Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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