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Is China a Bull in Americas Shop?
12.11.2016 14:47

A few years ago this entire question would have to have been reversed to make any sense.  China was in the middle of a real estate and growth boom cycle driven first by an enormous trade surplus, and then by liberal consumer and industrial financing. 
 
And America, by comparison, was reeling from the collapse of the housing bubble and a banking crisis.   America looked like the one who might crash China's economic growth party and be the bull in China's shop.  My how times change.
 
Now, with China's economic slowdown and rising debt issues, is their economy a threat to the turnaround for America after the 2008 crisis?  So, is China now the bull in America's shop?


 
It depends upon your perspective.

A recent Wall Street Journal survey of economists showed that 27 out of 49 considered China's economic slowdown to be the biggest overseas threat to the U.S. economy.  The importance of this is magnified even more: the survey was conducted at the same time the Russian crisis in Crimea was unfolding.  Still, China's woes still were top of mind among those surveyed.
 
It is hard to imagine that in a country with $18 trillion dollars in government debt (that's the U.S. by the way), China's debt would be a larger concern to economists.  But it makes unfortunate sense.  China is the largest holder of US debt and US dollars.  And it is the second largest economy in the world.  As goes China, so goes the U.S., to some degree, and vice-versa.  So, individuals and business must analyze the unique meaning and implications for themselves and their particular situations.  That's where "perspective" comes in.

 
 
Where there's crisis, there's opportunity.
The Chinese word for crisis is made up of the characters for danger and opportunity.  In a recent edition of The Daily Ticker, author Jim Rogers stated that it was time to get back into China, after pulling out in 2008-2009.  The recent reassurance of the Chinese government to allow for more free market activity in the finance sector was one of the major influences in his declaration of a renewed opportunity.
 

Free Market Correction versus Too Big to (allow to) Fail?
China's financial leaders have indeed taken a surprising approach to their financial crisis by allowing the free market to correct their current debt issue.  Those who are overextended, particularly real estate developers will not be bailed out, but will either find a way out or go under. 
 
This is quite a difference from the US approach to the housing bubble collapse and the banking crisis in 2008, where the government spent billions on bailouts.  That a communist country would allow the market to make corrections, while the largest entrepreneurial economy in the world did not, is an interesting twist on traditional conceptions.


 
So, Who's The Shopkeeper?
The economic turnaround, basically a reversal of fortune, of the two nations’ economies certainly begs that question.
 
While perspectives and opinions vary, this much is easy for most people to agree upon: the two largest economies in the world will always have an impact on each other, most markedly if their current statuses are in opposition.
 
There has been a dramatic recovery in U.S. equities for now, as reflected by the recent record performances by the Dow and S&P 500.  There are also fresh beginnings of recovery in the housing market (when Berkshire Hathaway gets actively involved in residential real estate, you know things have probably bottomed).  The U.S. seems to be the one “keeping up shop.”


Daniel Kalenov

Daniel Kalenov is the founder and Principal Fund Manager of Global Diversified Partners, LLC. Since 1999, Daniel has analyzed, purchased, repositioned, and managed income-producing real estate assets. GDP was born out of Daniel’s frustration with the volatility of the stock market, and the realization that relying on stocks alone for stability in retirement was largely a game of chance. Contact him at info@globaldiversifiedpartners.com or call at 619.500.4235

 

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