China, now the second largest economy in the world, is headed for (relatively) hard times, says economist Gary Shilling, president of A. Gary Shilling & Co. He expects the economy will experience a "hard landing within this calendar year or perhaps the first half of the next calendar year," he tells Aaron Task in this accompanying clip.
China's Hard Landing Is Another Country's Boom
Shilling says a hard landing will result in 6% growth, not the double-digit growth they've been used to over the past decade. The irony, of course, is that kind of growth in the U.S. and other developed countries would be considered an economic renaissance. But not in China.
It's the�Inflation, Stupid
China is currently trying to battle inflation that rose 5 percent in January and included a 10 percent gain in food prices, putting new stresses on domestic consumers. Shilling says rising prices are an ill effect of China's $585 billion stimulus package implemented in 2009, in the wake of the global financial crisis.�
The stimulus package, which amounted to 12% of the Chinese economy --�twice as large a percentage as the U.S.'s stimulus --�has manifested itself in a commodity and speculative real estate bubble that�Shilling thinks is set to pop.
So far, Beijing has unsuccessfully tried to cool the economy by raising interest rates three times since October.� It won't have the desired effect, Shilling argues.� "I think that they are probably going to overdue it."
Commodity Crash Coming
That hard landing is bad news for commodity prices.� He's betting against the entire commodity complex, saying once the industrial metals�such as�copper fall, it will cause a domino effect in agricultural products such as cotton, wheat and soy beans.
That commodity crash will also manifest itself in weaker "commodity" currencies�such as�the Australian dollar, the New Zealand dollar and, to a lesser degree, the Canadian dollar.
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