“Economics of 9%,” Does the stock market know? U.S. is an “uneasy factor,” China is a “stable factor(?)”
“Economics of 9%,” Does the stock market know? U.S. is an “uneasy factor,” China is a “stable factor(?)”
  • yearim
  • 승인 2011.06.21 19:43
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As the U.S. economy shows signs of double dip recession, global stock prices plunged. As the problem about the U.S. credit status emerged, the U.S. media started to report about the possibility of the year-end crisis competitively.

With the announcement of the Chinese economic indicator in May, however, the market is regaining stability. Is the U.S. an "uneasy factor of the market" And is China a "stabilizer quelling uneasiness"  
 
As the U.S. failed to its role as the "market of the world," China is emerging as the "market of the world." China has emerged as the country consuming global products and leading global economic growth while the U.S. and Europe are in an economic slump.

The stock market is very clever. It is because enormous power of information and analytical competence are in the background of money. Accordingly, there is no case to win the market. It is difficult to make a hit continuously while making investment against the market, even though you can make a hit once fortunately.

The stock market, which was startled by the U.S. and was relieved by China, exactly knows the "economics of 9%." The whole world is now facing a revolution owing to the aftermath of financial crisis. The "capitalism" lost capital owing to the financial crisis, and the government is nationalizing enterprises, banks and even individuals' debts, becoming "socialization."

Ironically, the socialist state China opened more capital markets, including CHASDAQ, and is privatizing more companies, becoming "capitalization." Despite an economic recession in 2010, China listed 490 companies on the domestic stock exchange and listed 143 of the firms on the overseas markets, securing $106.9 billion (118 trillion won).

At present, the polarization through the "economics of 9%" has been progressing in the world. The U.S., the godfather of capitalism, is worrying over the 9% unemployment rate, low housing prices, sluggish consumption, and deflation. Meanwhile, China, which was concerned about "overheated economy" last year with the 9% economic growth, is now worrying over "high inflation."    
 
Headache of the Chinese economy, consumer price index (CPI)

The problem of the Chinese economy was "overheated economy" in 2010 and is "high inflation" in 2011. A massive amount of U.S. dollars released by the U.S. government to tide over the financial crisis jacked up international raw material prices and prices of agricultural products in China soared owing to long-lasting draught.

The Chinese CPI in May stood at 5.5%, renewing the previous record high in 34 months. Producer price index reached 6.8%.

Considering the GDP growth of 9-10%, the 5% inflation is tolerable. However, food & beverage account for some 40% of the CPI and real estate takes 10% in China. Considering this, commodity prices felt by Chinese people actually are much higher than those in Korea and the U.S.
 

China raises key interest rate by 0.5%p again


The People's Bank of China raised the key interest rate twice this year and announced the fifth hike of the rate this time owing to massive inflow of "hot money," which is serving as a main factor to jack up commodity prices.

To prevent this, China raised the key interest rate by 0.5% points every month and its central bank floated monetary stabilization bonds.

Does Chinese inflation regain its stable trend after hitting a peak in June or July

As the economic situations in the U.S. and Europe are worsening further, the matter of whether or not China will achive soft landing is an important issue. Thanks to the Chinese government's retrenchment policy, the M2 growth rate fell from 30% in November 2009 to 15% in May this year, returning to the average level of the past.

According to the Chinese central bank, new bank loans amounted to 551.6 billion yuan in May this year and the M2 growth rate stood at 15.07% year-on-year thanks to the government's stable monetary policy. The growth pace of new bank loans is also returing to a normal level. Accordingly, the inflation in China is expected to turn to a declining trend after hitting a peak in June or July this year.
 

Massive investment in China...the reason of failure ... It is no wonder as it is a socialist country.

Prof. Nouriel Roubini of New York University, a representative pessimist of the global economy, forecast that China would collapse in 2013 owing to real estate bubbles.

George Soros, the godfather of hedge fund, said that China has lost its ability to control inflation and is likely to face inflation owing to a hike in workers' wages. But, there is a groundless rumor that Soros put $10 billion in Hong Kong and is pouring the money in the mainland of China.

However, China can cool down real estate bubble through land expropriation if a specific region is engulfed in a trouble as land is possessed by the state.

The core policy goal of the Chinese 12th five-year economic plan over the coming five years is "expansion of domestic sales and increase of portion of consumption." It is desirable for China to slow down the economic growth pace. The Chinese government's retrenchement policy is designed to curb excessive lendings.
 
We should avoid "unconditional optimism" about China, but we also need to carefully watch progressing developments as "excessive pessimism" might lead to a mistake losing a good investment opportunity.

Forecasts of economic experts in advanced countries are often wrong because they see China from a viewpoint based on past experiences of Western world
 

Will the debt crisis of the Chinese provincial governments occur 

There is an assertion that China will face the debt crisis owing to the aftermath of the 4 trillion yuan investment to boost economy and a surge in debts of provincial governments.

Will the debt crisis of the Chinese government occur Considering the size of assets held by the government and the national savings rate, the possibility seems to be low. 

The debt ratio of the Chinese government stands at 50-60% of GDP and that of the provincial governments reaches 30%. Chinese fiscal deficit remains at 3% of GDP and the domestic savings rate surpasses 50%.

Taking into account these figures, there is little possibility that China will face the debt crisis within two or three years owing to the debts of its provincial governments.


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