I say that within three years it will undergo a painful collapse. I may be wrong, but the logic of the Pascal’s wager dictates that I should make a money bet on China collapsing.
(The logic is as follows. If China does well or slows down without collapsing, then I will be just fine. But if China collapses, it will take the US down with it. As a cybercoolie, I will naturally be in trouble. So I might as well make some money out of the damn mess.)
Here is a piece examining the possible mechanism of such a collapse.
I’m not clear about this collapse talk.
A first naive question is: If China has a bunch of IOUs which reduce in value, why would it engender a collapse as opposed to merely less rich/prosperous?
Second is a question about strategy: what had prevented the Chinese Central Bank from buying US stocks and other such assets which could still be dollar-denominated and yet secure under an inflationary dollar? Why did it need so many dollars?
Was it purely to push down the yuan and increase exports? Does this give some strategic benefits (build a large capacity, and achieving higher economy-of-scale efficiencies than international competition)?
Third question is: Even if so, what makes you think they hadn’t thought of and planned for the obvious effect of a depreciating dollar?
Did you read the comparison on India and China in The Economist ? It concludes, if I remember right, “A democratic India’s steady 5% GDP growth, is any day, better than an autocratic China’s rapid 10% growth”. I think China’s uncontrolled and lop-sided growth will, sooner or later, lead to a major social upheaval and trigger a major economic slide. History has shown us time and again that artificial, forced growth in an economy is followed by a downturn of equal or higher intensity.
I think fairly drastic changes are imminent for China, given it’s impractical currency regime. The pressure on the deificit is building in the US and it’s only a matter of time before the government does something stupid and short-sighted.
Its unlikely that China gov will do anything stupid on a simple subject as currency. Its just a matter of time, for sure, but they will revalue at about 15-20% higher, and this time tied to a basket of currencies, probably USD, JPY and EUR. Thats what most economists are saying who are not politically motivated one. There will be a bump, and some people will make a profit and some will lose. But theres nothing stupid about it. Just the next step.
by the way, a pegged exchange rate is anything but impractical. Large parts of the western world used it for years and years as they cleaned up their financial systems. China will float the yuan when their financial system is stronger. Doing so earlier would be the stupid thing.
I believe you got the question wrong? It should be, if America collapses will China follow? China’s economy is still small considering its 1.3 billion people, America with 300 million people has an economy 4 times larger than China. If China collapsed……the world would be better off and first world nations would start to re-invest in manufacturing. China will eventually fall over as transparency is zero and it has built its economy on export growth and overseas consumption. The Chinese can’t keep relying on the US and EU to buy their 2nd rate products. Consumers in the West will got on a long holiday soon and the tsunami effect will be felt esp. in asian nations. China recently devalued the renmimbi against the US dollar, such a stupid move which will only cause more deflation. China should start acting like a grown up instead of being a spoilt fat boy. China is way over stated in its economic power and will soon be put back in its place. Unfortunately we now live in a Global economy so we will all go down when the US economy collapses. The Neo-cons wants a NWO and it is coming!