Tuesday, June 26, 2012

Is The United States Fiscal Cliff Enough to Nudge China Over A Political One?

Well, we just went through a rather ugly presidential election. Over $2 billion were spent on campaign advertisements; most of them attack ads on one another. They were nasty, purporting half-truths, and totally attempting to degrade the personal character of the other candidate. There was nothing pleasurable about it, it wasn't pretty, but that's how we do American politics now. We should be ashamed of ourselves, and it seems as if politics is no way to run our great nation. Nevertheless, that's the way it is, but today I would like to talk to you about a different subject, not US politics, but the politics of China.

You see China is busy choosing its new leaders as well, and in the meantime they are having quite a bit of social unrest. There have been many protests over pollution issues, working conditions, food prices, and inflation. There is also a bit of class warfare going on, and somewhat corrupt politics. Yes, China is known for its brutal politics in the Communist Party, but these days things are getting into the media much more often, even with all the Internet censorship going on behind 'The Great Firewall'.
You may not realize this but what we do here the United States will very much affect the leadership in China and what happens from here on out over there. When China's economy is doing good and growing, more of the population is happy because they have income flow and jobs. They see things happening, and they see their lives getting better, as they have more money. They are able to save more, perhaps get a car, and move up in rank at their job while improving their quality of life and standard of living.

However, China's economy has been hurt due to the economic challenges in Europe, so China's exports to the EU have slowed drastically. Now China is relying on exporting more products to the United States so they can expand the number of jobs they have, and continue growing their own economy. However, if we go back into a recession in 2013, China may have already painted themselves into an economic corner, and they won't have the wherewithal to keep their economy going and growing. Will the county economically collapse or politically implode with massive civil unrest?
On November 7, 2012 there was an article in the Wall Street Journal titled; "China Gazes Over Fiscal Cliff in US," by Tom Orlik. Interestingly enough, China actually has more to lose by the US Fiscal Cliff than we do. After all, if we stop spending and go into subsequent quarters of negative GDP growth, sure it will hurt here, but we will have also perhaps gotten our fiscal house in order. China on the other hand will find themselves in a real tough spot as we stop buying many of the products produced there.

This is very problematic for China right now as they go through some "change management" issues in their Communist Party with perhaps more turbulent times ahead politically. Couple that with greater unemployment, slowed growth, inflation pressures, etc. and it could be enough to bring on some major significant changes that China doesn't necessarily want right now.
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