Prime Sectors of the Chinese Economy
The Chinese real estate sector has been showing signs of recovery, notwithstanding the recent Chinese stock market crash.
The real estate sector is probably of greater significance to the stability and growth of the Chinese economy than the stock markets, as it is one of China’s principal economic pillars; with property being widely used as collateral for securing bank loans, as well as being far more widely owned amongst the Chinese population than shares in the stock market.
Having said that, real estate prices are still in nosebleed territory for the average Chinese, and it remains to be seen how that aspect will be tackled going forward. Recent reports show:
- An increase in Chinese power generation
- An increase in Chinese rail freight
- Chinese steel production and prices have increased May through August 2015
- In July, over 20 different commodities recorded at least a 20% increase in demand within China
- The level of Chinese commodity imports has stabilised
- Oil imports for August at 10.96 million barrels per day, were at a record high
Although China has suffered substantial financial losses during their current financial and property market crisis, their trade surplus is back at record levels, which is another clear indicator of the depth, and resilience of the Chinese manufacturing base.
It is worth noting that, a recent paper by the Centre for Strategic and International Studies concluded, that China's GDP in 2014 was circa USD$ 11.5 Trillion, which is appreciably higher than the USD$ 10 Trillion GDP figure reported by the Chinese. This would indicate that the Chinese have, in the past, probably been understating their level of economic activity!
Yes, China has made many of the same mistakes as the 'first world', particularly since 2008, and as a result shares many of the same excesses and difficulties. However, unlike many 'first world' nations, China is in a very strong position to initiate a fundamental re-boot of its financial system (see China's new parallel international financial system).
In the event of a serious implosion of the US Dollar denominated international financial system, such a re-boot could include:
- Substantial write-downs of bad and doubtful debt within the banking system
- A radical devaluation of the Chinese Yuan against gold
- Use the radically enhanced Yuan value of gold to re-capitalise the banks after the aforementioned bad debt write-downs
Such action would place gold in a position to play a key, and core role, in China's new parallel international financial system, and address many of the current ills facing the Chinese financial system.