China Watch- Is The Party Over?

Analysts of the global economic scene have turned up the dial on their concerns about the Chinese economy. They see a slowdown in China- and wonder how intense it is and how long might it last. The casual observer might think of manufacturing as the powerhouse of the Chinese economy, which is understandable considering the trade deficits many nations run with Beijing. But the real driver is real estate, which is propped up in unique ways by the still extremely powerful, Communist-run state sector. And we know from painful experience how vulnerable economies driven by real estate can be.

Mike Shedlock, who runs the Global Economic Trend Analysis blog, notes that the Shanghai stock index recently hit a three year low. He highlights the losses suffered by China bulls who bought into the misguided assumption of limitless economic growth:

Misguided China bulls shorting the dollar and buying Chinese stocks have gotten their heads handed to them on a platter.
Those aware of the fraud, corruption, and simple sustainability of economic growth in China either stayed away completely or were short China like Jim Chanos (the famous short sale guru who correctly foresaw the fall of Enron).

Shedlock cites journalists who are pondering the signals from China, especially the political instability and intense nationalism triggered by the dispute with Japan over the Senkuku island chain. Riots on the mainland have damaged the interests of many Japanese companies, and markets do not like political uncertainty when it disrupts global trade patterns.

A slowing China has implications for the USA as well. Sectors that benefit from the trade with China, such as supply chain management, shipping, and certain export-oriented manufacturing enterprises, could feel a chill in an already worrisome American economic environment.