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VodkaPundit

The China Bubble Syndrome II

May 9th, 2013 - 10:30 am

So China’s economy might not overtake the US by 2030 after all. Or even in the 21st Century. Here’s why:

China’s catch-up spurt has a few more years to run in the Western hinterlands perhaps, but when the full story comes out we may find that nationwide growth has already fallen below 7pc.

Mr Li complained in a US diplomatic cable released on WikiLeaks that Chinese GDP statistics are “man-made”, confiding to a US diplomat that he tracked electricity use, rail cargo, and bank loans to gauge growth. For a while, analysts use electricity data as a proxy for GDP but the commissars kept a step ahead by ordering power utilities to fiddle the figures.

The National Bureau of Statistics has since revealed that data collected by the regions overstates GDP by 10pc, though they have not acted on the insight. It is well-known why this goes on. The reward system of the Communist hierarchy has been geared to talking up growth, and officials gain kudos by lowering the stated “energy intensity” of their zone.

China’s Development Research Council (DRC) expects growth to drop to 6pc by 2020. It could be much lower. The US Conference Board says it will average 3.7pc from 2019-2025 as the ageing crisis hits. Michael Pettis from Beijing University thinks it is likely to slow to 3pc to 4pc over the next decade, deeming this entirely desirable if it comes from taming the runaway state enterprises.

There’s also an assumption here that China isn’t in the midst of a bubble — which must eventually pop. And when Beijing runs out of money to prop up the SOEs, then a secondary, but larger, bubble will also pop.

We have our own problems — deep, structural problems. And our own asset and housing bubbles to deal with, too. But we have institutionalized revolutions staggered every two, four, and six years, which gives us a resiliency China’s one-party state lacks.

And if you think I mean to imply that things could get really very quite ugly in China…

…you’re right.

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All Comments   (8)
All Comments   (8)
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I find it astonishing that all of these nightmares any half-way rational person would agree are coming haven't landed yet. How the hell is Europe still in one piece? Why haven't our bonds gone completely sideways? And how the hell is China still getting away with such blatant mischief with its numbers?

Are we simply misreading the writing on the wall(s)? Or are the "powers-that-be" really able to manage things much more competently than we give them credit for? I mean, really. How is this house of cards still standing?

Head-scratcher indeed. We've turned "kicking the can down the road" into an art form.
49 weeks ago
49 weeks ago Link To Comment
Europe isn't in one piece anymore, if it ever was. At best, it was in two parts (Eurozone and non-Euro). Now it's in at least three parts--Germany/Benelux, Club Med, and non-Euro. Cyprus was a warning to Italy that "vee vill destroy you" if they get out of line.

It will get explosive when France can no longer muddle through--I don't think Brussels and Frakfurt can take France down without a fight, but if they don't the Euro is toast.

49 weeks ago
49 weeks ago Link To Comment
I think that last sentence is closest. The US, as always, has the best chance of coming through clean. Europe is slowing the process down, not reversing it; delaying the inevitable for as long as possible.

China, though...hoo boy, when even the made up numbers aren't coming out right...when they get old before they get rich, nobody will come out the other side unscathed. Think what will happen to our economy when all the cheap crap we get from China suddenly stopped because the workers were too busy killing each other to send us new cheap crap?
49 weeks ago
49 weeks ago Link To Comment
Here's hoping that they're '...killing each other.' rather than their neighbors or us. Which after all is the traditional method for Nation States to externalize internal mismanagement.
48 weeks ago
48 weeks ago Link To Comment
Cheap crap manufacturing has actually been moving away from China for a few years alread. I see lots more Made in Vietnam/Cambodia/Bangladesh labels of late. Regarding the first two it does put to question exactly who really won that war.
49 weeks ago
49 weeks ago Link To Comment
As the standard of living improves in countries that sell labor cheap, people start spending more money and the ability of the local economy to satisfy domestic consumer demand improves. Soon local employers are able to compete for local labor, driving up the price.

This is the cycle Dinesh D'Souza noticed that turned him away from simpleminded anti-colonialism, which is the flip-side of simple-minded protectionism.
49 weeks ago
49 weeks ago Link To Comment
We build factories in India and Africa and start sending the cheap crap over again. Unskilled labor is probably the closest things to an unlimited resource on this planet.
49 weeks ago
49 weeks ago Link To Comment
In the long run, sure, we find another source. But such things take time. The loss of the existing source can come far faster than the establishment of a replacement source. I recommend being less sanguine on the possibility of a Chinese meltdown while we still rely oncheap Chinese goods.
49 weeks ago
49 weeks ago Link To Comment
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