Yes, the situation is quite hopeless. We are of course talking about China. Google just revealed that doing business in China is just a stupid idea. In reality, you can’t make Chinese money like the way the Chinese make American money. Reality bites and it is painful. Least many people are carrying buckets of money to dump into Chinese factories, let it be a reminder that China has the dubious title of being the world’s largest un-elected government. It is also propped up by an active army of over two million troops. And there is no such a thing as human rights there. What the government does, no body can say no to it. And it takes another brave giant like Google to confront it head on and loose the fight.
But China is unlike any other country. It holds about two trillion dollars worth of US security papers. If Chinese interests (read as those who govern China) are threatened inside their country, then either of two things will happen. Either the rulers will escape from China and head for the US and live off the money that is stashed away in the US, or if the threat is from outside China (could be outside forces working inside China like Google or Baidu), then China will throw their security holdings into the market and destabilize the US dollar! Either way, it looks like a no win situation for everybody.
And how did the present situation came about in the first place? There is no doubt that it came about because of the great buying spree from the Americans for Chinese goods for over a decade and a half. The situation was made worse by the mad rush to pump in money into China to start even more manufacturing plants (mostly American money). Today we have an excess of Chinese factories making everything from Christmas trees to nuts and bolts, and their outputs have to be channeled to Chinese domestic buyers as western orders withered under the strain of global monetary crisis. Traditionally, the Chinese don’t buy made in China products if they have a choice. So the Chinese government pumped in 650 billion and gave the money to its citizen to go on a shopping spree. Fortunately the trick did work, but then, how long could the prime pumping last?
On of the side effect of the infusion of money to the Chinese citizen was that the realty sector got a boost. Not that it is no good for the housing and property sectors, but it is just bad economics for a large number of village folks beating each other to buy property for perhaps the first time (under the communist system, their cadres live in low rent houses provided by the state) With easy loans from banks (the banks were told to extend lending), property prices just ballooned because of the artificial demand. You just can’t build houses fast enough. Besides, the Chinese people have that pent up feeling of buying for themselves so called ‘affordable luxuries’ so that they can at least consider their life not wasted under the communist regime. For years, they have heard so much of their brethrens enjoying luxurious living (from their point of view) in South East Asian countries.
Fearing that the situation in China could get out of hand, the Chinese government has just instituted lending tightening. Fears of asset bubbles are just too great and real, no thanks to the knowledge that a similar bubble had catalyst the start of the financial meltdown in the US in 2008. What happened in the US should not be allowed to happen in China because there are about a billion frustrated people there waiting in the fringes for a chance to change their government! And whatever happens in China would have a great bearing to the rest of the world as well. Only the total melting of the polar ice caps is more frightening, perhaps!
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