China’s new Clothes

(Do you remember The Emperor’s New Clothes? Well…)

Reality Check: How Fast is China Growing? Global Recession at Hand

Michael Shedlock
March 12, 2015

How Fast is China Growing?

Analyst estimates of Chinese growth keep getting lower and lower. … I assumed China was growing slowly. After all, 7% is one hell of a lie. However, I now wonder if China is growing at all.

What caused my double take was a fascinating presentation by Anne Stevenson-Yang, Co-Founder of JCap and author of China Alone: The Emergence from, and Potential Return to Isolation.

(Some of his notes on the video follow:)

Debt matters – $30 Trillion – up $9 trillion since 2008
Debt is 200-300% of GDP counting Shadow Banks. …

If the average interest rate is 7% (banks 6% shadow banks 10%), economy would need to grow 21% in real terms to service debt. …

100% of new credit goes to rollovers.

Zombie economy effect … Growth subzero this quarter. No way economy is growing. …

Massive overcapacity …

Policy is not about jobs but about keeping money flowing. … Amount of capital required to keep rolling things over has reached a dangerous level. …

Property 20% of GDP and tracking negative (sales and pricing). Overcapacity (in real estate) is absolutely obscene … 50 million vacant units. At height of US bubble, US built 1.2 million homes. …

Capital flight …

Yang made her presentation on February 24. Since then, many others are questioning China’s growth. For example, on March 5th the Washington Post asks Is China’s 1929 Moment Coming?

China may be growing, but even 4% is not only a hard landing but a huge problem. …

Global Recession at Hand

The spillover effects of a China slowdown on Australia, Canada, and Brazil are now widely recognized. Spillover effects of a China slowdown on the US and Europe have yet to manifest in a huge way. But they will.

The US dollar is soaring and without a doubt that will hurt US exports. If China lowers the yuan to compete with Japan, an all-out currency war looms …

For a discussion on a potential currency crisis and a dollar shortage, please see Is There a US$ Shortage? Will it Sink the Global Economy? Again?

The US economy is nowhere near as strong as it seems. With factory sales down 6 months, I am sticking with my US recession call made in January. …

Finally, Europe is a complete basket case. Few understand that Greek debt cannot be paid back.

Add a US recession, European recession, and a China recession (or huge slowdown) together and there is only one conclusion: a global recession is at hand. Hardly anyone sees it coming.

Mike “Mish” Shedlock

(Read the whole article here.)

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