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Can China Rescue the World?

Can Beijing rescue the global economy? Can it do it without sparking inflation?

double-digit economic growth this decade would not have been possible without massive debt-growth in the United States and Eastern Europe, writes Gary Dorsch of Global Money Trends.

But this growth of debt, which has sustained global demand for the longest period since World War II, has now resulted in a colossal financial crisis. At the same time, the exploitation of cheap labor in China by global industrialists has led to the destruction of four million US factory jobs over the past eight years.

The mirror image of America's industrial decline was the vast expansion of financial speculation, which ultimately led to the stock market crash of 2008 and the loss of another 2.6 million jobs so far. The flow of low-priced goods from Asia helped the Federal Reserve maintain a low interest-rate policy, thus providing the basis for Wall Street to create ever bigger debt and credit bubbles, all in the pursuit of fabulous profits.

Meanwhile, some 26 million Chinese migrant workers have lost their jobs and 670,000 businesses have shut-down, because of collapsing export markets for Chinese-made electronics, toys, apparel, and other consumer goods.

China's Politburo now fears growing social unrest and there is increasing popular demand that Beijing's $2 trillion foreign currency stash be spent at home to alleviate deepening social misery.

China has already launched a 4 trillion Yuan stimulus package, equal to roughly 15% of the country's GDP. While an 8.8% economic growth rate is needed just to generate sufficient jobs for the 24 million new workers who enter the Chinese labor market each year, latest forecasts project 5.5% growth or worse in the year ahead.

Thus Beijing might decide to boost its stimulus program this year. Japan has also approved ¥5 trillion for economic stimulus, and Australia approved A$42 billion.

China's official manufacturing index jumped sharply in February, gaining for the third month in a row and suggesting the country could be on the brink of a recovery despite a slump in global demand.

The official purchasing managers' index (PMI) rose to 49.0 from 45.3 in January, and far above the record low of 38.8 reached in November. Every sub-index in the official PMI rose in February. Output and new orders climbed to 51.2 and 50.4 respectively, returning to mild growth (as shown by any reading above 50).

Shanghai copper soared for a second-day on March 5th to 30,310-Yuan per ton, supported by the surge in the factory PMI and speculation that Beijing would boost spending on infrastructure and manufacturing, on top of the 4 trillion-Yuan stimulus package unveiled in November.

China's $200 billion sovereign wealth fund also said it saw investment opportunities in the natural resources sector, lifting base metal miners who may make attractive takeover targets.

Of course, China's national statistics have long come under skepticism and suspicion of outside analysts, who say the country manipulates its economic numbers to mask bad news. The official PMI jumped well ahead of a similar private survey, which registered 45.1 in February. Also raising a red-flag, China said new export orders rose to 43.4 last month, a 9.7-point leap from January, which is doubtful, while the rest of the world economy was sinking deeper within a synchronized recession.

But China's State Reserves Bureau bought 100,000 tons of zinc at 11,500 Yuan per ton last week, the second purchase in less than two months, and it has also contracted to buy 240,000 tons of copper as well as 300,000 tons of aluminum.

Copper inventories at LME warehouses have declined 23,000 tons over the past two weeks, the first noticeable drop in nine months. About 55,000 tons of copper are earmarked for delivery to warehouses in Shanghai, where copper supplies are at the lowest in a decade.

The latest edition of
Global Money Trends presents a safer way to receive a double-digit returns from a stable or rising copper market – already up 22% so far this year.

GARY DORSCH is editor of the Global Money Trends newsletter. He worked as chief financial futures analyst for three clearing firms on the trading floor of the Chicago Mercantile Exchange before moving to the US and foreign equities trading desk of Charles Schwab and Co.

There he traded across 45 different exchanges, including Australia, Canada, Japan, Hong Kong, the Eurozone, London, Toronto, South Africa, Mexico and New Zealand. With extensive experience of forex, US high grade and corporate junk bonds, foreign government bonds, gold stocks, ADRs, a wide range of US equities and options as well as Canadian oil trusts, he wrote from 2000 to Sept. '05 a weekly newsletter, Foreign Currency Trends, for Charles Schwab's Global Investment department.

See the full archive of Gary Dorsch.


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