Tim Staermose: One Alarming Indicator from China

From Sovereign Man:

Put simply, every year since 2005, more than 50% of China's GDP has consisted of construction-related spending. The law of diminishing marginal returns says this simply cannot continue.

It represents a misallocation of the household sector's hard-earned savings on a colossal scale, and I believe it will end badly. Not a day goes by that there aren't riots and protests somewhere in China (including cyberspace) as the downtrodden man in the street reaches his froggy boiling point.

Increasingly in China, though, those who see the writing on the wall can see that the days of system stability are numbered. And they're not hanging around.

For a number of years, mainland Chinese buyers have accounted for nearly all new apartment sales in Melbourne and Sydney. On numbers I've seen, they have been investing between A$2 billion and $3 billion a year.

An increasing number of mainland Chinese are establishing permanent residency and sending their child(ren) to school and university in Australia. And Simon recently reported that from an offshore strategies conference in Shanghai that the room was packed full of Chinese people learning how to diversify abroad.

They all want to have their options open when China's economy and political system hits turbulence.

Judging by the poor economic numbers coming out of China, this day of reckoning is drawing ever closer. One alarming indicator is that the Chinese renminbi has traded down to the lower limit of its strictly controlled trading band for SEVEN TRADING SESSIONS IN A ROW.

This suggests that there is more money leaving China than being earned from overseas trade or invested there. The exchange rate may be only one simple indicator, but it's a great barometer for what is going on: China is not going to be the savior of the global economy, but rather another casualty.

http://www.sovereignman.com/expat/one-alarming-indicator-from-china/