The inscrutable economy.

We do not know what is happening inside China. Not many people do or understand. China has sacked 200 officers, including 21 generals in the People's Liberation Army. Since 2013, 4024 officers, including 82 generals have been under investigation for corruption related to infrastructure construction, property development, equipment purchase as well as personnel and fund management. We do not know if this is a genuine cleanup of corruption, an attempt to reduce waste of public funds for economic reasons or giving friends of the new administration a chance to accumulate wealth. A few days back Prime Minster Li Keqiang was in Davos promising that China will " continue to pursue a proactive fiscal policy and a prudent monetary policy " because the economy was facing problems. Which is extraordinary because last year the economy grew by 7.4%, among the highest in the world. But what if the growth falls to much lower levels? Except for the US, growth in the world has come to almost standstill, but here too the recovery has enriched the top 1% while income of the rest 99%, after adjusting for inflation, has actually fallen a little. The Eurozone shrank by 0.6% in January, Japan is battling to get out of recession, precipitated by the increase in sales tax from 5 to 8% in April, while Singapore has cut its interest rate, prompting its currency to fall. The Swiss National Bank  has set a negative interest rate of -0.75%, which means that savers will have to pay to keep money in the bank, to stop the Franc from appreciating against other currencies after the Bank abandoned the currency peg with the Euro. Denmark has also set a negative interest rate of -0.5% to protect its currency peg. China's economy is reliant on exports which cannot grow if the rest of the world is slowing down. The top 1% is hardly going to shop at discount stores for cheap, poor quality Chinese goods. It could stimulate the economy by increasing spending but that will only increase the levels of debt, and result in asset price bubbles. Along with growth fiscal revenue is also growing more slowly. The local governments are borrowing to service older loans. Capital is flowing out of the country. The People's Bank of China is having to support the Yuan to prevent it falling very fast. If the Bank reduces interest rate to stimulate growth more capital may flow out and the Yuan could fall further. The government had to ask people to buy stocks to support falling share prices. China wants the Yuan to replace the dollar as reserve currency so it cannot risk competitive currency depreciation with other countries. Will the Chinese economy crash with severe social unrest. Would be great for India if that happens.