Sunday, August 19, 2012

The Coming Chinese Economic Collapse

Even FT knows it's coming. Writes the paper:
When Wen Jiabao, the Chinese premier, announced this year’s annual growth target of 7.5 per cent in March, most analysts assumed he was being unduly modest and that the world’s second-largest economy would actually expand much faster.

The Chinese economy has consistently outperformed annual targets over the past decade, averaging close to 11 per cent growth over that time, despite the 2008-09 global financial crisis...

But with activity cooling much more than expected in recent months the 7.5 per cent target is starting to look ambitious.

Most economists still believe China is in the midst of a gradual and manageable “soft landing” slowdown but some are beginning to wonder whether the economy may be in for a much rougher time...

“There is persuasive evidence to conclude that the Chinese economy is actually growing at just 4 or 5 per cent right now based on a composite of other indicators,” says Patrick Chovanec, a business professor at Tsinghua University in Beijing.

“Of China’s 9.2 per cent GDP growth in 2011, 5 percentage points came from investment which means that if China builds just as many roads, bridges, condos and villas as it built last year and no more it will knock five points of this year’s GDP growth. Growth is dependent on ever-rising levels of investment in an environment where that investment is not creating adequate returns.”

Almost all of the current "growth"  is phony, comprised of the phony make work projects that have no economic value. When the Chinese collapse becomes clear, it will be viewed as one of the greatest financial and economic collapses in history. Naturally, it will be blamed on China moving "too rapidly into a free market economy." The truth will be the opposite, too much central planning from regulations to money printing that distorted the free market structure.


  1. A measure like GDP or any other for that matter only has relevance and significance in telling a story about economic "growth" in a substantially free market. The whole point of an economy is to serve subjective wants and needs. The degree to which an economy is not serving subjective wants and needs but is being orchestrated in a top-down fashion is the degree to which a figure like GDP represents not "economic" activity and "economic growth" but just... activity, with no qualitative factor like "growth" or otherwise able to be appended to it.

  2. Indubitably. China's edge has been cheap labour. Yet more businesses go to China wages rises. Not to mention Europe is now installing robots capable of complex assembly that are cheaper than Chinese workers. I also agree that China's economy was never particularly free at all.

  3. I have an idea, lets not include government spending in GDP.

    1. I have a better idea: let's SUBTRACT government spending from GDP.