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South Africa wants to adopt 'the Chinese economic model', President Jacob Zuma is expected to announce this week. This would be a very grave mistake. The Chinese miracle is not what it seems.
China’s GDP and GDP growth figures have been nowhere near as spectacular as we were always led to believe. A fact that quietly slipped under the radar towards the end of 2007, when the eyes of the world were turned to the US housing market and the fear of a global economic downturn, was an announcement by the World Bank that it had revised the basis for its Chinese GDP figures.
An accomplished young business graduate in Shanghai, Matt Dale, understands China and its financial markets very well, and his explanation makes for clear and staggering reading.
His conclusion is not only that money supply growth is out of hand, placing great pressure on the renminbi, but startlingly, that the People’s Bank of China is leveraged by an astonishing 1,300 to one. A fall of just 0.07% in the value of the Chinese central bank’s assets would render it insolvent. (By contrast, the bailout- and stimulus-funding US Federal Reserve is leveraged about 50 to one, and the sovereign debt-plagued European Central Bank’s leverage ratio never peaked above 10 even during the darkest days of 2008.)
The impact of a devaluing dollar is concealed only by the continual manipulation of the renminbi. The US is right to accuse China of fiddling its exchange rate, but if China stopped doing so, it might well go bust overnight.
read the complete article at
China’s GDP and GDP growth figures have been nowhere near as spectacular as we were always led to believe. A fact that quietly slipped under the radar towards the end of 2007, when the eyes of the world were turned to the US housing market and the fear of a global economic downturn, was an announcement by the World Bank that it had revised the basis for its Chinese GDP figures.
An accomplished young business graduate in Shanghai, Matt Dale, understands China and its financial markets very well, and his explanation makes for clear and staggering reading.
His conclusion is not only that money supply growth is out of hand, placing great pressure on the renminbi, but startlingly, that the People’s Bank of China is leveraged by an astonishing 1,300 to one. A fall of just 0.07% in the value of the Chinese central bank’s assets would render it insolvent. (By contrast, the bailout- and stimulus-funding US Federal Reserve is leveraged about 50 to one, and the sovereign debt-plagued European Central Bank’s leverage ratio never peaked above 10 even during the darkest days of 2008.)
The impact of a devaluing dollar is concealed only by the continual manipulation of the renminbi. The US is right to accuse China of fiddling its exchange rate, but if China stopped doing so, it might well go bust overnight.
read the complete article at
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