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December 06, 2010

Enough about Europe -- let's talk about China [Fritzworth]

Whatever financial shenanigans are going on over in Europe, we can count on China to provide financial and political stability for the Eastern Hemisphere, right? Well, maybe not:

China is an emerging market oddity in demographic terms. It is not the oldest, but it is the fastest ageing country on earth, and by 2050 it will be older than the US on every major demographic measurement. From now on, China's youth and working age populations are going to fall, and those over 65 will soar. Put another way, there will only be 2.5 workers to support each older citizen, compared with ten today. . . .

. . . the Yangtse Delta ... is not the equivalent of a Silicon Valley, which thrives on adversarial conflict in innovation, proprietary ownership of processes, patents and copyrights, and the absence of hierarchy and political interference. . . .

. . . the [economic restructuring] issue is about whether the Party is willing and able to give citizens political, as well as economic, rights, and whether in today's rapidly modernising economy, rule by law can substitute for rule of law without thwarting or distorting economic development. . . .

. . . the government's legitimacy rests on a sort of informal social contract based on the continuous delivery of eight to nine percent economic growth. But a slowdown could occur for a variety of reasons over the next decade and beyond. . . .

. . . China's increasing status as a world power is already generating global tensions. When a Chinese craft recently rammed a Japanese fishing boat off the disputed Senkaku islands, the Japanese Foreign Minister wondered whether we are now starting to see the 'essence of China'. . . .

As the saying goes, read the whole thing. And while you're at it, be sure to read this article as well:

The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist.

It warns that the Communist Party will have to puncture the credit bubble before inflation reaches levels that threaten social stability. This in turn may open a can of worms.

"Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief.

Between Scylla and Charybdis indeed. ..fritz..

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posted by Open Blogger at 12:24 PM

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