China Reports No Drop in GDP Growth So Far in 2016
China’s government has chosen to continue pumping credit into an already near-bursting financial bubble of mismanagement. This amounts to “kicking the can” down to road in order to present the illusion of economic stability — in an attempt to attract private domestic and foreign investment which has been fleeing the country.
If the headline numbers are to be taken at face value, China’s gross domestic product rose 6.7 percent in the three months through June from a year earlier, defying those who predicted a hard landing. But the stabilization comes at a cost — a big one. Instead of tackling a debt pile estimated at 2.5 times the economy’s size, policy makers are only making it worse with a renewed credit binge. ____ Bloomberg
… China GDP should be taken with a grain of salt given the political nature of the data and pressure to meet official 6.5%-7.0% growth target. China’s economy probably only expanded 4.5% in 2Q rather than official figure of 6.7%.
More worrying was that net exports subtracted 0.7%, in yet another confirmation that global trade continues to deteriorate.
… China’s industrial economy continues to suffer from rampant overcapacity and deflation. Mining grew 0.1% in the first half, while electricity, heat and water production grew 2.6%. Facing a bleak demand outlook, privately owned manufacturers have cut spending on new factories, contributing to the sharp slowdown in fixed investment. But a surge in infrastructure investment by state-owned enterprises has taken up the slack, supporting demand for commodities such as steel, copper and cement
Esteemed China economy boffin Michael Pettis has been providing warnings for years about the dilemma that China’s government is in: Either fix the problem of “bubbles within bubbles” that drives the misallocation economy in China, or keep injecting massive credit flows into an already overblown economy in an attempt to delay the inevitable collapse.
Capital Economics thinks most of this stabilization in growth was due to stimulus spending and will fade in the future, unless the government steps in again.
If China doesn’t tackle important reform projects, it won’t return to real rates of growth above 6 percent anytime soon, says Buiter. “China is flirting with the loss of faith in its ability to manage its currency and flirting with a sharp slowdown in activity.” __ China GDP Growth “Stable?”
Russia is on a Steeper Downward Grade
… since 2014 Russia has been making a lot of headlines but not much else. The economy is a mess, it has fewer allies and the future looks dim. Invading Ukraine and Syria has not helped solve any of the fundamental problems. What passes for “good news” is things like foreign economists recently agreeing that the Russian economy is shrinking less than expected this year … “Victories” in Syria and Ukraine don’t pay the rent or put food on the table. More and more Russians are just getting by and the appeal of the new nationalism is fading.
… the Ukraine aggression has scared away a lot of foreign investors and many Russian ones as well. Russia can downplay this in the state controlled media but without all that foreign and Russian capital the economy cannot grow. The only major economic power Russia can still do business with is China and the Chinese recognize the economic weakness of Russia and refuse to get too involved. ___ Putin Bites Russia in the Ath
Both China and Russia are losing investment — foreign and domestic. China is giving Russia just enough cash to keep the bear on life suppport, but the dragon has some long-term plans for Muscovy that Putin won’t like. But after two and half years of horrifically bad decisions, Putin no longer has much choice unless he wants to start a war that could easily escalate across much of the globe.
Russia is Losing Its Younger Generation to a Plethora of Decay
Newly Minted FSB Spies Who Blew Their Cover Sent to Siberia. The recent graduates of the FSB Academy in Moscow who blew their cover by being photographed in an informal graduation celebration are being punished by being assigned to posts in Siberia and the Russian Far East. Their instructors who allowed this to happen have been fired (theaustralian.com.au/news/world/the-times/russias-new-spies-blow-cover-with-counterintelligent-internet-photos/news-story/0ae14968d4345b0d5797fe429a07b681, slon.ru/posts/70756 and https://meduza.io/news/2016/07/14/fsb-otpravit-sluzhit-za-ural-uchastnikov-avtoprobega-na-gelendvagenah).
‘My Dog isn’t Comfortable in Business Class.’ The Russian elite had another Marie Antoinette moment this week: Igor Shuvalov and his family explained that they had to fly their own jet because their family pet “isn’t comfortable in business class” (navalny.com/p/4952/) and then justified this as being about “the honor of Russia” (vedomosti.ru/newsline/top/politics/news/2016/07/14/649218-supruga-shuvalova). According to one commentator, this action alone has sparked a new wave of anecdotes about the conspicuous consumption of the Putin elite (facebook.com/profile.php?id=100001589654713&fref=nf).
Can Lavrov’s Daughter Still Speak Russian? At a time when the Kremlin routinely equates Russian speakers with Russians, some in Russia and elsewhere are asking whether the children of members of the Putin elite who study abroad for long periods are retaining their Russian language and hence their “Russianness.” The latest of those about whose language knowledge questions have been raised is the daughter of Foreign Minister Sergey Lavrov who, it is said, doesn’t speak the language very well (top.thepo.st/681741/Doch-Lavrova-ne-govorit-po-russki?from=facebook).
Moscow Using Georgian Criminals Against Ukraine. In the latest iteration of the old Soviet joke that “friendship of the peoples” means that members of various nationalities will get together to beat up representatives of another, Moscow is said to be using figures from the Georgian criminal underground to destabilize the situation in parts of Ukraine (nr2.com.ua/News/world_and_russia/Gruzinskie-vory-v-zakone-predstavlyayut-v-Ukraine-interesy-FSB-glava-Nacpolicii-121819.htl).
Offensive Ignorance Increasingly a Way of Life in Putin’s Russia. The governor of Kaliningrad asks “where are the states of Ukraine,, Georgia, Moldova, Latvia, Lithuania and Estonia” (newkaliningrad.ru/news/briefs/politics/10038898-gubernator-tsukanov-kiev-gruziya-moldaviya-latviya-litva-estoniya-gde-eti-strany-gde-ikh-gosudarstve.html), Russian school children are now using textbooks which assert that Jerusalem was a Russian city until 1250 (aboutru.com/2015/07/15940/), and some commentators, updating Stalin-era claims that Russians invented baseball, now say that King Kong had Russian ancestors (regnum.ru/news/cultura/2155589.html) – three recent examples of offensive ignorance at a time of widespread duplicity by Russian officials and the media.
China Will Have to Guarantee the Security of Central Asian Governments
Russia has lost influence and control in Central Asia to China. To prevent Central Asia from falling under the control of radical Islamic movements, China will need to move more strongly into the region to prop up the dictatorships there. The movement of Chinese military and paramilitary forces closer to Russia’s soft underbelly will be rightly seen by most educated and informed Russians as a long-term threat.
But if only Russians could just relax and allow Putin to continue leading the motherland down the primrose path, perhaps eventually China can perform the same stabilising service for Muscovy that it will soon need to perform for the Central Asian tyrannies. The coming Chinese overlords simply want what is best for everyone, from their perspective.
Propaganda Services of Beijing and Moscow Will Not Always Be on the Same Page
Westerners who claim to be both Russophiles and Sinophiles should prepare for an overdose of cognitive dissonance when the inevitable fallout between frenemy bear and frenemy dragon takes place. Heaven help them if they actually believe the things they have been told by Kremlin trolls and propaganda agencies, or by CCP sources of both overt and covert natures. Their grasp on reality — already tenuous — is not likely to survive what is all too predictable for those who have been paying attention.