Home > Uncategorized > Is China The Biggest Malinvestment Case Of All Time? – Seeking Alpha

Is China The Biggest Malinvestment Case Of All Time? – Seeking Alpha

September 22, 2012 Leave a comment Go to comments

One must wonder – why all the saber-rattling now? Why elevate the Senkaku Islands dispute now?

Could it be that heated protests flaring up all across China (some 85 cities at last count) are seen by the authorities as a useful distraction from increasingly severe economic problems?

How far will China go to distract the world (and the local populace) from its pending malinvestment-fueled implosion?

And none of this really touches on the rampant corruption factors present all throughout China’s financial and political system, as John Hempton of Bronte Capital has argued via The Macroeconomics of Chinese Kleptocracy:

I start this analysis with China being a kleptocracy – a country ruled by thieves. That is a bold assertion – but I am going to have to assert it. People I know deep in the weeds (that is people who have to deal with the PRC and the children of the PRC elite) accept it. My personal experience is more limited but includes the following:

(A). The children and relatives of CPC Central Committee members are amongst the beneficiaries of the wave of stock fraud in the US,

(B). The response to the wave of stock fraud in the US and Hong Kong has not been to crack down on the perpetrators of the stock fraud (so to make markets work better). It has been to make Chinese statutory accounts less available to make it harder to detect stock fraud.

(C). When given direct evidence of fraudulent accounts in the US filed by a large company with CPC family members as beneficiaries or management a big 4 audit firm will (possibly at the risk to their global franchise) sign the accounts knowing full well that they are fraudulent. The auditors (including and arguably especially the big four) are co-opted for the benefit of Chinese kleptocrats.

This however is only the beginning of Chinese fraud. China is a mafia state – and Bo Xilai is just a recent public manifestation…

The top down investing and trading implications here are massive, to put it mildly, starting with greatly increased probability that Michael Pettis’ excellently reasoned argument for a soon-to-come collapse in hard commodity prices is on target.

If there is a credible counter-case as to how China will evade all the lessons of history, slip past its egregious mistakes unscathed, mimic the worst sins of the West while paying no penalties, and turn the essential tenets of free market economics upside down in doing so, we would love to hear what it is.

via Is China The Biggest Malinvestment Case Of All Time? – Seeking Alpha.

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