Thursday, November 26, 2009

China and Its Harm to the Global Economy

Well Asia was down pretty hard and Europe is following. US futures are down 11 points or 1% which is pretty big. Of course it really doesn't mean anything this early considering it is not even Friday yet. The reason could be a bunch of things but a European business group warning is garnering alot of attention. The warning: China is building way to much capacity. Um. yeah. China is setting up for its own world economic plunge. This should be so obvious it isn't funny. Why you need a European business group to say this that causes it to hit news wires is beyond me.

Thanks to GK.

From Yahoo:

China's stimulus spending has fueled massive overexpansion in industrial capacity that could drive a surge in low-priced exports amid weak global demand, possibly igniting a protectionist backlash abroad, a European business group warned Thursday.

Industries including steel, cement and plastics are "still blindly expanding" despite the worst global slump since the 1930s, the European Union Chamber of Commerce in China said in a report.

All this is really old news but it is on all the front pages of most major market news sites. China has started to pull back. Way to little, way to late.

The government says that since September it has rejected 47 proposed industrial projects with a total price tag of 191 billion yuan ($28 billion) in industries including steel, glass and cement. It said 339 projects totaling 1.7 trillion yuan ($252 billion) in investment were approved.

Its pretty broad overcapacity. I would not be surprised to see Alcoa file for bankruptcy in the next three years because of this. Way overlevered and at some point the price of aluminum will plunge.

In steel, China's annual production capacity is 660 million tons and mills are adding another 58 million tons, even though they sold less than 500 million tons of steel last year, according to Charles-Edouard Bouee, Asia president for Roland Berger Strategy Consultants, which conducted the study.

China faces similar problems in aluminum, cement, plastics, refining and production of wind power equipment, the group said.

Yep yep and yep. At some point U.S. markets will stop ignoring all of this. At some point.

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