Is China Already in Decline?
The Chinese economy is not growing at 6.5 percent. It is probably growing by less than half of that. Not everyone agrees that the rate is that low, of course, but there is nonetheless a running debate about what is really happening in the Chinese economy and whether or not the country’s reported GDP growth is accurate.
… The problems facing the Chinese economy, and the worries expressed by Chinese leaders, are so deep that it no longer requires much imagination to figure out that reported GDP in China simply does not represent what we think it represents elsewhere. __ Michael Pettis
And of course, the PPP adjustment is worse than complete nonsense — it is a sick fantasy.
It should come as no surprise to anyone who pays attention that China is naturally passing through some very predictable economic phases in response to choices made by past and current governments of China.
Natural and human systems tend to go through stages of expansion, stagnation and decline that follow what’s known as the S-Curve. __ https://www.oftwominds.com/blogfeb19/China-Scurve1-19.html
By 2010 it had become clear that China was attempting to maintain its pre-2008 rates of economic growth using a debt-fueled infrastructure investment of absurd magnitude. It was about that time that Al Fin began to sound warnings about the Chinese government’s economic strategy.
In hindsight, we can see from the curve above that China added at least $40 trillion in debt over just ten short years from 2008 to 2018. Probably much more, once the shadow economy is brought into the light.
In a dictatorship, massive misallocation of capital can be hidden for a long time — as we saw in the USSR. Only a few of us foresaw the collapse of the USSR, and none of us had the timing right.
In the Boost Phase, policies that open the economy to credit and innovation generate virtuous cycles of expanding credit, markets, capital, employment and development. In the Boost Phase, everyone’s a genius; everyone joining the land rush can get a piece of the action.
… China entered 2008 with $8 billion in officially counted debt; 10 years later that debt is $40 trillion, plus unknown trillions more in the shadow banking system which expanded the options for risky speculation and massive expansions of credit.
… The high water mark of China’s financialization orgy was 2018. From now on, adding debt simply adds more drag on the underlying economy, as income is diverted to service speculative debt and defaults start hollowing out both the official banking system and the shadow banking system.
All the policies that worked in the Boost Phase no longer work. the policy tool chest is empty, and so China’s leadership is doing more of what’s failed: burying bad debt off the visible balance sheets, re-issuing new loans to pay off defaulted debt, and all the usual tricks of a failed banking/credit system. __ https://www.oftwominds.com/blogfeb19/China-Scurve1-19.html
China Slowdown and Employment Stagnation
Note: The “S Curve” is prominent in all types and scales of growth and innovation. It will pay dividends to become familiar with the S curve in its many manifestations.
I hear what you’re saying about China’s unsustainable debt. But you do need to consider that, unlike our unsustainable debt, the Chinese are at least investing in infrastructure. Yes, I know you keep pointing out the examples of shoddy construction. But the high speed train network, except for one accident, seems to be OK. The Chinese debt is, therefor, a form of investment. Our debt, on the other hand, is pure consumption, in the form of entitlements.
I know you are a Chinese pessimist. David Goldman, whom I also read a lot, is a Chinese optimist. I am somewhere in the middle between you and him.
Michael Pettis is the best source I know on the Chinese economic picture. One can also find a lot of good information by poring through Patrick Chovanec’s old China files. Pettis is still embedded inside Chinese academia, although Chovanec has departed the country a few years hence. It was probably wise of Chovanec to get out.
BTW, have you seen the film “The China Hustle?” Or read the book “Poorly Made in China,” or the follow-up book by the same author?
With all the western journalists and politicians conveniently paid off by Chinese Communist operatives, it is difficult to take conventional Sinophilia of Goldman’s variety seriously.