China is going to start to tighten up on its historically easy monetary stance since the crisis of 2008. They don’t have a choice, as inflation has raised its ugly head inside of the Kingdom.
True inflation is a rare beast, but like a Sleeping Dragon, once woke up, it is not easy to put back to sleep. That is, the people lose trust in the valuation of their own script. China has ridden the US dollar devaluation to the stage that their internal economics don’t work anymore.
China as a nation has used the US global Hegemony script to its own advantage, but that relationship is now coming back to bite them. It will be interesting to see if the relationship takes a major, and for some unexpected change, if China cannot handle a hard landing.
The GDP imbalances in China have reached levels that only opium smokers of the prior century could call reasonable. Growth, for Growth sake only lasts for so long. Then there is the big Hangover.
The second tightening this year, and with probably up to 4 more in 2011, China has a long path ahead of it. None of it fun.
China is going to experience its first planned slow down. It is going to be lurchy and at times they will counter-signal desire for growth again, but like all runaway fires, china has ran out of fuel to consume. The coming slowdown is going to take longer than people expect. That is, the effects are going to last longer. You do not easily tame expectations of inflation, once ignited.
Once the real slow down in construction hits China, commodities will start to cool off, after their latest 6 month run up in Q.E. 2.0 expectations. The easy and cheap money has been made on this run up, now is the time to prepare for a surprise commodity pull back.
The best tell for this, is going to be Australia. They have existed in a symbiotic existence with China. If they start to experience product storage issues at ports as orders start to mysteriously back up, like the latest lobster war event, you will know it’s for real.
So, while others find the Lobster back up in Oz hardly worthy of notice, I find it very VERY interesting. It might be the canary in the coal mine, only its Lobster in Oz now.