A China Century?

When I listed all the positive and negative trends for the medium-term US economic future, you might have been surprised by my insistence that things are not going well in China. This is not the standard view. Sure this might end up being a China century, but there are a huge number of negative factors that will delay this. 

Anytime that the government dominates economic planning, investments will be made in the wrong places. So with a lot of credit floating around in the Chinese system, cities were built that are still mostly empty. Here is a news report on this. 

This leads to the next Chinese problem. As is common, the banks do not have enough capital for even a modest amount of defaults. The government of China does have capital to take care of this issue, but it will not be pretty. 

What does China's elite think abut the future? 

It's one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations.

According to WealthInsight, the Chinese wealthy now have about $658 billion stashed in offshore assets. Boston Consulting Group puts the number lower, at around $450 billion, but says offshore investments are expected to double in the next three years.

A popular pastime for the elites is giving birth in America in order to give the child an American passport. Canada is also a popular destination. The wealthy in China are voting with their feet and their bank accounts. Since China has capital controls, various tricks are used to move money overseas. Jewelry is purchased in China, then a trip is taken to another country and the jewelry is sold. Since the markup in jewelry is notoriously high, this is very inefficient. Recently the Bitcoin phenomenon is used as a way to launder money. One third of all bitcoin transactions take place in china. This is a major factor in the Bitcoin bubble.

In any event some sort of crisis in China is brewing and this, as with Japan, will take pressure off the various American bubbles and issues. These various foreign issues give the US a chance to make some changes. I hope the time is not wasted.