The Greater Fool. China Inc

America welcomed Mr Hu a few weeks ago, if you aren't familiar with that name, well his the the Barack Obama for the peoples republic of china. Oh wait! Mr Hu was never elected by the people, therefore it makes our comparison somewhat stupid. I doubt the word election exist in the Chinese dictionary. Any how Mr Hu runs the show in Beijing, while Obama works hard to bring change from Washington DC. Lets refresh your memory dear reader, while back we said thank you keep the change. By the way do you feel any change? Last we checked there is 30 million or so unemployed, food stamp recipients rose to 43 million, interest rates still close to zero. Net result Main street down wall street up! Before we lose our track lets get back to the dragon thats threatening to break the eagles' neck these days.

Ever since Nixon's visit and reform of economic policy that began in the early 70's the middle kingdom, China has become a workshop for the world and source of cheap labor. This might have made few think "heaven and earth was made by God, and everything else was made in china". This led china to accumulate worlds largest foreign currency reserve, overtook Japans spot as the second largest economy, and steal the fame from Germany to become the largest exporter. Since there isn't much to take from the Americans, there was rumors the Chinese flag was flying over the treasury department, while Obama and Hu were having a magnificent state dinner at the white house. The cost to host Mr Hu? No worries that also is taking care of by the Chinese latest report from papers indicate that,

China has lent more money to developing nations than the World Bank in the past two years, the Financial Times newspaper said Tuesday, underlining Beijing's ambitions to increase its global influence.

China lent at least $110 billion to governments and firms in other developing countries in 2009 and 2010, surpassing the $100.3 billion by the World Bank, the newspaper reported.

We figure they would also lend to bankrupt empires. Maybe Chinese flags were really flying over the treasury department.

Even though china has achieved miracle growth since the 70's, we are afraid, the red hot economy might take a break. Even when the whole world is depending on china to bring life back to fragile world commerce, I think a huge surprise is awaiting the mass that believes in the hype that china inc will continue to prosper and save the planet. So what possibly could be wrong with the Chinese economy? Too many reasons to list, but will put what we believe pose a huge risk and threat to the dragon.

• 60% of economic activity is derived from construction activity. Since local commie bosses are rewarded to generate growth at whatever means, real estate has been their prime target. which is causing a huge boom and unintended consequence. If you thought Americas real estate bubble was a disaster, read the next line.
• Current construction of commercial real estate stands at 2.6 billion sq. meters (30 billion sq ft). Enough to give every Chinese a 5 foot by 5 foot cubicle.
• In the wake of the financial crisis, the authorities rolled out a stimulus package worth 50% of GDP. What were the commies smoking? We don't know Its a mystery.
• Income per capita is roughly $8000. Average condo price is $100k. Cling Cling! that suppose to be a bell ringing. Remember Sub-prime mortgage?
• Debt fueled asset purchase= Speculation & Bubble. Credit excess is historic.
• Inflation is running at 7.6% on a six month basis. In China people spend 50% of their income on food. Whereas in the U.S only 9% is spent on food. Therefore developing countries tend to be sensitive to inflation. For authorities in Beijing social unrest is unthinkable.
• The procrastination to raise interest rates by the peoples bank of china is fueling too much speculation in a hot real estate market. The biggest mall in the world is in china, tallest buildings are being built in china. Guess what? The mall is empty and most buildings aren't occupied either. That is on top of many condos that are held by investors that sit empty waiting for the next sucker.

Why Do we say China Inc is the greater fool? Well there are more sorry realties for the middle kingdom like regional airports being built for one flight per day. But we do feel we have given you enough reasons and probably bored you to death. Oh almost forgot that we can also use history as our guide.

• In the late 1980s, Japan appeared invincible -- just as China does now.
• In the late 1980s, Japan was buying up U.S. assets (and global assets in general) left and right -- just as China is now.
• In the late 1980s, Japan was striding atop the world as wielder of a "new model" that was supposedly more "long term," and thus superior to America's messy bickering democracy -- just as China's smoothly autocratic "getting things done" model seems superior now.
• In the late 1980s Japan was ramping up a truly massive -- and to the world's eyes incredibly impressive -infrastructure boom, just like China is now.
• In the late 1980s, America was in trouble, all eyes on the huge deficits being run up by the Reagan administration, with grateful Americans noting Japan's willingness to load up on U.S. Treasuries.
  
  
  By 1989 Japan inc was fiction, as their real estate bubble popped. Because It was a phony growth it depended on the next great fool to flip a property, just as the case is in china inc now.
  How can you profit from the coming mini collapse of China Inc? You are asking to much dear reader.
  
  
  Regard,
  Eskinder Haile