Where will China be in 6 months...or 6 years? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 25 July 2013
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Beijing, China

The lazy days of summer trading continue, with the Dow barely moving yesterday. Gold fell $15; to be expected after the big move up.

We left Vancouver only a few hours after getting there. On the airplane over the Beijing, we were puzzled about time and place, trying to work out the movements of the earth, the sun, and the airplane.

The flight took 10 hours. From our fuzzy memory of the globe, China should be almost on the exact opposite side of the world from the US. So, you would head due north from North America to go to China.

But the plane didn't seem to be going north. It was going west...or northwest. Looking out the starboard window after midnight, we saw the warm glow of the sun over the arctic. At least, that's what we thought we were looking at. But then, the light failed. We must have been going away from the east...so we must have been going west. But why?

You don't mind if we take a moment work out these important celestial movements, do you, dear reader? If you fly from one point to another you have to take into account that the place to which you are going does not stay put while you are going there. There are 24 time zones on the planet. A 10-hour flight gives the earth time to complete about 40% of a revolution. This means, obviously, your target airport must slide 10 time zones ...or about 10,000 miles if it is on the equator...towards the east while you are in the air.

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The airplane must, therefore, aim not for the place you are going but for the place it will be when you get there, a place far to the east of where it was when you left.

We're not sure this has any importance to anyone other than pilots, but we found it interesting. And the same phenomenon happens in football and quarterbacking. You aim in front of your moving target.

There is a parallel phenomenon in investing. You don't really care what the price of gold is today...it's what the price will be in six months...or six years that matters.

Revolution is a fact of life. The planet revolves. The markets revolve...round and round, too.

So do economies. We're in China today. Want to know what is going on China? We don't know but a lot of people think they do. Here's Paul Krugman in the New York Times:

    "The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."
And here's Ben Levisohn in Barrons:
    "Unlike three months ago, when investors were placing big bets that China's policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world's second largest economy is its new normal."
Where will China be in 6 months...or 6 years? It is impossible to know. Goldman Sachs reduced its estimates of China's growth. But it has no better idea than Paul Krugman or anyone else. The Chinese could surprise us in either direction; the economy could be much worse than expected...or much better.

But one thing does appear to be happening. After 20 years of spectacular growth, China is looking for a new way forward.

"It's not enough just to open a factory in Senzhen and make things for export," explained a Chinese colleague. "The days of the entrepreneur who grew up under communism and then went on to become a billionaire are over. That was the first stage of China's development. It was the entrepreneurs' phase. And it happened right after Deng Tsiaoping opened the economy up. Entrepreneurs took advantage of the opportunity, using low wages to make things for the developed countries. China's wages are still low compared to the US or Europe. But they're not low enough. And the developed countries are no longer looking to outsource their manufacturing to China anyway.

"The next phase will be different. No one knows what it will be. But it will be different. And yes there could be a revolution in China...but I doubt it. People are pretty happy with the last 20 years. They expect the next 20 will be good too."

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Where will China be in 6 months...or 6 years?"

parimal shah

Jul 25, 2013

The comments are also befitting the US, the EU and Japan - the concern being printing money ceaselessly. Replace China with the respective countries and the statement still holds true.

"The signs are now unmistakable: China(the US/ The EU/ Japan) is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

And the question that remains is also the same - 'the only question now is just how bad the crash will be.'

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