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Monday, May 09, 2005

Another Asian meltdown in the making?

Asia produces products that contribute to the massive oversupply of global products. This could finally lead to the next Asian meltdown, similar to the one experienced in 1997. This is the message of this article, and it follows in its intonation some that I commented on earlier in several entries.

Only this one here focusses on the currently increasing pressure on China to devalue their currency, frequently blamed for many of the hickups in the global economy.

Interestingly, some economists are saying that China shouldn't devalue: "If China appreciates the currency like other people are urging, China will eventually have a financial crisis just like in South-East Asia [in 1997]" - said by China-watching economist Andy Xie of Morgan Stanley.

He continues: "Look at what happened in South-East Asia 10 years ago or in Latin America before that. Currency value depends on competitiveness and also financial health. In emerging economies, one cannot maintain financial health, so periodically you have a financial problem. You have an over-expansion of money supply and you eventually have currency depreciation. China is no different."

Jim Walker, the chief economist at CLSA Asia-Pacific Markets in Hong Kong says that China is going to hit the wall, mainly China due to a labour shortage; "not the much-publicised reluctance of inland Chinese recently to serve as factory fodder in the sweatshops of Guangdong, the industrial province bordering Hong Kong, but supply gaps in skilled workers and managers."

That is what was already reported earlier as well, so nothing new here. Clear is that the rest of Asia will be hit as well, should China melt down - something that is not made quite clear in the article.

Nevertheless, the big question is: Will it happen? Is it just doomsday talk? And, even more important: How do you prepare for it, should it happen?

(By Asia Business Consulting)