|Given that input and labor costs are nearly as high or higher in these hometown regions, the outcome of this will be one or a combination of two things: a significant if not dramatic lowering of Chinese exports, particularly the low value items that fill stores like Wal Mart and Target, and even the Nordstorms and Coaches of the world. |
And, or, much, much higher prices paid for Chinese exports and a lot of inflation. I think the parabolic looking surge in the MIT price survey is already reflecting this development. A good measure of this is Chinese inflation transmission, and that has been conveniently ignored. The West is really hook on cheap prices from China, so this will be a shock.
This also means a large drop in Chinese GDP growth. The markets are geared heavily to the whole developing world growth story. There was already large overcapacity in China even before losing a big chunk of their exports. Global hot money has chased that theme. There has been huge lending in China over the last several years. Much of this will be wiped out.
If that wasn't bad enough, China has a commodity/hoarding bubble and real estate bubble in place, and bursting bubbles always have ramifications. I guess I just naturally assumed that it wouldn't be necessary to go back and discuss basic Bubble 101 theory especially on this thread, as I'm sure the readers here didn't just get off the boat? All these issues and impacts were discussed and developed in some detail in the What if China Busts symposium that I referenced you too, so I won't go into that in a few paragraphs here.