The Valor Blog.
Investment News and Views, Direct from Our Team.

The biggest thing that is going to affect Australia in the next few years…

With the Australian share market going up this week, I have come to the conclusion that investment “professionals” and punters do not read the news. Alan Kohler almost fell out of his chair when Patrick Chovanec spelled it out how bad it was in China this week.

I will try spell it out again:
China is borrowing at the rate of approximately 50% per annum to grow its economy at only 7.7% per annum.

This is unsustainable!!!

Let me try this in another way to try get through to the world:
China increased credit by $1 trillion US dollars in the last 3 months!!!

I hope that is enough to get people realising how ridiculous the situation is getting. This is 2/3 of the worlds total credit growth in the last 3 months and China is only 1/8 of the world’s economy.

But yet, people are going on blindly buying Australian banks as if this will not affect Australia. People believe that Perth, Darwin, Karratha and Gladstone house prices are going to be fine. They also have absolute faith that unemployment will never rise from its current levels.

The Aussie dollar even went up in the last week!

Perhaps there was a mistake in the numbers by a factor of 10. Perhaps China only increased its credit by $100 billion US in the last 3 months and credit growth is only 5% per annum? That could be the reason for the share market and dollar rise.

I am fascinated by this lack of awareness at how unstable the Chinese economy is. The limits of their debt fuelled bubble in fixed asset investment are getting much closer. My guess is that they are now within a about a year of hitting the stops. The longer they allow it to bubble away at these rates, the more pain they create in the near future.

For those that need picture representation rather than numbers, please watch the 60 minutes video of a few months ago here. The head of Vanke, one of the biggest property developers in the world is a very respectable source and he is suggesting that all is not well in China’s property bubble.

This slowdown in China is going to be the biggest thing that is going to affect the Aussie economy in the next few years, and yet most are still oblivious to it!