To be honest, I am tired of China. I do feel depressed when talking about those issues of China. The reason China makes me feel helpless is its wrong determination to help people living in mainland China. Red China uses wrong ways to help the economy grow and tries hard to fix in a more absurd method.
Unreal growth numbers
It is a wrong perception thinking China have a higher growth rate compared with others. Red China does invest lots on the infrastructure but gets little from it. To elaborate Chinese people and make them have something to do is the purpose to waste so much money on railroad and high speed trains. Red China is eager to modernize its nation in which the communist party invests a lot in the infrastructure. It brings people with higher inflation and gives the associated people with those projects ton of money to corrupt. The reason why Red China feels much better about its economy is due to the 2008 US financial crisis. It makes people panic and flow out their money into emerging markets. The crisis makes Red China feel confidence and think the possibility to replace the role of the United States. Of course, it is a wrong perception amid the lower development of Red China.
The consequences of 2008 US financial crisis for Red China
The biggest problem Red China faces during those years after the 2008 financial crisis Lehman Brothers brings is those inflated growth rates local governments make. The inflated growth number was once thought to be a guarantee to let local supervisors step into the central government circle. Once the greater number seems to promise a brighter future in the political society of Red China. Remember, a lot of local autority leaders are jailed in lately years because of corruptions and murders. Even in Red China, a nation which doesn't treat law as something, could not tolerate those leaders from the criminal charge. In those stories, we know even tanks are shown in front of U.S. embassy in the story to ask people leave. Frankly speaking, Red China is a country even Mr. Xi could not save or protect amid a long time corruption and deeply unlawful situation. Red China is at risk more than everyone knows.
Red China at Risk
Red China is a nation telling a farfetched story to the world. A much lower GDP growth exists for several years. A much lower corporate earning has never be treated seriously for may years. There is a saying that refunding rate of Alibaba in 11/11 was once higher than 70% a couple of years ago. It means people may not have higher consumption power than the world knows. Red China is collapsing even Mr. Xi tries hard to save. The central bank of Red China loses 70bn US dollars in November, 2016 which brings the foreign exchage researve in the Red China just around 3 trillion US dollars. Red China already loses more than two trillions US dollars foreign exchange reserve in lately two years. We still see the bleeding go on and some new measures of capital control from the Chinese authority. A better Obama's policy may bear some big fruits for Mr. Trump to manage. Aviodance of conflict between Red China and the United States does bring hope to people in the mainland China. Many Chinese big corporations invest their money outside Red China to escape the evaporation of purchasing power of RMB. We do know Red China faces big challanges at their debt levels of SOEs (State owned enterprises). Those big national corporations pile up tons of debts in terms of RMB and could not get resolved. The only solution to aviod bankruptcy is increasing the supply of RMB. for the Chinese authority even it may bring higher inflation and even lower foreign exchange rate. It makes people panic and tries hard to preserve their purchasing power. So we see an even higher house prices in major cities of Red China and an even higher capital ouflow to Europe and the United States lately. People want to preserve their corrupted rewards before Mr. Xi gets power. People try hard to help their children out of Red China to have a better living standard. They leave Red China in the dark and corrputed politics. The most severe part is they still have connection with the authority and we do see some greater air polluiton and larger unnecessary overproduction in many industries because of greedy. They want more even after they get a lot. Red China is on the edge of cliff. Nobody knows when the Red China will fall and how it falls.
A replacement for SOE
Red China tries hard to innovate itself. FinTech is one of them which brings higher technology and convenience. The bright side is Red China does have a lot of new emerging corporations to serve its own people. The value chain is created from those corporations. We do see the value of some new ecosystems. But it leaves the same situation as FANG in the United States. Those corporations may not create enough employments for Chinese people in the mainland China. Robots are everywhere in new factorories. People without higher technology skills just live upon those corporations with some lower skill jobs, such as drivers and porters. A lot of jobs may be in the form of part time, not full time. Greater benefits have been even concentrated in the hand of those technology gurus. They get even greater benefit from the stock market and the value creation from the ecosystem. Oridnary people in Red China may not get those benefits which is just the same in the United States.
We do see contrast between SOE and emerging new corporationsin Red China. But it may leave people in the dark if those SOE finally go bankrupty under the surveillance of Mr. Xi when the country could not save those companies anymore. The broken chain may happen when the Chinese authority stops its endless supply of RMB. Then we may see some big challenges for the politic in Red China. The money flow will get broken and people in China will get suffered. The most important thing is we will see endless falling of foreign exchange reserve of PROC and a black hole of financial markets in Red China sucking people without decent life.
US dollar dominated debt Service
Red China has issued more than a trillion US dollar-dominated debt. We believe the latest issue may make the number greater than 1.2 trillion US dollars. We also get informed that the Chinese authority encourages Chinese corporations issue the corporate debt in the US dollar to avoid government sponsor and even lower the foreign exhcange reserve of Red China. It gets the situation worse when Red China tries hard to defend the exhcange rate of RMB/USD amid higher service cost of those corporate US dollar-dominated debts.
Red China's foreign exchange reserve is collapsing in terms of US dollar. But we do believe the Red China will survive as the authority has the ability to provide limitless RMB currency. It makes Red China become the spot of higher inflation area. They turn those unserviced RMB currency debts viable and makes the nation safe and sound at the risk of higher inflation and lower purchasing power.
It may bring the same situation to the United States if Mr. Trump decides to use a larger scale of unexpected fiscal stimulus. Mr. Trump may save the Red China's ass if the United States starts its larger fiscal program and provide more US dollars to the world. It will save Red China out of the despair situation of US dollar shortage because of spillover effect of Mr. Trump's plan. It may bring the opposite effect that Mr. Trump knows. How to save American poeple without creating large distrurbance to help Red China grow may be an obstacle in the near future. People in the United States think a fiscal stimulus may be unnecessary for now as the United States could survive on the service sectors booming.
Lew or Paulson
The Red Chinese authority loves Paulson so much because he screwed up the US financial markets. On the contrary, Chinese authority doesn't like Lew amid smart management of government's finance. Mnuchin has no record in Red China. I had heared some scholars from University of cummunist party (RenMin) once talks about the Paulson's management. He thinks Mr. Paulson makes a lot of lousy decisions and know nothing about derivatives management. Yes, Mr. Paulson thinks those derivatives as treasure for financial institutions. His successor, Mr. B, thinks the contrary. It makes G hedging the risk with A. Then we know the story goes as G person takes over A. For Red China, that is a greater opportunity to show the world that Red China is a much better place to live and develop in those years of 2008 financial crisis. Americans are all liars and robbers those days. Nowadays, we see the thief is Red China in which foreign conpanies could not get fair deals in the business of Red China. Red China becomes an icon of self-protection which makes people feel so unfair. The 2008 financial crisis prevents Red China to develop even sophisticate financial markets. Red China now has many trading centers for oil and materials. They do have investment-linked products in their banking system. But Red China knows little about how to manage them. It is lucky for Mr. Trump to have the Dodd-Frank Act and the consumer portection law. It is rare for Red China to have such protection for ordinary people. It is the thing Mr. Trump doesn't cherish. We may see another nation with heavy air pollution and more wealth discrepancy. The place is no one else but the United States if all those plans Mr. Trump says in the election get implemented.
Red China does expect the RMB could follow the step of Japanese Yen, Euro and other international currency. Red China does accumulate more than three trillion foreign exhcange reserve. The difference between Red China and Japan is the population number. Mainland China has more than 1.3 billion heads, but Japan has only around 100 millions. The internationalization of RMB is difficult amid not free enough financial market and not a country with democracy. Both make the government decision could not cope with the demand of world financial market.