signal to the heavily state-influenced banking sector that it should tighten its loose lending policies. Much of this lending went to finance large infrastructure projects deemed by (often corrupt) communist bureaucrats â€” not the free market â€” to be necessary.
This kind of activity can go on for much longer than logic would dictate, but eventually, misallocated resources become too obvious to ignore. Just as the U.S. housing bubble continued a few years beyond when it became obvious (say, in 2005), so can the excesses in the Chinese economy.
The potential catalysts for a correction in China are many, but the most likely would be continued escalation of trade protectionism. This protectionist trend could offer several attractive short ideas in 2010. For example, on Dec. 30, The U.S. International Trade Commission ruled that growth in imports of Chinese-made drill pipe and casing materially injured the U.S. steel industry. The commission imposed 10%-15% tariffs on imports of Chinese steel pipes, with the possibility of further tariffs in the coming months. The Chinese government is allegedly subsidizing its steel industry. This is probably true, but China will likely respond with its own protectionist measures anyway.
The interference of governments into free trade â€” in the form of both subsidies and tariffs â€” is not good for the future of globalization. Many of today’s big transnational corporations are built on the assumption of unending globalization. These big corporations are establishing closer ties to politicians around the globe, and many are seeking to game the system or pursue government subsidies rather than serve their customers.
<b>Darned Because They Didn’t</b>
At the end of the day, we’re seeing both the Stars and Stripes and the Red Dragon piling up more and more debt in the name of restoring prosperity. But as any observer who’s done some research could tell you, these and other governments didn’t put and end to the global recession. In fact, they’ve prolonged it and possibly depressed it further.
Savvy investors would be wise to keep an eye on what all governments â€” foreign and domestic â€” are doing, especially with their money. Also, what they’re not doing, too. There are ways you can preserve your wealth and have a fruitful portfolioâ€¦just don’t depend on any government bailouts to give you any kind of real help.
Image by ~~Jo~~