This blog has raised some issues over the months about the actual as opposed to perceived strength of the Chinese economy, their published economic statistics, and underlying social and political pressures in that country. The Financial Times reminded us a few weeks ago that China is #104 in the world in per capita income, and that put a bit of a chill in the air, especially if you are counting on the Chinese consumer to be your global engine of growth.
Economic consultant David Smick has taken a look at the Chinese economy, and his comments are especially interesting. “The Chinese economy is growing, but nobody can say by how much…The Chinese recovery may not be as strong as the data suggest.”
–With regards to industrial overcapacity, today the Chinese have enough iron ore and steel producing capacity to meet the needs of the United States, Japan, Russia, and the 27 nations of the EU combined. China’s State Council (its Cabinet) has issued a warning that over-capacity could lead to a surge in non-performing bank loans. New aluminum smelters have been barred for 3 years, and “blind expansion” of the steel and cement industries has been criticized by the central-planners.
–commercial real estate is experiencing 40% vacancy rates while the government pumps ever more money into that sector
–social and political tensions are rising in China…we think. The government has stopped publishing previously accurate police statistics, and earlier this year Reuters, Dow Jones and Bloomberg were told by the Chinese government to stop collecting data on the Chinese economy, and instead rely on data supplied by government-run news services
–China’s exports have been 43% of GDP. But global trade is down 25% over the last year. And China continues government lending and stimulus policies that feed into the extraordinary industrial overcapacity discussed above, as well a big bulge in state-financed unsecured loans
The whole world seems convinced China is going to be the engine of global recovery, and the new global economic superpower. But if you peek behind the curtain you begin to have some doubts.
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