China’s woes continue

China has both massively misallocated capital, misallocated lending to cover up that misallocation and has promoted wage growth to cover up for the lack of demand for excess housing. At some point it will have to let its currency fall. At present, thanks to wage inflation of 10%, its competitive position, vis-à-vis all its neighbours, gets worse every day. The reaction to the slowdown is to put yet more money into capital spending: government spending is now rising at 18% year-on-year and not 8% as it was three months ago. But throwing good money after bad does not solve the problem. What it does show is that there is enough strength in the global economy for Yellen and the Fed to raise interest rates, and with it the USD and RMB rise yet further against their neighbours’ currencies. (VIEW LINK)