The China Bubble Syndrome II

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.