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Trust in China’s Economic Stability Misplaced

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If China’s economy stumbles even a tiny bit, the repercussions on world commodity markets could prove extreme. For the last few years, China has provided the biggest boost to global demand for commodities — including crude oil.

Many analysts have expressed concern about the long-term sustainability of China’s current growth model. But well connected investment promoters tend to dismiss such concerns as over-wrought or worse.

Each investor must consider the potential risks and benefits of depending on China’s long term economic stability for himself. The current indicators from China are not encouraging.

China’s export-driven model had reached its limits; that its over-reliance on investment was generating bad debt and inflation; and that any delay in the day of reckoning would only heighten the risk of a hard landing. _Patrick Chovanec


The “good” news is that if this conflict [inside China’s economy] leads to much slower global growth, as it certainly will, the resulting reduction in commodity prices, including oil, will help absorb some of the changes in the trade imbalances as commodity exporting countries see their exports fall sharply. But I don’t see much other relief. _Michael Pettis

Chinese steel production seen slowing

Chinese home prices decline, retailers declined, and China raises prices on domestic fuels

Things are a bit shaky in China, with rumours of a coup d’etat flying around the Chinese internet. While not likely to be true, just the fact that such rumours can be so easily started and sustained suggests that the sense of stability in the middle kingdom is not all that it should be.

Even a “soft landing” in China’s bubble deflation will lead to problems for global exporters


Al Fin



4 Comments on "Trust in China’s Economic Stability Misplaced"

  1. BillT on Wed, 21st Mar 2012 1:12 am 

    Why do you assume that China will stop stockpiling natural resources? I don’t. They have over $1 trillion to convert from Charmin to things of value like copper, oil, iron ore, coal, etc. Even if their growth drops to 3%, it will still be over 3 times the growth of the Us. Or any other Western country.

  2. James on Wed, 21st Mar 2012 2:46 pm 

    This is the way the U.S. tears down other nations. They use psychology to make other nations think less of themselves, and their potential to outdo the U.S. China is a big country and is masking large strides economically. This what makes the U.S. so nervous. They have resources that they haven’t even begun to exploit yet. The Rare Earth Metal situation is an example. China is wise to not allow the U.S. or the rest of the World try to get at their rare earth metals. This will be a real point of strength for them, besides their economy. Like it or not, China is on the rise and the U.S. and the West can’t stand it. They also have a home court advantage of a sort. They don’t have to fly or ship their weapons overseas to wage a war if they should get into one. They can move their weapons and supplies overland, using less fuel. The U.S. has to use a huge amount of oil to move their weapons and aircraft overseas, and most of it is coming from areas where China could readily gain access to it and deny access to the U.S. and the West. Russia will back China up. I would say that the U.S. position in this area of the World is fast declining.

  3. BillT on Wed, 21st Mar 2012 2:51 pm 

    James, I agree. Since I now live in the area of Chinese influence, I see much that never gets in the Us ‘news’. This is Asia’s century…no doubt in my mind.

  4. Kenz300 on Thu, 22nd Mar 2012 4:35 pm 

    China’s growth is driving up all commodity prices including oil. Just like a small company can expand 10-20% a year when it is small as it grow that 10-20% gets harder to do. China has grow at 9-10% for 30 years, that will soon slow down but not collapse. The worlds finite resources and resource prices will not allow it.

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