China: Caught Between The Now And The Not Yet

With the G-20 meeting this week, all eyes will be on the Chinese. I sometimes wonder, however, what these eyes see.

I see China in terms of mythology. Greek mythology. On a ship in a confused sea attempting to pass through Scylla and Charybdis, forced to choose which to confront.

Will they confront the increasing precariousness of their current export model, the one that caters to a consumer who is being pinched by a weakening dollar, the same weakening dollar that the Chinese enable by purchasing treasuries against it?

Or, should they confront the uncertainty of developing internal consumption, and possibly relinquish centralized power to a newly-empowered middle class that might turn its back on the state in favor of capitalist ideals?

Someday it will pay to place your bets on China and let them ride. But not yet, not for me. Even if I forfeit a few more months of gains in the Shanghai index, I prefer to standby for reality to strike. I still don't think the China bulls realize that China itself hasn’t fully adapted to the sea change that is occurring -- lower growth, lower demand, higher savings.

I often mention risk in these pages. China is a big one.