China. Or Chaynaar, as the 45th President of the United States of America prefers.
As Donald Trump’s political fortunes continue to unravel in Washington, with political scandal jostling with diplomatic intrigue and internal bickering for headlines, a more immediate problem is bubbling away to our immediate north.
It’s always difficult to get a clear handle on the Chinese economy.
Official reporting generally is pre-determined, offering little more than an opaque view into the inner workings of one of the world’s great economic conundrums; a centralised Communist government overseeing a capitalist economy.
But in the past week, there have been some concerning signals emanating from Beijing that all may not be well and that its latest attempt to extract itself from a looming debt crisis has done more harm than good — not for the first time.
How did it come to this?
A decade ago, China saved capitalism from itself. As the global economy lurched towards a precipice, it was the sole engine of global economic growth, fired up with a huge increase in debt and investment.
Those excesses, and the difficulty in curbing them, continue to cause concern. For several years, there have been concerns and debates about whether China will have a “hard landing” or whether it can orchestrate an orderly slowdown.
A hard landing, though widely discounted, would be catastrophic for the global economy. Even a mild slowdown, however, will hit Australia hard.
As the nation that benefitted the most from the China stimulus, and with our economy now dominated by trade with China, any hiccups from Beijing will rattle our economy.
That’s the price for becoming China’s quarry.
Economic miracle or debt bomb?
Mr Trump promised to name China a currency manipulator as one of his first acts as President, arguing that its artificially weak currency, the renminbi, had undermined the US economy’s competitiveness and stolen American jobs.
There’s one major flaw in that argument — it’s totally wrong. For the past two years, China has been desperately trying to boost its currency, to stop cash flowing out of the country.
Trouble has been brewing in China for some time. There was the great stock market bubble of 2015, when prices doubled in little more than a year before popping in spectacular style.
Millions of small investors piled on board the boom, which briefly became a source of national pride, before it all unravelled.
Commodity prices have gyrated wildly, plummeting in 2015 before surging last year and into the early months of this year.
Now there is another sharp reversal. Property prices have soared off the charts and cash has been flooding out of the country in search of safe havens, notably in real estate in countries such as Australia.
Debt lies at the heart of China’s economic problems. Its debt to GDP ratio stands at an eye-watering 277 per cent. Greece by contrast, long dismissed as an economic basket case, looks positively sober at just 179 per cent.
Such comparisons often are dismissed by those who argue Beijing’s $US3 trillion ($4 trillion) of foreign currency reserves are more than ample to cover any monetary crisis. But that is well below the $US4 trillion ($5.3 trillion) peak, notched up almost three years ago.
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