Economic Realities in China

This picture taken on December 9, 2012 shows scavengers picking up useful construction waste from a garbage dump in Hefei, central China's Anhui province.  China's wealth gap has widened to a level where it is among the world's most unequal nations, a Chinese academic institute said in a survey, as huge numbers of poor are left behind by the economic boom. CHINA OUT     AFP PHOTO        (Photo credit should read STR/AFP/Getty Images)

This picture taken on December 9, 2012 shows scavengers picking up useful construction waste from a garbage dump in Hefei, central China’s Anhui province. China’s wealth gap has widened to a level where it is among the world’s most unequal nations, a Chinese academic institute said in a survey, as huge numbers of poor are left behind by the economic boom. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)

Most casual observers of world affairs tend to judge China’s wealth by the flashy skyline photos of new construction. But such images give a false impression of the true state of economic affairs in China.

According to a World Bank survey, in 2012 the per capita consumption in the United States was $30,903, while in China it was only $1,221. The world’s per capita consumption, excluding China, is about $5,400. That makes China’s per capita consumption less than a quarter of the world’s consumption and only 4 percent that of the United States.

The massive building boom that has transformed China’s major cities gives one the false impression that everyone in China is wealthy and that Chinese are rich enough to buy up the United States several times over. But if you go to the countryside, you will see farmers who are not even able to buy a can of soda. __ China in Real Terms

Much of China’s construction boom has been driven by government-instigated credit bubbles, resulting in ghost cities and quickly crumbling edifices. The photograph above of the garbage scavenger is a useful metaphor for entire industries that have grown up to demolish recent Chinese construction to make way for a new cycle of shoddy ghost construction.

Foreign Investment Dropping Off; Highly Leveraged Domestic Investment Rising

Foreign Investment BRIC Source

Foreign Investment BRIC
Source

According to rating agency Standard and Poor’s (S&P), China’s credit quality is “deteriorating more quickly than at any time since 2009,” it states in a recent report. S&P downgraded three companies for every company upgraded in the first half of 2016.

Chinese corporates will “come under increasing strain as economic growth slows, industrial overcapacity crimps profitability and cash flow, and an elevated appetite for expansion weakens leverage.” __ Source

Moody’s has also expressed concern at over-leveraging in China’s shadow banking economy.

The rise in overall leverage and further expansion of shadow banking activity are pushing up financial risks,” [according to] Stephen Schwartz, a Moody’s Senior Vice President.

We estimate the potential understatement to be significant, amounting to at least RMB16 trillion ($3.4 trillion) or 23 per cent of GDP at end-2015, equivalent to around one-third of shadow banking
Michael Taylor, Moody’s Managing Director

… The investment receivables (debts, unsettled transactions) of a sample of 26 listed banks have more than quadrupled since 2012, accounting for more than 8 per cent of their total assets at end-2015.

__ NZHerald

China’s huge economy is being overbuilt on top of an ever-shakier foundation.

When neutral observers look at China’s economy in detail, they grow sceptical of China’s official growth estimates. Instead of 7% growth, most honest analysts put the figure closer to 4% or below. The Coca-Cola index suggests that China’s economy is not actually growing at the grassroots level, with a market drop of around 2%.

We are not saying that China’s economy is in the same dire situation as Russia’s, Brasil’s, or Venezuela’s. China will be an industrial, technological, and scientific powerhouse for decades to come — although perhaps not to the extent that more bullish analysts had predicted.

It is simply the case that China’s leaders want the nation to be bigger, better, and more powerful than it actually is. And so they censor the bad news and tweak the rest to project a better image than is reflected by reality.

If China’s people are choking on toxic air, water, food, and beverage, that is not of concern to the ruling class. If China’s military-linked transplant centres are slaughtering tens of thousands of political dissidents a year for their cash-crop organs, why should the country’s elite care? If the ongoing destruction of Chinese rivers and China’s land is forcing the dragon to look northward to Siberia for vital resources, China’s leaders can deal with pesky Russian concerns. If military expansion into the territories of China’s neighbors to the south and east risks triggering an international conflict, Beijing believes that it can deal with the fallout when the time comes.

Like the other BRICS, China’s image-for-international-consumption contains a significant amount of “Potemkin Farce.” But only two of the BRICS — China and Russia — are pushing the farce to the point of risking global war.

Nations that pretend to be something they are not, and use nuclear weapons to enforce the delusion, put the entire world at risk.

More:

New Fortune 500 list reflects China’s ongoing economic dysfunction

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