{"id":14162,"date":"2017-02-21T22:28:44","date_gmt":"2017-02-21T14:28:44","guid":{"rendered":"http:\/\/chinaworker.info\/?p=14162"},"modified":"2017-02-25T00:55:28","modified_gmt":"2017-02-24T16:55:28","slug":"chinas-economy-bubble-bubble-bubble","status":"publish","type":"post","link":"https:\/\/chinaworker.info\/en\/2017\/02\/21\/14162\/","title":{"rendered":"China\u2019s economy: \u201cbubble, bubble, bubble\u201d"},"content":{"rendered":"

Warnings of debt crisis get louder<\/strong><\/p>\n

chinaworker.info<\/p>\n

China\u2019s economy made a shaky recovery last year, which continues into the Year of the Rooster. But short-term growth has been bought at a huge cost, by injecting record levels of credit into the economy and thereby magnifying longer-term financial risks. This is the bleak reality behind the dictatorship\u2019s public message that the economy has \u2018stabilised\u2019 after the financial turmoil of 2015.<\/p>\n

Beijing\u2019s policies \u201cechoed back to the era immediately following the [2008] global financial crisis\u201d, commented the US-based Business Insider website. It pointed to \u201cdebt and state-backed infrastructure investment, along with a loosening of housing market restrictions\u201d.<\/p>\n

The numbers involved are eye watering. Last year, total social financing (TSF), a broad measure of credit in the economy, expanded by 17.8 trillion yuan (source: People\u2019s Bank of China). That is equivalent to 24 percent of last year\u2019s GDP (74.4 trillion yuan). Even this sum does not include all new loans from the shadow banking sector, which have risen sharply in recent months as the central bank has tried to rein in banks\u2019 official lending. So, the real picture is even more serious. This shows an economy that is \u201crunning in order to stand still\u201d.<\/p>\n

It means that Xi Jinping\u2019s regime, facing acute challenges due to global economic and political upheavals (Trump, shrinking trade and protectionism) and the threat of instability at home (social unrest and intra-regime power struggle) has abandoned, at least temporarily, attempts to get control over the debt problem. The trend is confirmed by the data for January 2017, which shows new loans (TSF) hitting a new monthly record of 3.74 trillion yuan.<\/p>\n

The IMF warned last October that China is facing \u201cfinancial calamity\u201d. Markus Rodlauer, deputy director of the IMF\u2019s Asia-Pacific department, said that unless China\u2019s debt levels are brought down it risks a financial crisis that could have \u201cvery serious repercussions\u201d for the global economy. Such warnings are echoed by numerous global institutions and banks and even by some Chinese officials.<\/p>\n

\"\"<\/p>\n

Weakest growth for 26 years<\/strong><\/p>\n

China\u2019s GDP growth was 6.7 percent last year, the lowest for 26 years. Most people are sceptical to the official figures and believe real growth could be significantly lower. Dutch financial company Rabobank estimates real Chinese growth is currently around 4.5 percent. The credit-driven \u2018recovery\u2019 means that while the headline GDP figures cannot be trusted they are probably not as fake as the figures for 2015. Even the government\u2019s statistics boss railed against \u201cdata fraud\u201d recently. Ning Jizhe, the head of the National Bureau of Statistics (NBS), threatened severe punishments for officials who make up fake statistics. The statistical gap between China\u2019s national GDP and the sum of its provinces is 2.76 trillion yuan \u2013 equivalent to Thailand\u2019s GDP.<\/p>\n

Recent growth has primarily been driven by the real estate bubble, mostly but not wholly in the biggest \u2018first tier\u2019 cities. This is based more than ever on financial speculation and debt. Mortgage lending has increased sharply, and made up the largest share of bank loans last year, a radical change from the past.<\/p>\n

Housing is not the only sector where speculative bubbles are forming; this is also the case in commodities \u2013 with speculators gambling on energy, metals and agricultural prices as a substitute for the lacklustre stock market. This has led to a partial reversal of Beijing\u2019s capacity curbs, with some provinces reopening mothballed coal and steel plants to take advantage of the rebound in prices. After four years of heavy losses and a collapse in prices, coal mining profits jumped 156 percent in the first eleven months of 2016. This is a largely artificial boom fuelled by speculation, which in turn is fuelled by debt. It also produced the record-breaking smog that has choked most of northern China during the winter.<\/p>\n

Political imperatives<\/strong><\/p>\n

Economists worry about the sheer amount of money now churning around the Chinese economy. This is because profitable investments in the real economy are few and far between. Increasing capital flight, driven by fears the yuan has entered a cycle of depreciation, is another reflection of this problem. With Beijing tightening capital controls (although these can never be fully effective) the hot money trapped inside China is blowing up financial bubbles rather than going into productive investments.<\/p>\n

\u201cYou have this huge amount, nowhere to go,\u201d argues Derek Scissors, chief economist at the China Beige Book, a US consultancy that conducts surveys with Chinese companies. \u201cYou can\u2019t handle that size of money stock other than bubble, bubble, bubble,\u201d he told CNBC. If we look at so-called \u2018M2\u2019 money supply \u2013 a measure that includes cash but also less liquid assets such as savings deposits, money market securities and mutual funds \u2013 China now has about US$9 trillion more money in circulation than the US with an economy around 50 percent bigger. In 2011, China had only US$2 trillion more.<\/p>\n

To sum up, there is nothing sustainable about the current \u2018stabilisation\u2019 of the economy; it has been achieved by inflating new debt-financed bubbles (housing and commodities) to fill the gap left by the collapse of the previous bubble (stock market). Skipping from bubble to bubble is clearly not a sustainable economic strategy. But for political imperatives \u2013 the fear that a sharp economic downturn could destabilise Xi Jinping\u2019s rule \u2013 the regime is gambling its economic future in order to avoid an immediate crisis.<\/p>\n","protected":false},"excerpt":{"rendered":"

Warnings of debt crisis get louder<\/p>\n","protected":false},"author":33,"featured_media":14163,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"tdm_status":"","tdm_grid_status":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-14162","post","type-post","status-publish","format-standard","has-post-thumbnail"],"yoast_head":"\nChina\u2019s economy: \u201cbubble, bubble, bubble\u201d - China Worker<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/chinaworker.info\/en\/2017\/02\/21\/14162\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China\u2019s economy: \u201cbubble, bubble, bubble\u201d - 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