Live World Indices are powered by

Friday, June 10, 2016

#China Cannot Be Fixed?

Pity Poor China: There's No Easy Fix to the S-Curve 

This decline is inevitable in fast-expanding economies that depended on export growth and investment booms.

The S-Curve can be likened to a rocket's trajectory: first, there's an ignition phase, as the fuel of financialization, cheap labor and untapped productive capacity is ignited.
The boost phase lasts as long as credit-fueled production and consumption expand rapidly.
In the boost phase, investors and financial authorities can do no wrong. The high growth rate of credit and production overwhelms all other factors, as the virtuous cycle of expanding profits and production increases wages which then support further expansion of credit and consumption which then supports more production, and so on.
A vast tide of foreign investment fuels an equally vast expansion of fixed capital assets such as factories and new homes. (The chart below depicts the astronomical amounts of new square footage constructed in China every year.)