The Bull in The China Shop
With Charles Hugh Smith & Gordon T Long
36 Minutes - 21 Slides
Charles Hugh Smith and Gordon T Long share their thinking on current financial developments in China.
ISSUE #1 - The World Can No Longer Absorb China's Surplus
The good news is that China produces more than it consumes. This is the opposite of the US which consumers more than it produces.
The bad news is that the world can no longer absorb China's surplus (Production minus Consumption). Global trade has slowed dramatically impacting Chinese exports. The problem is further compounded since China as the new global economic engine, has become the dominate importer of other countries production.
The root cause stems from a "tapped" out American consumer and the "gutting" of the US middle class - the long time global economic engine.
This economic slowdown has left China with falling growth in FX reserves and has forced the selling of FX reserves to sustain elevated run-rates which were financing massive infrastructure expansion and investment. Construction has been a major employer and absorber of a growing Chinese worker force even though recently more and more have been employed building ghost cities and malls to keep workers employed.
ISSUE #2 - Insufficient New Capital Formation
Additionally, Capital movement has reversed in China. China now faces a "capital flight" versus new Capital Formation coming into the country which has been powering the Chinese Manufacturing and Industrial explosion over the decade and half.
CONSEQUENCE - China Likely Needs to Devalue the Yuan
The consequence is that China needs to stop capital flight and increase exports and foreign capital investment the country is so dependent on.
China has only a limited number of options which Charles Hugh Smith and Gordon T Long spell with aid of 21 charts.
There is much, much covered in this 36 minute video discussion.