The Sun Starts to Set on China —
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The Sun Starts to Set on China

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The Sun Starts to Set on China.
By Kris Sayce

In today’s Money Morning: In China you can only be amused twice a week… A lose-lose situation for the West… How being tied to Asia hurt Australia in 2011… An early warning sign of China’s imminent collapse…

The Sun Starts to Set on China

In you’re still banking on the Chinese consumer to bail out the West, stop. The following news from the BBC should make you think again:

“Satellite broadcasters in China have cut entertainment TV by two-thirds following a government campaign, state news agency Xinhua has reported.

“An order by the State Administration of Radio, Film and Television (SARFT) to curb ‘excessive entertainment’ came in effect on 1 January.”

According to the BBC, the Chinese fun police will allow only two entertainment programs per week… for 90 minutes, max. Any more than that is “excessive”.

Yet some contrarians will tell you China is freer and more capitalist than the West!
It’s a Lose-Lose Situation

Of course, whether China embraces consumerism or not, it’s a lose-lose situation for us all.

If China does not consume, the era of credit and easy money is over. The world will fall into a needed economic recession.

If China does consume, the era of credit and easy money will last a while longer. But the world will still fall into the needed economic recession… And the outcome will be much worse, due to the growth of an even larger credit bubble.

How much longer is anyone’s guess.

One thing’s for certain. China is not an economic miracle. The truth is - as we’ve shown you before - China is built on the same fraudulent rules as indebted and bankrupt Western economies.

As time goes on, more truth about China comes out.

As BBC News also reports…

“China has uncovered 531bn yuan [AUD$81.5bn] of irregularities in local government debts…

“There are growing concerns about the amount of bad loans being held by local governments.”

We’ve covered this before. The odds are $100 billion of bad loans is just the start. This makes it hard to see how China can be an economic saviour when it can’t even keep its own house in order.

This is important because when things go bad in China, they’ll sure as heck go bad in Australia.
Tied to the Wrong Economies

Last year the Aussie stock market fell 14.5%. That’s despite the Aussie economy benefiting (by most accounts) from being “tied to” Asia, rather than Europe and the U.S.

If the ties that bind us to Asia are such a benefit, why did the stock markets of New World economies, such as China and India, fall more than 20% last year? Why did stock markets in the “broken” economy of Europe fell less than 20%? And why did the U.S. stock market closed the year flat?

Here is the answer… China and India are not really self-sufficient economies.

There’s a lot of talk that China and India will save Australia’s economic bacon. The fact is they can only boom if the rest of the world booms. And for the rest of the world to boom, credit has to expand… which isn’t likely… seeing how the West struggles to pay off old debts without taking on new debts.

So, without global credit expansion, China is in trouble too. Already Chinese firms are looking to increase margins by cutting costs rather than banking on credit growth. As the Financial Times headlines…

“China factories eye cheaper labour overseas”.

The Downfall Begins

The story explains how a Chinese shoe maker has cut his workforce from 8,000 to 3,000 over the past three years.

And not only that…

“Mr Liu [owner of a Chinese handbag manufacturing firm] says his profit margins have dropped from as high as 10 per cent to as low as 3 per cent…”

It just goes to show, doesn’t it? Even a centrally planned economy can’t control everything. In this case, the central planners can’t control profit margins… And they can’t control competition in Turkey, Mexico and India.

You could argue, when the British economy sent jobs offshore in the 19th and 20th centuries, it it signalled the decline for Britain. . Higher costs, higher taxation, trade tariffs and new rules pushed production offshore.

That China is offshoring jobs so soon is a clear warning the China bubble is set to pop. That’s bad news for the Aussie economy that has staked its future on the false belief that the boom will be stronger for longer.

Could 2012 be the year the Chinese economy finally crashes?

It’s not certain. As an Aussie investor, it’s a question that should be at the forefront of your mind. We’ll cover some of the strategies you can use to insure your investments against the China Crash over the coming weeks.

Kris Sayce.


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