Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why China’s Economic Growth is More Bark Than Bite

Economics / China Economy Nov 01, 2010 - 11:33 AM GMT

By: Investment_U

Economics

Best Financial Markets Analysis ArticleCarl Delfeld writes: Is the great Chinese locomotive destined to run off the rails?

It is, according to renowned short-seller, Jim Chanos.


But is he right this time? After all, as recently as 1990, China’s GDP was roughly equal to that of Taiwan. Today, it’s 10 times bigger. And there’s no question that the country’s incredible growth story has pulled many millions from poverty.

I must admit that I’m sympathetic to China skeptics like Chanos. Why? Let’s dig in and I’ll show you why the China hype is overblown…

Three Factors That Could Slow Chinese Economic Growth

Allow me to throw some eye-opening statistics your way…

•Industrial Growth
Already into its 13th year, China’s investment-led industrial growth is now very long in the tooth. Research by Pivot Capital Management shows that the longest previous period of investment-led economic growth was nine years (in Thailand and Singapore). But China’s real fixed investment has increased at a faster rate than GDP in nine of the past 10 years.

Investment is at 70% of GDP and the return on every marginal dollar invested in China is decreasing. In 2000, it took $1.50 of credit to generate $1 of GDP. But by 2008, it took $7 of new credit to generate a $1 increase in GDP.

China’s bank lending explosion has led to credit-to-GDP rising to 140% – levels equal to America in 2008 and Japan in 1991 just before their market meltdowns.

•Overheating Economy
That heavy investment has led to substantial overcapacity in China’s manufacturing, real estate and infrastructure, as well as deteriorating credit quality and weakening export markets.

Examples of China’s overcapacity include its steel industry, which is equal to that of America, Japan, Russia and the 27 European Union countries put together. And its aluminum capacity is eight times larger than America on a per capita basis.

•Politics
China’s brittle political system makes the chances of adjusting to consumer-led economic growth remote at best.

The end result? These factors will lead to a growth rate far below what the markets expect. In turn, that will lead to a China crisis, which will only accelerate as the global macro picture shines the spotlight on China’s shrinking export markets and industrial overcapacity.

I’m not the only one who thinks so…

You Think U.S. Unemployment is Bad? Try China…

“There are worrisome signs that China just doesn’t get it, that it’s clinging to antiquated policy and economic growth strategies that pre-suppose a classic snapback in global demand.”

So says Stephen Roach in The Next Asia.

Since the Communist Party bases its legitimacy largely on producing high levels of economic growth and employment, internal pressures and sharp divisions on how to deal with the slowdown within the party will emerge. Analysts already believe that unemployment is over 10% – and will worsen to uncomfortable levels.

China Losing its Competitive Price Advantage

China’s role as a low cost base for global manufacturing is also less compelling, given the logistical issues associated with the supply lines spanning the Pacific.

Apix Partners studied five manufacturing segments over a five-year period and found that China’s pricing advantage for goods arriving in California, relative to domestic prices, has declined from 22% to just 5.5%.

And then there’s the issue of China’s queasy public finances. Can you say “debt bubble?”

Following America and Western Europe Down the Debt Trail

Pivot’s research shows that rather than China having a manageable public debt-to-GDP ratio of 35%, the inclusion of off balance sheet items like local government bond guarantees brings this number closer to an uncomfortable 62%.

In addition, China’s non-performing loan data is clearly being managed, as it doesn’t include the $200 billion worth of bad loans from China’s top four state-owned banks that were moved “off balance sheet” to state-run asset management companies.

This expansion in state-owned bank lending power should also dampen hopes that China will turn more control and ownership over to private capital and management. For proof, look no further than China’s 10 largest companies, which are all state-owned or controlled, as are 34 of the top 35 companies on the Shanghai exchange.

So could China fulfill bold predictions that label it the long-term growth story of the century? Perhaps. But a closer look behind the headlines is enough to raise doubts about the sustainability of China’s economic growth, as noted by investors like Jim Chanos.

And when it sinks in that China, rather than a provider of global growth, is actually in the same slow-growth/high debt boat as America and Western Europe – and without durable political institutions – all bets will be off.

Good investing,

Source: http://www.investmentu.com/2010/November/chinas-economic-growth-more-bark-than-bite.html

Carl Delfeld

http://www.investmentu.com

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules