China's Great Depression Revisited

I ran across this article today. It was written just a few days after I turned bearish in 2004. It makes predictions for 2008 and 2009. The entire article is well worth the read. For what it is worth, I agree and have agreed with its premise (as seen in my "See Also" links below).

September 2, 2004
CHINA'S GREAT DEPRESSION

Unless there is an unforeseen banking, currency, or a derivative crisis spreading throughout the world, it is my belief that the Chinese bust will occur sometime in 2008-2009, since the Chinese government will surely pursue expansionary policies until the 2008 Summer Olympic Games in China. By then, inflation will be most likely out of control, probably already in runaway mode, and the government will have no choice but to slam the brakes and induce contraction. In 1929 the expansion stopped in July, the stock market broke in October, and the economy collapsed in early 1930. Thus, providing for a latency period of approximately half a year between credit contraction and economic collapse, based on my Olympic Games timing, I would pinpoint the bust for 2009. Admittedly, this is a pure speculation on my part; naturally, the bust could occur sooner or later.

Banking crisis? Currency crisis? 2008-2009? Expansionary policies? Inflation in China out of control? Hard to heckle any of that using hindsight.

We should also consider another possible trigger for a bust, namely trade surpluses turning into trade deficits due to the accelerated rise of prices for resources, such as commodities, which China must import. Faced with trade deficits, China may decide to dishoard surpluses by selling U.S. government bonds, or it may decide to abandon its peg to the dollar. In either case, this will exacerbate the problems of the ailing U.S. economy, which in turn will boomerang back to China.

Accelerated rise in the price of commodities? Abandon its peg to the dollar? Exacerbate the problems of the ailing U.S. economy? Once again, very hard to heckle. Trade is an interesting one (see below).

Finally, the bust may be triggered by a worldwide crisis in crude oil supplies. Peak oil supply is around the corner, if not already behind us, and Middle East or Caspian instability could sharply cut oil supplies. Historically, oil shortages and their concomitant rise of oil prices have always induced a recession. China’s growing dependence on oil ensures that should an oil crisis occur, it will slip into recession.

Oil was just $44 a barrel when this article was written. It now costs nearly three times more.

How about those massive Chinese trade surpluses? How are they doing these days?

China reports agri trade deficit as grain export curtailed

Beijing, May 09, 2008 (Asia Pulse Data Source via COMTEX) -- -- China has reported a deficit of USD 3.66 billion in agricultural product trade in the first quarter of this year, as against a surplus of USD 460 million during the corresponding period of last year.

China's trade surplus falls slightly in April

Growth in exports cooled to 21.8 percent at US$118.7 billion in April from 30.6 percent in March.

Imports climbed 26.3 percent to US$102 billion, expanding from 24.6 percent a month earlier.

See Also:
Savvy Chinese Find Market Top!
China's Stuck up the Inflationary River

Correction: I previously said oil was $30 when the main article was written. It was $44. I looked up the wrong year. Apologies!