Fri, Jan 24, 2014 - Page 8 News List


Beware the Red Swan

Economist Michael Pettis has been instrumental in guiding China’s leadership toward fair-market and service-oriented reforms and ending corruption and irresponsible banking in the Chinese Communist Party (CCP)-run banks, the small SME banks and the shadow banking system. Hopefully, reformers heed his wise advice and review the recent piece in Foreign Policy, brilliant from his unique angle.

China’s interbank overnight lending rates have spiked twice in the past six months. This should be a warning to all Taiwanese businessmen in China — those who are not in jail on spurious charges. It is highly unlikely that heads of the PRC and the People’s Bank of China will be able to change China’s economy into anything sustainable, and the Red Swan is coming home to roost.

Thanks to the outstanding Tyler Durden and a recent story at Forbes, it has been disclosed that a major Chinese wealth fund is about to default, at the end of the Year of the Snake, on Jan. 31. In other words, China’s banking sector crisis has now gone mainstream. CCP leaders can no longer sustain the model of overcapacity and debt-led growth.

AFP said in a story covering the World Bank’s competitiveness survey that “China, which was furious to receive a ranking of 91 last year and has pressured the World Bank to drop the 11-year-old study, fell five notches this year to 96th place and was leapfrogged by Russia.” LOL.

China has no neighboring enemies that it itself does not create. The bully needs to be called out. If the PRC believes that false nationalism and military power will brainwash the “sheeple” forever, it has another thing coming.

China’s economy could collapse because no one has faith in that nation or their products. Foreign direct investment (FDI) has dropped substantially amid a global slowdown. Housing prices are insanely high, but the Shanghai main board is in the toilet. Why is that?

This points to the ghost city of Ordos. Getting new loans to pay old loans is a recipe for disaster for an individual, a household or a country.

China’s national economic system is based on illegitimate land grabs, graft, fraud, corruption, lies and smog.

It is no wonder FDI is going down — not many foreign firms have enough cash to pay all those bribes. Really, who trusts the Chinese?

It was forecast that the Year of the Snake would be a roller-coaster ride to hell. Last year, informed investors saw the wheels coming off of the cart. Before the Year of the Snake is over, we are entering a period of incredible uncertainty. Let us hope the volatility coaster does not come off the tracks during the holiday.

The reason why the Democratic Progressive Party (DPP) is failing is because no one seems either aware of this or has a vision to honestly address the problems the nation’s economy faces and what it can do to generate its own sustainability.

Small-time investors are encouraged to buy and hold gold, in the form of coins with a picture of the queen, while it is still on sale.

Torch Pratt

New Taipei City

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