Here is a reply I had at FF explaining the present difficulties in China;
Be very careful who you are talking to. I actually live, work, and do business in China and have survived for 12 years here and made money. So I know China. You mentioned that I need to do my research on iron so I will respond to you on the iron industry.
China has a huge problem with over production/over capacity of its industries. I will take iron as the example. Comrade A is a leader of his city or region. He sees comrade B doing well and getting promotions and press in the party. He is also driving one heck of a luxury car. Comrade B is moving up. How is he doing it? Well he brought iron manufacturing to his town and became a success. So comrade A convinces his town leadership that they also should get into the iron industry. So to attract investors and business they offer up incentive package for a company to come and make iron in their town also. The company comes, jobs happen, prosperity hits the town, everything turns up roses. Comrade A moves up and is promoted within the party also. So Comrade C and D and E and so on do the same thing. Soon you have iron industries popping up all over China, promotions are being handed out, and comrades are moving up the ladder of authority in the govt. The real big boys make it to the top positions in Beijing. The problem is too much iron is being made, prices drop, profits disappear, quality suffers as each company tries to compete and make their product. Comrade A is high up in govt. now. His gravy train town is suffering from lack of orders but you cant cut back production, his future career and his town would be in jeopardy. Loans are taken out to keep the company afloat. Bigger and bigger subsidies are given out so the workers can be paid and the company can show a profit. The city cant afford the company to fail because there goes its tax base for the construction loans of improving their city. The company is bleeding big time red ink but that is covered up. One person estimated that 50% of the companies in China show a profit because of subsidies now not sales of the product. This is happening in industry after industry after industry all over China. Loans are going belly up and companies can not make their loan payments. Cities and provinces are hocked over their heads in debt and businesses are not allowed to fail by those who have profited the most politically from them. Tax revenues are in serious danger and huge local govt. debt is in danger of going belly up.
A new leader came to power last year in China and he started a clean up campaign. Thousands upon thousands of comrades have been investigated. It is not pretty. The estimate finally came down for the iron industry and the estimate is production needs to be cut by 25% to alleviate over production. Guess what that will do to the AUD? Guess which comrades get their industries protected and guess which ones will get cut? Certainly the guys in Beijing wont be cutting their gravy train to the top. What will the towns do that do get cut? Here come the layoffs, down go tax revenues, etc. etc.
Last year a very brave writer for the Guangzhou newspaper wrote a series of articles on Zoomlion. One of the biggest companies in China who have leaders who rode its coat tails to the top. He exposed the inside corruption, bribes, kickbacks, bank ties and shadow bank ties. His reward-- a 3 year jail sentence. The newspaper at first tried to back him but was later forced to write a retraction and an apology made front page news. Starting next month all workers in the news media will have to take an oath of loyalty to the party to keep their jobs. You are either with us or you are out. Interesting times. |
economic theory. A place where we could teach/discuss economic theory and discuss alternate thoughts. I love this topic but have learned to keep it out of my threads because there is such divergence of thought. I am hoping we wont fall into one big giant cat-fight or dog-fight but it is one of those subjects which brings on really huge emotions. I know that cant be fully prevented but still to trade Forex a basic knowledge of economics is needed. In other words if you hate Keynesian economics it is tough luck because that is the economic theory used today around the world. Like it or hate it you need to understand its basics so you know why countries are using QE 1, 2 , 3 Abenomics, etc. etc. I also fear the zealous gold crowd and conspiracy crowd will kill this thread but that is the price to pay for having this discussion. We hope Steve's delete finger will have some patience. Anyway, we will try.
