China Revisited

Following up on yesterday's entry, Bloomberg is reporting that China had a trade surplus for the month of April. A big change from a trade deficit of the month before. But also a big decline of 87% from a year earlier. Could the Chinese economy be rolling over? The Shanghai Index seems to indicate so, being double digits off its high. Imports have been rising twice as fast as exports it appears. How much longer is this sustainable? A few months, maybe. An interesting quote is this: “If the yuan rises 3 percent, where’s our profit? Many, many factories will close.” Notice how small their margins are. A 3% change in the exchange rate wipes out their profit! There is no room for error in the Chinese "system"! Just as with the electricity generation of the country's dams, business is operating on razor thin margins using massive leverage. That is how they have been keeping the 10% growth going year after year. It may not be a Ponzi scheme like Greece, but it still is unsustainable, especially when their customer are running Ponzi economies. Read the article here:

China's April Trade Surplus Shrinks 87%