China New Year
We spend New Year's in Bath with Dave and Tabitha and their crew - they have finished their home whose center-piece a two-story wall of glass covering most of the back-house presenting sweeping views of the English countryside crossing their 25 acres. Marvelous. David formerly a banker now advising Britain's Secretary of State David Miliband with whom Hillary, famously, places her school-yard affections (she bubbles: "I mean, he is so vibrant, vital, attractive, smart. He's really a good guy. And he's so young!"). Yes, the 'special relation' between our countries alive and well.
David (my David, that is) helping Britain sort her global strategy. Mostly it is the politically club-footed China (Pittsburgh G20, Copenhagen Green House, executing a British drug smuggler despite Gordon Brown's appeal for clemency) whose pegged yuan-dollar, combined with tremendous manufacturing excess, causing all sorts of earthly problems. As a for instance, consider Ukraine whose economy collapsed by China's steel dumping - kaput! - the Orange Party over. Ukraine has nukes, too.
China also has a leverage problem. Government bets on 300 million people "urbanising" over 20 odd years and builds infrastructure, towns, entire cities from .. borrowings. The construction impetus via Central Planning while the muni's get it done. Open fields collateralise credit issued for developments .. which is all fine accept the land valueless until the people arrive. Banks don't want that hot potato and spread their risk by moving exposure to private investors (securitisation) who believe they own notes backed by safe land. And so it goes - sound familiar?
From a macro view, China cloaks its borrowing via quasi government "Red Lions" who own Central's liability now conveniently off balance sheet. All this blah blah means that China's reported 20% leverage to GDP under-reported and may be 70% or more. But who knows? Is it sustainable? Who knows?
Closing the loop, China's mighty industrial surplus finds its way to US Treasuries -- all that dough has to go somewhere safe. This is why interest rates in the US and the Western World remain near zero. Remove Obama's stimulus and it might be below zero or deflation - but this for another time. The problem with our low interest rates is .. consumption! Americans borrow borrow borrow to buy buy buy and so today, even after 2008, another bubble may be brewing as China shifts hers to ours .. and so on and so forth. The response to China's tactics trade-tariffs but to work there must must be global accord. Since everybody wants access to China's growing middle classes not gonna happen. We drift.
And does China's model work for China? In 1985, 85% of China's population earning less than $1,000 a year (poverty). Today, this figure less than 1% while the 2008 per capita GDP $5,970 (fed and consuming)(IMF). This one of the great stories of the 20th Century.
Pictured, the Shanghai Tower which is under construction and to be complete in 2014. It will be China's largest at 128 stories.
