banking, bubble, cam hui, China, chinese economy, communist party, currencies, economics, economy, fixed asset bubble, gdp, housing, inflation, international investing, Jim Chanos, market distortions, politics, real estate, real estate bubble, renminbi, rmb, Soros, US Dollar, us economy, usd, Yuan
In a recent article, Seeking Alpha author Cam Hui asks, “What if the Renminbi were to Fall?” Actually, this is exactly what I expect to happen, and it cuts to the heart of the ugly catch-22 facing China. It also exposes why the idea that there will be a “soft landing” might be somewhat optimistic.
While Cam’s article suggests that the falling renminbi might hurt the US (I disagree with this contention, but more on that later), the more important question is how it might harm China. My contention is that the renminbi is at the heart of China’s massive bubble, and will also play an integral role in its collapse.
Around late 2009, Jim Chanos first introduced the thesis that China was in the midst of a massive real estate bubble that would eventually crash. Chanos argued that fixed asset investment was at extraordinarily high levels, and that growth of the Chinese economy was entirely dependent upon fixed asset investment.
This fixed asset bubble has been fueled by numerous flawed policies that promote construction in China whether it’s needed or not. Some examples of these policies include: