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What slower Chinese growth means for your money – MoneyWeek

Chinaisdefinitelyslowingdown–that’sbeenobviousformonthsnow。

Butwillithavea‘soft’or‘hard’landing?

Andwhatwouldthatmeanforyou?

IsChinaheadingforahardlanding?

Forsometimenow,Chinahasbeentighteningupmonetarypolicy。

It’sbeentryingtotackleitsinflationproblemandlettheairoutofitspropertybubble。

Andjudgingbytheslowergrowthfigures,themeasuresareworking。

Propertypricesarefallinginsomeareas,whilecreditisgettingtighter,althoughsomesectorsarebeinghitharderthanothers。

MycolleagueCrisSholtoHeatonhasjustwrittenaveryclearexplanationofChina’screditsystem,andhowtheslowingpropertymarketcouldhiteconomicgrowthforhisweeklyMoneyWeekAsiaemail。

Youcanreadthepiecehere:CouldChina’sbankingproblemsderailtheeconomy?

(andifyoudon’talreadygethisemail,youshouldsignupforithere–it’sfree)。

Inshort,tightercreditmeansthatalotoftheprojectsfundedbylocalgovernmentsandpropertydeveloperswillgobad。

Thatmeansbaddebtswillstarttopileupinthebankingsystem。

Ontopofthat,theweakEuropeanandUSeconomiesarealreadymakinglifehardforexporters。

That’sallquiteworrying。

ButwhileCriscanseeproblemsahead,hedoesn’tsubscribetothe‘Chinaimplosion’theoryofthehardlanding。

Chinahasplentyofoptionstokeeptheeconomyrollingalong:ifthey’resmart,theymightevenusetheslowdowntopushthroughmuch-neededchangesthatwillimproveChina’schancesinthelongrun。

Centralplanningalwaysfailsinthelongrun

Forme,thejury’soutonChina。

I’mnotabull(surprise,surprise,yousay)。

There’salotofnonsensetalkedabouthowChina’s‘command’economymeanstheycanengineerwhatevereconomicoutcometheylike。

It’sthesortofthingyoutendtohearfromperma-bullishfundmanagerslookingforawaytoflogtheirwares,andit’spatentlydrivel。

Centralplanningisawastefulwaytorunaneconomy,anditeventuallyfails。

Ourowncrashof2007/08wasduetotheinterferenceofcentralplannersinthepriceofmoney。

IntheUS,AlanGreenspandictatedanddistortedthepriceofrisk,whileJapan’szero-interest-ratepolicygavetheworldtheyencarrytrade。

Thoseclosesttothecentreofpowergotthebenefitofplayingwithastackeddeck,whileinvestorsontheedgeswereencouragedtotakemoreandmoreoutlandishrisksinordertoturnaprofit。

It’sstillhappeningnow–quantitativeeasingisjustmoreofthesamepolicythatgotusintothismess。

Thewholepointofmoneyistoprovideareliablescoringsystemtoguideactivityinaneconomy。

Yougetpointsforallocatingresourcestowheretheyaremostneeded。

Youlosepointsforwastingresourcesonprojectsthatnoonewants。

Ifyouinterferewiththatscoringsystem,thenyouincreasetheamountofwaste,asresourcesaremisallocated。

Sotheideathatacentralauthoritycansomehowcreateafunctional,healthyeconomybyfiddlingwiththepriceofmoneyandforcingbankstolendisridiculous。

It’slikesayingyoucanchangethephysicallocationofamountainrangesimplybyredrawingthemap。

However,that’sthelongrun。

AsAdamSmithsaid,there’salotofruininaneconomy。

AndastheotherwisebearishStephaniePomboyofMacroMavenstoldFortunerecently,“Chinamaybeabubble,but…it’sabubblethatcangoonlongerthanyoucanremainsolventbybettingagainstit”。

WhyaChinesehardlandingcouldbegoodnewsforBritain

Regardlessoftheeventualoutcome,theonethingwecanbesureofisthatChina’seconomyisslowing。

Andchancesarethatthemarkethasn’tyetpricedinjusthowbigtheslowdownmayeventuallybe。

Lotsofthemorebullishpunditsarguethatthecountrywillloosenmonetarypolicyagain。

Butinflationisstillabove6%,andfoodpriceinflation–whichisthebiggestworryformostpeople–ismuchhigherthanthat。

Soitmaynotbeaseasyastheythinktobalancethesethingsout。

EventhatsmallundershootofthirdquarterGDPthismorninghasrattledinvestors。

TheAustraliandollarslidagainsttheUSdollarforexample。

SoevenifasoftlandingliesaheadforChina,itwouldprobablybebadnewsforstocks。

Thatarguesforstickingwiththedefensivestockswe’vebeentippingforawhile–youcanreadourlatestpieceonthishere:Centralbankscan’tstopthenextGreatRecession。

However,thehorribletruthisthatahardlandinginChinamightbethebestthingthatcouldhappentotheUKeconomy。

I’mnotsayingitwouldn’thavenastyrepercussions–youcouldexpectabigplungeinstocksforastart。

Butit’dalsodrivecommoditypricessharplylower。

ThatwouldremovesomeoftheinflationarypressurethatiscurrentlysqueezingthelifeoutofBritishconsumers。

Giventhattheconsumerpriceindexisnowrisingat5。

2%(!

)ayear–that’shotoffthepresses–thatwouldprovidesomemuch-neededreliefallround。

Unfortunately,wecan’tbetonthathappeningeither。

Whoknows?

ConfrontedwithahardlandinginChina,MervynKingmightjustbangthe‘print’buttonevenharder。

That’swhy,evenalthoughgoldmighthaveaperiodofconsolidationaheadofit,it’sstillworthhangingonto,particularlyforsterlinginvestors?

Ourrecommendedarticlefortoday

TherealreasonI’mbuyinggoldrightnow

Goldisn’tasafehaven,orevenahedgeagainstinflation。

Thetruthisthatgoldisahedgeagainstbaddecisionsbypoliticians。

Andrightnowyouneeditmorethaneverbefore,saysBengtSaelensminde。



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