Another “growth story” is dying before our very eyes.
China is rapidly approaching ZERO growth. This is not less growth, but ZERO growth as in full-scale economic collapse from the days of 12% GDP growth per year.
Over 99% of “analysts” are missing this, but it is a fact. If you ignore the ridiculous GDP numbers (which even China’s Premiere has admitted are a joke in the past) and look at more accurate metrics, it’s clear China is collapsing at an alarming rate. Case in point,Electrical consumption rose by just 2.9% in the first quarter of this year.
How on earth can you generate GDP growth of 7% when you electrical consumption is rising by just 2.9% is beyond me. And when you consider that China is experiencing this weak growth despite having pumped over $1 trillion into its economy in the same quarter (an amount equal to 14% of China’s total GDP) you begin to understand the scale at which things are imploding in the People’s Republic.
Check out the chart for China’s stock market: we’re about to take out the post-2009 “recovery” trendline. And this is while China is pumping trillions in new credit into its economy!
This is a Black Swan that few are noticing. If you look around the mainstream financial media in the US, you see talk of Bernanke tapering, discussions of rising interest rates and even the occasional story about how Europe is not fixed. But you won’t find stories about China facing ZERO growth. There’s only one I’ve seen and it was published in the Telegraph, a British newspaper.
China PMI Plunges To 11-Month Low, Employment Weakest In Over 4 Years
HSBC China PMI drops to 11-month low, diverging dramatically from the government’s version (for now)…
China risks deflation trap as true GDP crumbles
China is sliding towards a deflation trap and may be in outright recession already if data are measured accurately, with serious knock-on risks for the global economy.
Fitch says China credit bubble unprecedented in modern world history
China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.
You can’t invest that amount of money productively in that time period. The outcome is massive mal-investment and Ponzi financing. Yada yada China is screwed in non-eCONomist speak…
“China saw the biggest credit expansion relative to GDP over the past decade than any other country in modern history. China’s M2 GDP ratio now stands at 187%, its gross capital formation GDP ratio at 48%, and its credit (based on total social financing) GDP ratio at 176%.”
At the unprecedented level of 176%, credit-to-GDP ratio in China surpasses Japan, the EU and U.S. What is alarming is not just the magnitude of this ratio, but the sizable deviation of this ratio above trend, or Credit-to-GDP gap. Credit-to-GDP gap captures excess credit activities relative to GDP and a mismatch between the financial cycle and business cycle. When the ratio line stays consistently above its trend line in a lengthy period of time, it indicates that an upturn in financial cycle goes too far and a systemic risk is building up as the result of aggressive credit creation. It gives out an illusion of robust growth that can’t be sustained. The deeper and more persistent the deviation, the more likely a financial distress happens subsequently. At the first glance, the seemingly significant gap in the graph foreshadows the possible onset of systemic banking distress in China. In its 2011 “Macroprudential Policy: An Organizing Framework”, IMF wrote:
“In the time dimension, indicators to assess risks related to procyclicality (aggregate risk) can be categorized by main sources and propagation channels,…(III) credit-to-GDP gap measures, developed recently and found to be particularly reliable and forward looking indicators.”
China’s overnight repo rate is creeping up again, and rose above 4% for the first time since the first week of July. The PBOC attempted to the crack down on shadow banking until it realized that the unintended consequence of its plan was a burgeoning financial panic.
As the new rulers of China begin cracking down on corruption, a real estate bubble and industrial overcapacity, perhaps they should ask what will replace the economic growth caused by these inefficiencies. Like it or not, these dysfunctional practices support economic growth. What sustainable economic practices will replace the unsustainable ones as they are eliminated by the government?
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