Seems like China is going into a classic 1930's US-style depression. All I read is that China will "save the US" with its foreign reserves. But has anyone done an economic analysis of what the world looks like with China in a depression?
It is a good question. I don't know the answer. My gut reaction was to put in something snarky like:
"Cheaper oil. Cheaper commodities of all shapes and sizes. Cheaper consumer goods. Whats the downside for me again?"
But I really don't know what impact a China depression would have. I suppose an interesting question is whether the Chinese political system can weather a major economic downturn.
I believe read an article in which is sated the real problem is that there are no bankruptcy laws in China? Thus, the factories stay open until the last dollar is spent, then the owner walks away.
I think it is very premature to think China is heading into a depression. But they are certainly going to have to deal with over capacity (just like everyone else) for a while. And if they do not evolve a better system, there will be a greater innefecciency in their system
Neuromancer writes:
I believe read an article in which is sated the real problem is that there are no bankruptcy laws in China? Thus, the factories stay open until the last dollar is spent, then the owner walks away.
I think it is very premature to think China is heading into a depression.
No depression yet no way to keep a marginal factory running? I see a contradiction there. Also recall how many jobs they must create to keep civil peace. If their growth goes negative...
And yes, I know there is a new thread. I'm not so interested in Circuit City compared to an Asia implosion.
Did anybody honestly expect that some not exactly trivial amount of the world's textile dye capacity would just crater?
My thought from yesterday, when reading and pondering what is happening - especially the Halloween post about barely any 'real' candy being handed out - is that this is not a recession/depression - this is the conditions that exist when war occurs.
A scary, scary thought - since war is neither inflation nor deflation, it is destruction.
But if you use the scarcities and shortages of war as a metaphor, the last couple of weeks/months start to come into focus - panic, shortages, risk taking and avoidance, often rapidly following each other.
But they are still going to grow at 9% y/y right? I read that somewhere.
Methinks that will get revised downward again fairly soon. The IMF already has revised down global growth to less than 1% next year, iirc. As far as the civil peace in China goes during a severe recession... I wonder if there are some conservative fundamentalists in the CP that will take advantage of the turmoil to curb market reforms.
And, as trained as we Americans are to think of the birth limit laws in China are 'wrong', the idea was one of their preemptive solutions to creating and then maintaining prosperity, and along with the industrialization over the past 40 years. Negative population growth is not necessarily a bad thing in a world with limited resources (and is a much better alternative to war).
Decoupling is only on hiatus, not dead. It will occur post global slowdown, during the recovery. US GDP growth will lag other developed nations and will have a spiral effect as the world realizes they don't need the US for GDP growth.
BizChina:PepsiCo to invest $1b in China over next 4 years
"This is our largest investment in China in the nearly 30 years we have been doing business here...The combined investments are expected to create thousands of new jobs in China, where PepsiCo and its bottling partners already directly employ more than 22,000 people"
Companies are investing in China and creating jobs. Who's investing in the USA and creating jobs? China's ahead of the game. Manufacturing jobs and growth vs. US financial congame jobs and bailouts of failed banks.
Hmm - keeping a marginal factory running is exactly the point. If they cannot restructure debt. Or ask that whatever tax/duty/whatever the government has for that industry be chnaged. Or they cannot lay-off workers. These things are ineffecient. And leads to marginal buisnesses floating along until suddenly they are gone.
Still, with $2t in the bank and a storng willingness to fund internal jobs programs, China is already taking the historically proven best path out of severe recessions.
So no, I think we need not worry about a Chinese depression just yet.
Decoupling isn't instant, and it will not happen without a game-changing external impetus.
The impetus is demand destruction in the U.S. This signals the end of the road for China's mercantilism w/respect to the U.S.
It also signals a re-programming of China's industrial output toward internal markets and local Asian markets, the mid-East, and Australia.
De-coupling is certainly not dead. And it won't be global de-coupling, just US de-coupling. A better phrase might be "re-direction of trade flows".
Lastly, the savings that are currently deposited here in the U.S. will shortly be re-programmed, and that may happen quickly if indeed the reports of internal discord within China are true.
Decoupling is not dead; it is arriving here in the U.S. very shortly.
Even China's best years would be considered a depression in the US. Depression is all relative. I think most will view China's story as easy come easy go. China will be OK. There may be some social strife for the next couple of years, but they're still on the right track.
My guess is their banks, like everyone else's, are sitting on a ton of bad loans. I think the gov't will quietly have a bailout plan like the rest of the world.
The contraction is having an effect on this end of the supply chain as well ...
I know of one KMart, where they removed one aisle of shelving from the toy department, rearranged all the other shelves so they used the same amount of floor space. But with one less aisle. The aisles are wider, but they have to stock less product. Less product stocked equals less product ordered. Less product ordered equals factory contraction.
Now we know why they had to keep their currency so low. Upside, they don't have to try any more as the currency exchange will take care of itself and then some. People are underestimating the extent and depth of the coming social distress. They've managed to barely hold the Olympics before the big sporting events, barricade vaulting, crossfire dash, synchronized riot suppression are begun.
If everybody's economy craters, does that still make our much better than most, and, doesn't that make the dollar a safer bet despite the printing press mentality? I'm not sure, just wondering...
Elvis, I believe that the dollar will perform better than people expect because of our property rights. When governments start nationalizing, money will all come here. At least part of it as a hedge.
They've managed to barely hold the Olympics before the big sporting events, barricade vaulting, crossfire dash, synchronized riot suppression are begun.
Rob Dawg
You forgot 'tear gas return shot put.'
Some parts of China are more stable than others. I'm wondering where the funds are to keep the less stable areas happy? We've read about their steel mills, toy factories, and now a dye factory shutting down.
But we shouldn't gloat too much. This will cut chip demand which the US has a huge role in.
Yessiree bob, now THAT is funny. Chinese collectibles. LOL.
Anyways, I never did understand how people thought Decoupling would actually occur. The U.S. economy is larger than the next 3 or 4 economies combined. If we go down, the rest of the world goes down. Meanwhile, if China goes down, the U.S. companies will just shift production to the next source of cheap labor.
"w writes:
Elvis, I believe that the dollar will perform better than people expect because of our property rights."
"Elvis, China and Asia have savings. USA has not. Asia has less red tape than USA/Europe.Asia will be LIFO. Last In First Out. By a mile.
Comrade Peronista"
Could be either one. I'm not sure which, but, during times of crisis, there is a flight to quality. Will the dollar continue to be perceived as quality? I think it might, if the rest of the world is coupled and social and political problem are reexposed in developing counties. However, if CP is right and decoupling begins in a couple of years as Asia emerges and the US flounders, things could be different. To me it is still very unclear, but China isn't my expertise.
Thank goodness for posters like Neuromancer, OuterBeltway and Charlie who put the 'emotionalism' on hold just long enough for analytical skills to take a whack at the issue.
Thoughtful readers should give a thorough revisiting to the USA's experiences of 1973-1984, its most recent wrenching economic transition on a national scale. Recall how such transitions by very-large-economies involve a lot of moving parts over a lot of geography.
Undisciplined, over-pampered, 'marketing and ad-controlled', indebted American citizens will not provide benchmarks for anticipating how Confucius-led Asian societies will handle a downturn and unemployment spikes in their communities.
And geez, folks, have you already forgotten the multi-nation Asian Crisis of 1998? Let's name all the Asian social revolutions, and Depressions, that came out of that? Zilch.
We American's need to focus on how our own neighbors, schools, cities, and employers will handle the upcoming spike (plateau?) in joblessness, service & budget cuts, insolvencies, and death of the 'Economy Driven by Shopping' model.
Yes, once China demand far higher returns on purchases of US debt, it will impact us negatively. But, I suspect that for many folks, focusing on China makes it easier to remain in denial about what's happening with our own deteriorating prospects. China will take care of itself.
Money will flow to the US not because of "quality", but the total commitment to protect bond holders at the expense of the citizens. People mention Argentina negatively, but they defaulted because politicians were more afraid of citizens than foreign bond holders. We will be driven into total poverty and will not revolt, because both parties are bought by the same people, and the media is owned by them.
Back in March, I spoke with an executive of a U.S. company, and he told me his company was scaling back their Chinese operations because their manufacturing costs in China had increased by 30%. This was due to a combination of the new Chinese labor laws, higher currency exchange, higher material costs and other factors.
I had a friend tell me the same thing - he was in the shoe biz and said something like 8000 smaller factories and a few large ones as well have closed in Guangdong alone over the last year or so. Most of these companies were foreign owned (Taiwanese & other ex-pat Chinese)... the gov't wasn't actually that keen on having them there anyway. Low skill, low wage, low margin enterprises providing little benefit and a lot of pollution. Regs & taxes were ratcheted up & they disappeared. Hoocoodanode.
As for the thing about China's 9% growth rate - remember they need 8-10% growth just to 'employ' the underemployed or unemployed migrating hoards moving to the city each year from rural subsistence 'village life'. If China were to 'redirect' energy into their ag sector via better regulation & 'technology transfer' then they wouldn't need all that 'growth' in the city to maintain the same level of improvement in quality of life - the real measure people use.
I'm not certain they will do this but accounts from friends who go their often is their leadership isn't blind & is aware the current model is broken and working hard to fix it. Not sure they will or can but acknowledgment is step number one. Ask yourself - does our leadership acknowledge our debt model is broken? Or have they been trying to just patch it over until next year? Which leadership was more responsive to their people's needs? Our neocons or their CCP?
Also - if China reprices their exports so that their people & organizations (SOEs) fully benefit from their labor & investment... you had better either (1) expect to pay a lot more for stuff or (2) expect to consume a lot less. I am sure we'll see distressed selling of product on the front end of this panic but once the pipeline goes empty - expect it to get filled with fewer but more expensive products. This won't be all bad.
The comment on property rights is interesting. With respect to China, I think foreign capital feels its safe, but I think they see agressive inflation and over capacity as real issues there.
The 800lb gorilla in property rights is Russia. People cannot get their money out of there fast enough. I think Putin has no qaulms whatsover at nationalising anhything with a famous KGB discount of 'free'. Supplying energy to Europe will be lucrative and France is very well positioned with its nuclear industry.
Uhh, at any rate I think the scary news isn't that China has capacity issues. The scary stuff will come out of Russia.
Excellent news. You see, the trade deficits cannot be sustained indefinitely. In the end, it's cheaper to make toys for the US consumer in the US because no jobs, no customers. Get it globalist morons??????????????
Not only am I not buying much for my kids this Christmas, but I'm also looking for toys exclusively not from China, preferably made in the USA.
"The impetus is demand destruction in the U.S. This signals the end of the road for China's mercantilism w/respect to the U.S."
US consume and China Japan produce.
Japanase et Chinese buy US bond to maitzn the dollar.
With a high dollar compared to their currency they could export.
In fact they pay the US consumer to buy their product.
This is sad but inevitable. China knew they can't sustain an export economy forever, they just didn't expect such a big speed bump so early. They've got a lot going for them and there's going to be a lot of long term expansion as they shift their focus. It's better they make that transition now, then keep a bubble running longer than the market allows.
For me the takeaway on this story is the social impact in China. This is a society that is not prepared to deal with the harsh realities of market-driven economics. You see some hints in the story, such as the comment that one factory owner committed suicide, one was "detained" by authorities but four more "escaped."
Also, there is direct mention of demonstrations by displaced workers until the govenment agreed to pay them their "salaries."
And who will be to blame for all the woes suffered by workers who aren't making their $6K/year in textile mills and toy factories? Americans. (and no doubt the Taiwanese who are to blame for everything bad that happens in mainland China, from pestilence to earthquakes...) It will be the path of least political resistance inside China to shift focus away from the Party's role in all that has happened over the last decade and instead focus on the "hostile superpower," America.
Socially, politically and militarily, China is a tinderbox. We've been paying so much attention to the tse-tse flies in the Middle East, that we haven't noticed the elephant bearing down on us from the Far East.
Chinese are driving the capitalist markets and innovations like this biology search engine VADLO. Its powerful search function and Cartoons are the measure of chinese ingenuity.
first.
Seems like China is going into a classic 1930's US-style depression. All I read is that China will "save the US" with its foreign reserves. But has anyone done an economic analysis of what the world looks like with China in a depression?
"But has anyone done an economic analysis of what the world looks like with China in a depression?"
Good question - oops, there goes the anchor, over the side.
The next bubble? "Made in China" collectibles. Get ready eBay!!!
But they are still going to grow at 9% y/y right? I read that somewhere.
Wow, China has their own version of jingle mail.
Re-post of article:
Why Austrian Economics Matters More Than Ever by Llewellyn H. Rockwell, Jr.
And don't forget all the food-tainitng issues. They are/were HUGE exporters to Asia and elsewhere.
It's official.
Circuit City to close 155 stores
Yahoo! 404 - Page Not Found
The death spiral that many have talked about appears to be acknowledged.
* Says certain vendors have set more restrictive payment terms than in previous quarters
With the predicted impact on CRE:
* Says plans to close 155 stores
dave,
It is a good question. I don't know the answer. My gut reaction was to put in something snarky like:
"Cheaper oil. Cheaper commodities of all shapes and sizes. Cheaper consumer goods. Whats the downside for me again?"
But I really don't know what impact a China depression would have. I suppose an interesting question is whether the Chinese political system can weather a major economic downturn.
Does this mean that they won't be buying out $2 Trillion in debt auctions next year?
Ouch!
So now who gives us money when we run out?
I believe read an article in which is sated the real problem is that there are no bankruptcy laws in China? Thus, the factories stay open until the last dollar is spent, then the owner walks away.
I think it is very premature to think China is heading into a depression. But they are certainly going to have to deal with over capacity (just like everyone else) for a while. And if they do not evolve a better system, there will be a greater innefecciency in their system
First, Tao Shoulong burned his company's financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.
And then he was gone.
That is the issue of not having proper bankruptcy laws. Compain how you will about the US laws... But this is huge.
Maybe part of the problem is the cultural thing of 'saving face.'
Good question - oops, there goes the anchor, over the side.
Concerned Observer
ROTFL. I have to laugh. For if I really think about it I'd cry.
Got Popcorn?
Neil
Neuromancer writes:
I believe read an article in which is sated the real problem is that there are no bankruptcy laws in China? Thus, the factories stay open until the last dollar is spent, then the owner walks away.
I think it is very premature to think China is heading into a depression.
No depression yet no way to keep a marginal factory running? I see a contradiction there. Also recall how many jobs they must create to keep civil peace. If their growth goes negative...
And yes, I know there is a new thread. I'm not so interested in Circuit City compared to an Asia implosion.
Got Popcorn?
Neil
Did anybody honestly expect that some not exactly trivial amount of the world's textile dye capacity would just crater?
My thought from yesterday, when reading and pondering what is happening - especially the Halloween post about barely any 'real' candy being handed out - is that this is not a recession/depression - this is the conditions that exist when war occurs.
A scary, scary thought - since war is neither inflation nor deflation, it is destruction.
But if you use the scarcities and shortages of war as a metaphor, the last couple of weeks/months start to come into focus - panic, shortages, risk taking and avoidance, often rapidly following each other.
New textile slave-labor manufacturing country; Peru
But they are still going to grow at 9% y/y right? I read that somewhere.
Methinks that will get revised downward again fairly soon. The IMF already has revised down global growth to less than 1% next year, iirc. As far as the civil peace in China goes during a severe recession... I wonder if there are some conservative fundamentalists in the CP that will take advantage of the turmoil to curb market reforms.
And, as trained as we Americans are to think of the birth limit laws in China are 'wrong', the idea was one of their preemptive solutions to creating and then maintaining prosperity, and along with the industrialization over the past 40 years. Negative population growth is not necessarily a bad thing in a world with limited resources (and is a much better alternative to war).
Remember: soylent green is people.
It will just be Negative growth,or accellerating growth to the downside instead of a recession...
"But they are still going to grow at 9% y/y right? I read that somewhere."
Yeah, I posted it on Saturday. China Daily News & BizChina excellent info.
Bizchina News of China Daily Website - Connecting China Connecting the World
I guess the workers no longer control the means of production. Damn, where can a player find a good communist state anymore?
At least 'decoupling' is officially dead.
Decoupling is only on hiatus, not dead. It will occur post global slowdown, during the recovery. US GDP growth will lag other developed nations and will have a spiral effect as the world realizes they don't need the US for GDP growth.
BizChina:PepsiCo to invest $1b in China over next 4 years
"This is our largest investment in China in the nearly 30 years we have been doing business here...The combined investments are expected to create thousands of new jobs in China, where PepsiCo and its bottling partners already directly employ more than 22,000 people"
Companies are investing in China and creating jobs. Who's investing in the USA and creating jobs? China's ahead of the game. Manufacturing jobs and growth vs. US financial congame jobs and bailouts of failed banks.
Hmm - keeping a marginal factory running is exactly the point. If they cannot restructure debt. Or ask that whatever tax/duty/whatever the government has for that industry be chnaged. Or they cannot lay-off workers. These things are ineffecient. And leads to marginal buisnesses floating along until suddenly they are gone.
Still, with $2t in the bank and a storng willingness to fund internal jobs programs, China is already taking the historically proven best path out of severe recessions.
So no, I think we need not worry about a Chinese depression just yet.
Decoupling isn't instant, and it will not happen without a game-changing external impetus.
The impetus is demand destruction in the U.S. This signals the end of the road for China's mercantilism w/respect to the U.S.
It also signals a re-programming of China's industrial output toward internal markets and local Asian markets, the mid-East, and Australia.
De-coupling is certainly not dead. And it won't be global de-coupling, just US de-coupling. A better phrase might be "re-direction of trade flows".
Lastly, the savings that are currently deposited here in the U.S. will shortly be re-programmed, and that may happen quickly if indeed the reports of internal discord within China are true.
Decoupling is not dead; it is arriving here in the U.S. very shortly.
Even China's best years would be considered a depression in the US. Depression is all relative. I think most will view China's story as easy come easy go. China will be OK. There may be some social strife for the next couple of years, but they're still on the right track.
My guess is their banks, like everyone else's, are sitting on a ton of bad loans. I think the gov't will quietly have a bailout plan like the rest of the world.
The contraction is having an effect on this end of the supply chain as well ...
I know of one KMart, where they removed one aisle of shelving from the toy department, rearranged all the other shelves so they used the same amount of floor space. But with one less aisle. The aisles are wider, but they have to stock less product. Less product stocked equals less product ordered. Less product ordered equals factory contraction.
China does not appear to be decoupling.
Now we know why they had to keep their currency so low. Upside, they don't have to try any more as the currency exchange will take care of itself and then some. People are underestimating the extent and depth of the coming social distress. They've managed to barely hold the Olympics before the big sporting events, barricade vaulting, crossfire dash, synchronized riot suppression are begun.
China. I prefer using paper plates.
If everybody's economy craters, does that still make our much better than most, and, doesn't that make the dollar a safer bet despite the printing press mentality? I'm not sure, just wondering...
Capital goods take the biggest hit when bubble bursts. China will get badly hit. Commodities will tumble more.
Elvis, I believe that the dollar will perform better than people expect because of our property rights. When governments start nationalizing, money will all come here. At least part of it as a hedge.
Elvis, China and Asia have savings. USA has not.
Asia has less red tape than USA/Europe. Asia will be LIFO. Last In First Out. By a mile.
W, the ROW will one day stop lending.
The dollar has to decline, watch for that new bretton woods meeting coming up.
They've managed to barely hold the Olympics before the big sporting events, barricade vaulting, crossfire dash, synchronized riot suppression are begun.
Rob Dawg
You forgot 'tear gas return shot put.'
Some parts of China are more stable than others. I'm wondering where the funds are to keep the less stable areas happy? We've read about their steel mills, toy factories, and now a dye factory shutting down.
But we shouldn't gloat too much. This will cut chip demand which the US has a huge role in.
Got Popcorn?
Neil
Yessiree bob, now THAT is funny. Chinese collectibles. LOL.
Anyways, I never did understand how people thought Decoupling would actually occur. The U.S. economy is larger than the next 3 or 4 economies combined. If we go down, the rest of the world goes down. Meanwhile, if China goes down, the U.S. companies will just shift production to the next source of cheap labor.
"w writes:
Elvis, I believe that the dollar will perform better than people expect because of our property rights."
"Elvis, China and Asia have savings. USA has not. Asia has less red tape than USA/Europe.Asia will be LIFO. Last In First Out. By a mile.
Comrade Peronista"
Could be either one. I'm not sure which, but, during times of crisis, there is a flight to quality. Will the dollar continue to be perceived as quality? I think it might, if the rest of the world is coupled and social and political problem are reexposed in developing counties. However, if CP is right and decoupling begins in a couple of years as Asia emerges and the US flounders, things could be different. To me it is still very unclear, but China isn't my expertise.
Thank goodness for posters like Neuromancer, OuterBeltway and Charlie who put the 'emotionalism' on hold just long enough for analytical skills to take a whack at the issue.
Thoughtful readers should give a thorough revisiting to the USA's experiences of 1973-1984, its most recent wrenching economic transition on a national scale. Recall how such transitions by very-large-economies involve a lot of moving parts over a lot of geography.
Undisciplined, over-pampered, 'marketing and ad-controlled', indebted American citizens will not provide benchmarks for anticipating how Confucius-led Asian societies will handle a downturn and unemployment spikes in their communities.
And geez, folks, have you already forgotten the multi-nation Asian Crisis of 1998? Let's name all the Asian social revolutions, and Depressions, that came out of that? Zilch.
We American's need to focus on how our own neighbors, schools, cities, and employers will handle the upcoming spike (plateau?) in joblessness, service & budget cuts, insolvencies, and death of the 'Economy Driven by Shopping' model.
Yes, once China demand far higher returns on purchases of US debt, it will impact us negatively. But, I suspect that for many folks, focusing on China makes it easier to remain in denial about what's happening with our own deteriorating prospects. China will take care of itself.
Money will flow to the US not because of "quality", but the total commitment to protect bond holders at the expense of the citizens. People mention Argentina negatively, but they defaulted because politicians were more afraid of citizens than foreign bond holders. We will be driven into total poverty and will not revolt, because both parties are bought by the same people, and the media is owned by them.
Back in March, I spoke with an executive of a U.S. company, and he told me his company was scaling back their Chinese operations because their manufacturing costs in China had increased by 30%. This was due to a combination of the new Chinese labor laws, higher currency exchange, higher material costs and other factors.
I had a friend tell me the same thing - he was in the shoe biz and said something like 8000 smaller factories and a few large ones as well have closed in Guangdong alone over the last year or so. Most of these companies were foreign owned (Taiwanese & other ex-pat Chinese)... the gov't wasn't actually that keen on having them there anyway. Low skill, low wage, low margin enterprises providing little benefit and a lot of pollution. Regs & taxes were ratcheted up & they disappeared. Hoocoodanode.
As for the thing about China's 9% growth rate - remember they need 8-10% growth just to 'employ' the underemployed or unemployed migrating hoards moving to the city each year from rural subsistence 'village life'. If China were to 'redirect' energy into their ag sector via better regulation & 'technology transfer' then they wouldn't need all that 'growth' in the city to maintain the same level of improvement in quality of life - the real measure people use.
I'm not certain they will do this but accounts from friends who go their often is their leadership isn't blind & is aware the current model is broken and working hard to fix it. Not sure they will or can but acknowledgment is step number one. Ask yourself - does our leadership acknowledge our debt model is broken? Or have they been trying to just patch it over until next year? Which leadership was more responsive to their people's needs? Our neocons or their CCP?
Also - if China reprices their exports so that their people & organizations (SOEs) fully benefit from their labor & investment... you had better either (1) expect to pay a lot more for stuff or (2) expect to consume a lot less. I am sure we'll see distressed selling of product on the front end of this panic but once the pipeline goes empty - expect it to get filled with fewer but more expensive products. This won't be all bad.
Decoupling is dead? Poor Peter Schiff...
The comment on property rights is interesting. With respect to China, I think foreign capital feels its safe, but I think they see agressive inflation and over capacity as real issues there.
The 800lb gorilla in property rights is Russia. People cannot get their money out of there fast enough. I think Putin has no qaulms whatsover at nationalising anhything with a famous KGB discount of 'free'. Supplying energy to Europe will be lucrative and France is very well positioned with its nuclear industry.
Uhh, at any rate I think the scary news isn't that China has capacity issues. The scary stuff will come out of Russia.
Excellent news. You see, the trade deficits cannot be sustained indefinitely. In the end, it's cheaper to make toys for the US consumer in the US because no jobs, no customers. Get it globalist morons??????????????
Not only am I not buying much for my kids this Christmas, but I'm also looking for toys exclusively not from China, preferably made in the USA.
"The impetus is demand destruction in the U.S. This signals the end of the road for China's mercantilism w/respect to the U.S."
US consume and China Japan produce.
Japanase et Chinese buy US bond to maitzn the dollar.
With a high dollar compared to their currency they could export.
In fact they pay the US consumer to buy their product.
talk about walking away.
did he send in the keys?
This is sad but inevitable. China knew they can't sustain an export economy forever, they just didn't expect such a big speed bump so early. They've got a lot going for them and there's going to be a lot of long term expansion as they shift their focus. It's better they make that transition now, then keep a bubble running longer than the market allows.
For me the takeaway on this story is the social impact in China. This is a society that is not prepared to deal with the harsh realities of market-driven economics. You see some hints in the story, such as the comment that one factory owner committed suicide, one was "detained" by authorities but four more "escaped."
Also, there is direct mention of demonstrations by displaced workers until the govenment agreed to pay them their "salaries."
And who will be to blame for all the woes suffered by workers who aren't making their $6K/year in textile mills and toy factories? Americans. (and no doubt the Taiwanese who are to blame for everything bad that happens in mainland China, from pestilence to earthquakes...) It will be the path of least political resistance inside China to shift focus away from the Party's role in all that has happened over the last decade and instead focus on the "hostile superpower," America.
Socially, politically and militarily, China is a tinderbox. We've been paying so much attention to the tse-tse flies in the Middle East, that we haven't noticed the elephant bearing down on us from the Far East.
Chinese are driving the capitalist markets and innovations like this biology search engine VADLO. Its powerful search function and Cartoons are the measure of chinese ingenuity.