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Thursday, August 09, 2007

China, Real Estate, Bad Products, the Economy

If there were any doubts about how plugged in China is into the United States economy, those doubts were likely to raise today.  The news is not full of talk about fallout from the shakeup in the mortgage and real estate industry in the United States for several days.  The news also been full of product recalls, bad products, defective products, and food that's not fit for consumption being distributed from China all around the world.

There's also a growing buzz about the lack of speech freedom and freedom of the press in China with hints of the pollution in the air and the water in China are also starting to bubble to the surface as we approach the 2008 Olympics.

Instead of rising to the occasion and promising to fix or work on the problems that are plaguing China, the government stepped up this week and threatened the United States with an economic attack of nuclear proportions that could potentially sabotage both countries economies.  China holds approximately a half $1 trillion in US debt in the form of T-bills.

China is essentially threatening to foreclose on that debt and send the United States economy into a hyperinflationary period, the likes of which the world hasn't seen since before the Great Depression.  Since the United States is a prime outlet for the goods to China produces and hence one of the primary contributors to providing employment for Chinese workers, such a move would be akin to cutting off their own head in order to create a mortal will own for the United States which they must perceive as an enemy as opposed to a customer and partner in the world.

China doesn't have a central government like many of the worlds great nations, and so any of the diatribes that come out of the country come in the form of a multi-headed factionalized government.  This makes all the statements that come from China less than credible and yet they are always very possible.  Any of the factions could trigger any of the actions that are threatened if the other heads of Government did not step in to thwart them.


This is the dangerous part of the Chinese government.  Most governments especially democracies are set up to maintain the status quo and not perform any actions in last the entire government gets together and makes those actions happen.  In China it works that way part of the time, the part of the time any segment of the government can take action if the other segments of Government did not stop them from taking action.


With that in mind countries around the world will have to take an extra careful and diligent approach to doing business in dealing with China in the future.  They have demonstrated their immaturity in the face of tough times in shown that they cannot be counted on to clean up their own house.  Anyone that relies on products or food or sustenance or supplies from that house needs to have a redundant backup plan or else they might suffer from a collapse of that house.


This immaturity will likely benefit several areas of the world and extreme fashion.  South Korea stands to benefit the most as they have attempted to keep up with Chinese manufacturing capabilities and growth.  As long as North Korea could be held at bay, South Korea has the ability to show their reliability to the rest of the world and step in where China is in capable of living up to its own potential.  If North Korea could reconcile with South Korea under a South Korean leadership, South Korea might even overtake China in the short term.


However it is India that contains the most potential to step in and become the world's new leader in manufacturing and supplies to the world.  Like China, India has vast resources of people ready to step in and do the work that Chinese workers in factories are unable or unwilling to do in a safe and reliable way.  India has the technology and the intellectual capital to pull this off.  They've been working for several years to grow their infrastructure and to build out their economic capital such that they could exercise their power in this way.  China's recent threats will start to drive the world towards investing in India to become initially a backup supplier to the world and potentially the primary supplier to the world.


In the meantime China will continue to rise, but their potential as just been capped by their own actions, their failure to respond, and their political immaturity.