If you follow MISH, great, if you don't, you better start. Here is a great post on why China may face a hard landing.
Eight Problems Facing China
Hot money inflows
Huge property bubble
Massive increases in money supply, much of it property speculation and building of unneeded capacity
Currency manipulation charges from the US and potential trade wars
Unsterilized trade imbalances fuel inflation
Dearth of Jobs for new graduates
Potential social unrest
Here are 15 facts about China that will blow your mind
and if you wonder what would happen if China crashed, take a look at China's 14 dominoes of destruction.
Ghost cities of China with enough vacant homes to house the population of Canada over 4 times!
It's only a matter of time before China's housing bubble bursts from the Shanghai daily.
To understand how big the real estate bubble is in China, take a look at this chart. Japan had such an asset bubble in the 80's, they still have not recovered from it. China 2011 is definitely in the same territory as Japan 1990 in regards to housing value relative to GDP. These two countries make the US housing bubble look small.
So how does this affect Saskatchewan?
Just over 60% of Saskatchewan's exports go to the US, while the Canadian average is about 80%. So the slowdown in the US has not affected Saskatchewan as much as the rest of the country. A slowdown in China would have a big ripple affect that would be felt around the world with these 10 US states in bigger trouble than they already are. Out of all the provinces, Saskatchewan would be hit the hardest because China is the second largest trading partner after the US in terms of Countries. Just for reference, Saskatchewan GDP in 2009 was 56 Billion. In the last few years, exports have pretty well doubled to China. As for India, exports have quadrupled since 2005.
It is not because commodities would take a big hit that would cause the problem here, ( no doubt it would hurt as provincial coffers would not be as full) the problem would be the drop in consumer confidence. If commodities were hit hard twice in 5 years, Saskatchewan residents would know it is not different here. The two things going well for this province at this moment are confidence and credit. A slowdown in China and India would produce a drop in consumer confidence in Saskatchewan. And then consumers would realise that the debt levels do matter. In a consumer spending economy that has seen much of the growth from credit you can see how this would affect housing markets such as Regina and Saskatoon.
If China were to crash, the implications of Vancouver's and Canada's real estate markets would be huge. The only thing feeding the housing bubble to reach over $1 million for a house in Vancouver is Asian money, or aka Hot Asian Money ( HAM). Ben over at Financial Insights has covered this story very well. In this scenario,once Vancouver's housing market falls then so does the rest of the housing markets in Canada, as the synchronization of markets takes hold across the nation, but only in reverse.
According to the Conference Board, the world could survive a China slowdown. But stock markets and growth around the world would be severely impacted. They compare Japan of the 80's to China now.
Japan accounted for close to 20 per cent of the global economy after its economy recorded average annual growth of between 8-10 per cent in the 1970s and 1980s. At the time, many experts predicted that Japan would eventually overtake the United States as the world’s largest economy within a couple decades (sound familiar?). Few doubted that a collapse in Japanese growth would be a disaster for the global economy. Well, the “unthinkable” happened as the bursting of a real estate bubble and deflation caused the Japanese economy to average growth of less than 1 per cent annually throughout much of the 1990s and 2000s. By 2010, the Japanese economy was less than one-third the size of the US economy!
Interestingly enough, the global economy generally experienced solid growth throughout much of the 1990s despite the disintegration of the Japanese economy.
If China, slows down, I hope they are right.
A China crash is not a certainty, but a slowdown is definite. The world and Saskatchewan in particular will feel the affects of a China slowdown in more ways than one.