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Gordon Chang, author of “The Coming Collapse of China,” on China’s Central Bank’s surprise key interest rate cut.
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All right let's talk about -- -- -- -- surprise move China's Central Bank lowering its key interest rates in an effort to combat a slowdown but my next guest.
Says too little too late in the Chinese Government is running out of options to keep the world's second largest economy essentially from falling off a cliff joining us is Gordon Chang.
All throw the coming.
A book of the book up all of the coming collapse of China so what she might have by the title of -- book -- I'm not particularly optimistic.
You say that China's economy is in serious trouble and and what we heard today -- cut in the key interest rate is too little too late it needs something a lot bigger and -- this.
Would have been better in October when the first signs of real problems in the Chinese economy became unmistakable.
Now you have been our prices they don't want to borrow because they don't see the prospects there so 25 basis points isn't gonna get them to the bank he got the drop maybe a 15200.
Basis points but if you did that all these deposits in the banks would leave and we we already saw on April more than a hundred billion US dollars in household deposits fled the banking system.
Because of negative interest rates so if you drop interest rates even further you're gonna have even more problems now.
But why is that is it because the consumer -- just not buying anything -- using anything anymore on the back.
Well first of -- consumption is not a major part of Chinese economy it accounts for only you have 33%.
Of GDP that's the lowest in the world so you know people are buying things but it's not really going to help and and essentially what we have right now is an economy which is much too dependent on government investment and exports and Europe is in such a tank is their biggest trading partner and the Europeans aren't buying things and that's what really triggered these problems last fall so -- -- we very really believe what any government tells us that in case of China is particularly true -- thing that we've had 8% growth you don't buy a -- that you say it's closer to zero is that right right -- in April they you know the most reliable indicator of Chinese economic activities electricity production.
Which increased by only zero point 7% that month.
And because the growth electricity historically out paces the growth of the economy that means it can't be growing more than zero and the other indicators from April -- deep negative numbers and so essentially.
They're real and they're really in trouble and may have -- at least the first two weeks yet -- been much better.
Going even contrast a collapse of the country for a -- now what is exactly and that means a collapse mean -- aren't gonna go out on China.
Well -- lights will be still there literally but what I'm talking about is a failure of economy.
Leading to a failure of the political system because Chinese political system right now is dependent on the continual delivery -- prosperity.
And when you're talking about a contracting economy especially over prolonged period I don't think that this political system which is already fracturing right now -- all this infighting at the top I don't think it can survive.
Well what does this all mean to the United States what does -- mean to us if indeed this economy this second largest in world collapses.
Well when it collapsed.
It's okay and the last if I get these British parents gonna it's gonna -- global markets and of course that'll hurt us -- also the multinationals will be badly hurt because they've got large and I investments in -- and we'll smaller US companies are going to be better for them keep their operations here.
And net net six months will be okay because.
Our economy isn't geared to China but China's economy is geared to us right.
All exports its its exports -- -- running out of time Gordon Chang author of the coming collapse of China you say it's gonna happen.
This year next year very possibly this year really.
He will be back some here when that happens if it if it has side Gordon thank you very much legitimacy shops -- -- very much.
