to preserve the Asian tiger, some startling stats. Remember, China HIDES facts worse than USA, so I would expect that these numbers are optimistic:

"During the first half of this year, about 67,000 small and medium-sized companies went bankrupt throughout China, leaving more than 20m people out of work," said the National Development and Reform Commission. "Bankruptcies of textile and spinning companies have numbered more than 10,000. Two thirds are on the brink of bankruptcy."

Lehman Brothers warns of a risk that a housing slump and the 55pc equity crash since October could combine with a global downturn to set off a "vicious cycle". House prices have already fallen 18pc in Guangzhou and 9pc in Beijing. Prices are now falling in cities that make up over half China's population.

Now that doesn't sound like a country that is positioned to save world recession/depression. 50% equity crash? Boy I was shorting the wrong thing! Don't get me wrong, when this down cycle ends, I will likely move my investments to Asia, the tiger is awake, and it's hungry. But for now, a bit of reality is in order, and some painful decoupling must occur before China can claim the next 100 years as financial growth leader.

Dollar Rescue Plan (edit)
In a related US dollar news, March 2008 Europe & Japan also put into place to shore up US Dollar and could trigger the plan the next dowleg of US dollar. My Spin: US needs to shore itself up and stop taking the easy way out asking it's neighbors to do the heavy lifting. At some point your friends get tired of your wreckless actions.

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