Economic Boom China 2009: The Dark Side

The international media has been following reports of record commodity imports by China. The surge is being portrayed as reflecting China's recovering economy. Indeed, the international financial market is portraying China's perceived recovery as a harbinger for global recovery. It is a major factor pushing up stock prices around the world.

But China's imports are mostly for speculative inventories. Bank loans were so cheap and easy to get that many commodity distributors used financing for speculation. The first wave of purchases was to arbitrage the difference between spot and futures prices. That was smart. But now that price curves have flattened for most commodities, these imports are based on speculation that prices will increase. Demand from China's army of speculators is driving up prices, making their expectations self-fulfilling in the short term. _Caijing.com_via_FabiusMaximus

Large numbers of investors and financial analysts have pinned their hopes for the global economy on China's back. The most polluting nation on Earth, one of the most dictatorial and most corrupt nations on the planet is being held up as the future of the planetary economic system.

But China's cheery economic numbers may be hiding a darker set of realities behind the bamboo curtain. Here is one critical look at China's economic situation that is worth a read. The Chinese economy may be in the middle of a huge financial bubble of its own.

China has been buying up commodities worldwide at a frantic pace -- trying to take advantage of bargain basement prices brought on by low global demand. This Chinese commodities "rally" has inflated the Baltic Dry Index and China's economic figures, but it may be on the verge of fizzling.

The emerging problem of toxic Chinese drywall sales to North America is likely to once again raise the issue of the Chinese Poison Train. Toxic products flowing out of Chinese enterprises into world marketplaces should have had a far worse impact on Chinese exports than they have done. Poor quality steel from Chinese foundries is another problem likely to come back to bite the dragon's tail.

The problem of excessive Chinese regulations and limitations on entry into the marketplace continue to give corrupt and inefficient State Owned Enterprises in China an unfair advantage over private enterprise. This corrupt inefficiency shows no sign of going away anytime soon.

The gullibility of those who take Chinese economic figures at face value is difficult to explain, outside of wishful thinking. Everyone is looking for the big score, and right now China seems to be the biggest score around. Wait and see.

Based on an article from Abu Al Fin

Update: News stories here and here illustrate the uncertainty and volatility within world markets.

It is unlikely that the Obama crew has more ideas than to "inject more liquidity". Like the "mechanic" whose answer to every car problem is to add a quart of oil to the engine. You must have had some reason to vote for him, America.