>Is there going to be a global second dip?

>Pre-recession China was an export dependent country, which was growing so fast that it was at risk of overheating. It was considered to be dependent on the US buying all the Chinese goods too. Since then the US has suffered its worst recession since the Great Depression, and aggregate demand has slumped. So why and how is China booming again?

There are 3 possibilities:

  1. The US private level of debt is still rising, along with consumption
      1. Not true. The US entered recession with household levels of debt at 130% and have now lowered them to below 100%. Unless the rich is making up for the rest of society’s shortfall in consumption then it seems obvious that falling income and falling debt means China is not increasing sales in the US.
  2. China is selling to other countries instead.
      1. Chinese companies are certainly trying o open up new markets in other countries, but can they do it within a few months? The richest peoples in the world are now in recession, so it’s unlikely that anyone was able to fork out for the big deals.
  3. China managed to switch from an export led country to an import based one in the space of a year.
      1. There are examples of firms that have been trying to do this e.g. Chinese automakers. But this kind of change in an economy takes generations, not months. So China has not become an import based country.
  4. China used its stimulus to buy and stockpile Chinese goods in the hope that the recession would be temporary, and will not be able to maintain these efforts for long.

If this isn’t scary enough (please do suggest other possibilities) there is also a real estate bubble in China, which China is struggling to suppress.

And that’s without getting into the policy debate in the West. Though I will ask you this: are there any more products/assets to bubble? First there was the dot.com boom; then the real estate and mortgage boom. Is there anything left to bubble? Will the next things to bubble and burst be commodities, and metals like gold?

What do you think?

One comment

  • >Professor Kwang of Massachusetts yesterday said he expects China's banking sector to go into long term problems within the next two years, and seen as every financial crisis in history has resulted in a long period of economic weakness it's likely that the rest of the world is still going to be weak then.In addition, China is now investing more than 50% of GDP, when economic theory says only 30-35% is sustainable, and consumption is still far too low to provide sufficient demand in China.Can anywhere else in the world save us if China does have problems in 2012? East Africa's banking sector is booming, and Uganda will start producing copious amounts of oil next year, but they're also suffering from famine, agricultural problems, poor infrastructure, corruption, imported problems from Somalia, and crowding out. There is also a rising Middle Class around the developing world, but it's not growing fast enough to help by 2012. I imagine that if China does stumble it will fall largely to India and Brazil to keep the world economy strong, with a few smaller developing countries supporting this rise. If they can prevent the second dip then maybe the developed world's private sector can take advantage, get involved out there, and help avoid the next dip.What do you think?

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