China is beginning to look somewhat less invincible thesedays:
(1) The following clips remind me of Dublin:
[ame="http://www.youtube.com/watch?v=ektMQGbW3wk"]YouTube- Chinese Economy 2009[/ame]
[ame="http://www.youtube.com/watch?v=0h7V3Twb-Qk&feature=player_embedded"]YouTube- China's empty city - 10 Nov 09[/ame]
(2) The banks are starting to look a bit more vulnerable too and are engaged in the same sort of off- balance shhet transactions that we are famous for .
China Banks? Capital Likely More Strained, Fitch Says (Update2) - Bloomberg.com
(3)To the bubbles and bad loans, add malinvestment and excess capacity in key sectors of the real economy:
China Overcapacity Wreaks Global Harm, EU Group Says (Update1) - Bloomberg.com
Key Quote :"China’s own economy is the main “victim” of excess capacity, the chamber said. Lower profits mean companies lack cash to invest in research and development and develop more valued-added goods, it said. Businesses are also forced to cut costs, contributing to slower wage growth and less consumption, the report added.
(4) Domestic demand is not looking like it willtake up much of the slack:
China Faces Difficulties in Maintaining Demand Growth (Update1) - Bloomberg.com
(5) Add to all of the above the following key observations about how the actually report GDP
China's Growth an Accounting Miracle - Minyanville.com
Key Quotes: "Once China had announced its 8 percent growth target, it began to disburse funds directed at a sharp increase in public works spending. It is important to understand that the disbursal of funds is recorded as GDP growth. So the government can easily control the pace of growth by the pace at which it releases funds that have already been allocated in the stimulus package to the creation of higher production or growth numbers. Funds disbursed for fixed-asset investment by state-owned enterprises or provincial governments are counted as having been spent when they are disbursed. In fact, the funds go out to the state-owned enterprises and provincial governments and may be held until actual projects are identified and undertaken."
"...Ambitious planners count shipments [consumer products] as retail sales while end-use demand may be absent. In such cases, the “sales” are made to happen by virtually giving away the products that have already been produced and counted as GDP growth."
If we put them all together- malinvestment, bubbles,bad loans,overcapacity, weak demand and questionable figures-the picture doesn't look all that healthy. Their tactic of postponing necessary corrections through the expansion of money can only serve to delay a necessary economic rebalancing, and Japan of the 90s is the classic example of what can happen with malinvestment and hidden debt. How long can the Chinese keep this up?