Sunday, October 2, 2011

The Coming Crash of the Chinese Economy and Stock Market

I have been warning for sometime in the EPJ Daily Alert that the Chinese stock market and economy are about to crash, and have also touched on the topic here at EPJ (See: here, here, here and here). Now, the view is gaining traction. Joe Weisenthal and Simone Foxman at Business Insider write:

It's strange: The Shanghai Composite stock index has been one of the worst performers all year, and yet it was only this week that China-slowdown fears exploded into the consciousness of the market...

What caused the mass flip-out? A slew of things: Some weak economic data, end-of-the-quarter panic (investors dumping losers), and a big, negative report on China from BofA/ML.

What makes the shift in mentality particularly important is that China has been assumed to be one of the stable pillars of global growth, and in a sense—because people are so worried about debt in the US and Europe—an even safer play than the US (that goes for many emerging markets, really).

So this shift should have some pretty big implications, especially if the data ultimately bears out the notion that there's a real slowdown coming.

BI has a pretty decent slideshow of the current problems in the economy, here.

Of course, BI is as clueless about Austrian Business Cycle Theory as Paul Krugman and Nouriel Roubini, so they don't get to the core of China's problem, which is that China, until recently has been printing up huge amounts of its own currency, the yuan, in a mad effort to prop up the dollar, for the benefit of Chinese exporters.

The money printing distorted the Chinese economy and is responsible for the very rapid price inflation the country is experiencing. The rapid price inflation has caused Chinese banking officials to slow the money printing, and thus China is entering the down phase of the business cycle, where the distorted structure of the economy is no longer supported by money printing and starts to collapse.

So when you view the BI slideshow, keep in mind that they are discussing symptoms rather than the disease. They do not have any money supply data or price inflation data in their presentation.


  1. Has anyone seen any figures regarding Chinese/Asian demand of Gold and Silver ?
    Is it less than last year at this time ?
    Is that contributing to the downward price pressure on these metals ?

  2. Chinese power consumption increased 9% yoy in August. It is up 12% YTD. So there is a slowdown. The growth rate yoy was 12% in July.

    As for Shanghai Composite. It topped at 5,000 in late 2007. Then it topped at 3,400 in August 2009. We are now at 2,300, same level as 2001.

    Debt in Chinese real estate is low compared to the West.

    I am a buyer at Shanghai composite close to 2,000.

  3. China's Economy Is Already crashing , Besides the Gov't Effort to block that information it's just starting the crash will be huge , so huge that the U.S. Companies will pull %83 out of the Chinese's Market , Meaning That all the export to the U.S. Will Come close to a halt and all those jobs will end up going to India or Mexico where it's Cheaper to Manufacture Products At For Cheaper Costs and Operation Costs , If you look Germany started Pulling All There Companies out of China 3 years ago , 1500 German Companies Gone From China and the UK started 2 years ago or close to 2 years and has 800 companies gone from china already and The U.S. Can't Hold The Export demand because there's no jobs to support it and china is Exporting most of there goods to the U.S. and now even the United States is Starting to pull out , so where is china going to get the support , yeah they have a big Population but the Majority of those who have the education to work is very small and most of that country's Population is Poor and most of the People won't spend there money , In the Long Term i believe china is headed for a Big Down Fall , even tho Every one is saying the U.S. Will fall , i believe that China is going to crash and not fall , but crash super hard and i believe that will happen to China before the U.S. does , The United States Can Recover from a crash because they have experience from crashing and recovering from a crash and history shows that , china does not have the experience in that area , So it's a wait and see game , but the signs are there to show it's coming and coming soon .

  4. By Jim Rickards at KWN:

    "Who’s the Sucker at the Global Gold Poker Table?"

    "But it’s ok if you are in on the joke. You know the old saying, ‘If you are in on a poker game and you don’t know who the sucker is, you’re the sucker.‘ There are always 3 or 4 players who will gang up on one guy and strip all of his chips away. Right now, China is the sucker, they are the ones who have $3 trillion of paper. Nowhere else to go, not enough gold, don’t know what to do and they are completely vulnerable to the United States."