China's 8.9% Growth? No Way

Discussion in 'China' started by Daredevil, Oct 25, 2009.

  1. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,669
    China's 8.9% Growth? No Way

    Gordon G. Chang, 10.23.09, 12:01 AM ET

    On Oct. 22, Beijing announced that gross domestic product grew by 8.9% in the third quarter of 2009 compared with the corresponding period last year. The National Bureau of Statistics also reported that growth for the first three quarters was up 7.7%.

    The 8.9% figure confirmed the economy's upward trend. Growth, according to official statistics, tumbled to 6.1% in the first quarter, well off the double-digit figures seen in 2007 and the first half of last year. The economy picked up during this year's second quarter, when it expanded 7.9%. Now it is clear that China will attain for 2009 at least the 8% target that Premier Wen Jiabao set in January. China's leadership is evidently satisfied. As the State Council noted on Wednesday, "The positive trend of recovery has been consolidated."

    How could it not have been? Since last November, Beijing has spent perhaps as much as $900 billion--from its own funds as well as those of the larger state banks--to jump start its $4.3 trillion economy. No government can disburse that amount of cash without creating some economic activity.

    Yet China's economy, for all the stimulus it has received in 11 months, is underperforming. As an initial matter, reported third-quarter growth was slightly below the 9.1% consensus estimate of economists. More important, it is unlikely that 3Q expansion was anywhere near the claimed 8.9%. This claim is not consistent with other statistics. The economy, for example, is still dependent on exports: Before the massive government spending, about 38% of GDP was attributable to sales abroad. Yet exports tumbled 23.0% in July, 23.4% in August and 15.2% in September. Another important indication of slowing activity was the third-quarter drop in imports. They fell 14.9% in the first month of the quarter,17.0% in the second and 3.5% in the last.

    And what took up the slack? The other two legs of the economy are, of course, investment and consumption. On consumption, retail sales, a crucial indicator of activity at China's shops, zoomed up during the last quarter, increasing by no less than 15.2% in any of the three months of the period.

    There are fundamental problems with this key statistic, however. First, Beijing includes government purchases in the number as well as goods shipped from factories but not yet sold to consumers. Because the retail sales figures include these extraneous items, it is no wonder they do not correlate with statistics showing consumer price declines in each month of the July-September period--down 1.8%, 1.2% and 0.8%--plus increases in M2 in all three months. In September this broad measure of money in circulation jumped 29.3% after increasing 28.4% and 28.5% in the two prior months.

    Because these numbers are consistent with trends evident throughout the year, we have to ask a simple question: How can a country have robust consumer sales, nagging deflation and rapid monetary expansion all at the same time? One reason is that vast quantities of consumer goods are now sitting in warehouses.

    Beijing, in the 1990s, ordered factories to churn out goods in periods of low demand, and there are indications that officials are resorting to this tactic now. While optimistic analysts point to astounding car sales--up 70.5% in July, 94.7% in August and 83.6% in September--there are reports that central government officials have ordered state enterprises to buy fleets of vehicles and that these businesses are storing them in parking lots across the country. These stories are as yet unconfirmed, but they are consistent with statistics showing that gasoline sales have been flat this year--up only 6.4% in August, for instance, and sliding since then from all indications. So here's another question: At a time when economic activity is supposedly rising at a quick pace, how can large increases in passenger vehicle sales not be accompanied by corresponding surges in fuel usage?

    The answer is that Beijing's statisticians have gone back to their old tactic of making up figures to support the Politburo's predictions. The Chinese economy is probably growing due to state-led investment, but it cannot be doing so at the rates claimed. Wen Jiabao's stimulus plan is, above all, grossly inefficient. For all the money he is pouring into the economy, the country is getting a small return in economic output. That's why Premier Wen, despite the high growth numbers he's been reporting, consistently refuses to end his stimulus program. If his numbers were real, he would be worried about overheating. But he's apparently not.

    Of course, Premier Wen should be concerned about the imbalances and dislocations that are developing due to his spending. Global investors immediately sent equity markets lower after Beijing's announcement of third-quarter growth as they were spooked by, among other things, China's over-reliance on stimulus and the lack of private investment.

    They have every reason to be concerned. To create a "sugar high" of growth, China's central officials are busy renationalizing the economy, burdening the state banking system with loans that will go bad, undermining consumption by promoting investment, building excessive industrial capacity and engaging in mercantilist tactics to promote exports. The credit surge they're engineering will probably end up making Chinese enterprises less competitive, just as Japanese companies choked on too much money during their great bubble. The temporary advances in prices for Chinese stocks and property, the direct result of diverting Beijing's stimulus money into unproductive uses, are bound to scar the economy next year.

    In the meantime, however, Beijing will continue to boast about its economic management . As a National Bureau of Statistics spokesman said on Thursday, "We can say we have made obvious and remarkable achievements in our economic growth." Unfortunately, for the Chinese people and the rest of us, that is not true.
     
  2.  
  3. redragon

    redragon Regular Member

    Joined:
    Sep 20, 2009
    Messages:
    928
    Likes Received:
    36
    will this be the first time ever that Gordon is right?
     
  4. Vladimir79

    Vladimir79 Defence Professionals Defence Professionals

    Joined:
    Jul 1, 2009
    Messages:
    1,404
    Likes Received:
    65
    Right about what? He isnt' making any predictions this time, just laying out the facts. Everyone knows China's 9% GDP growth is bogus in this global climate.
     
  5. redragon

    redragon Regular Member

    Joined:
    Sep 20, 2009
    Messages:
    928
    Likes Received:
    36
    Don't exagerate, not everyone thinks that way, at least I have been reading a lot articles in major western media saying China is doing great. I don't know which expert is right, but I do know it's getting very difficult to hire enough migrate workers in east coast now, and I also know what happened around my family, my friend and my city, I have my own judgement on what is right or wrong. I think the glogal investment funds are so prefer China for reasons, including funds from veteran investor Waren Buffet, are you telling me all of them are stupid?
     
  6. Vladimir79

    Vladimir79 Defence Professionals Defence Professionals

    Joined:
    Jul 1, 2009
    Messages:
    1,404
    Likes Received:
    65
    Why Western investment funds prefer China? Because Western credit ratings are about propping up their profits of which they did before the US housing crises... case in point, the Moody SEC investigation. They can no longer get away with it in the US, now they get away with it in China creating the same asset bubble seen there. European investment in China is pulling out at rapid rates since they have wised up to the situation, instead opting for Russia.
     
  7. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    Well I won’t completely write off the numbers, what has been pointed out is more a case of methodology than complete fudging of numbers. This is something that is being planned for the future, and certainly not for today. These growth figures are in no way the exact reflection of what is happening in the prc today.

    If the figures are to be based purely on consumer spending then surely these will look like fudged figures which would most likely mean the actual growth at around 7-8% but then there is nothing to suggest that all the data that needs to be collected has to be based on consumer spending. here we can take a case of a company, which is least interested in how the sales in the consumer market is happening but more interested in the sales they do to their dealer/distributor.

    When I say future, for better understanding, we can take the case of satyam, where they fudged the figures big time (something that happens right across the board, by companies and countries alike) and always thought they could make up for those figures in future but unfortunately when raju tried to do it fearing a hostile takeover he failed miserably. It’s a cat and mouse game, if you fail you get gobbled up, if not well then for times to come you are seen to be successful.

    These figures will get adjusted in future by showing less growth than what has been achieved, hopefully they will do it or else they will be building a frankenstein which could crush them under its own weight. Aim of the exercise as far as I understand is to keep the jobs intact, keep the confidence in the populace that all is well, when in fact the things are not as good, and keep the overseas investor interested especially when the need for fii, fdi and venture capital is felt the most, though one is certainly playing with fire, but then that is the nature of business.

    ADDED LATER:

    as a matter of fact i was wondering what are the accountability and cross check measures put in place in the prc where there is an autocratic rule where no one is allowed to cross question the ccp on the figures they release. because of this "no accountability", they can keep inflating their numbers endlessly and will never get caught.
     
  8. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    attention:
    1.the writer is Mr. Gordon.Chang,that is notorious for his book" Coming collapse of China". the book was published ten years ago and now become a stock of laugh.

    Need I say more? here is a comment on Mr. Gordon.Chang on forbes.com


    2.Mr. Chang seems even not to know :"GDP=C(consumption)+I(investment)+G(government expenditure)+[X(export)-I(import)]"

    To the growth of GDP,export itself is nothing,while the (export-import) is something.
    although CHinese export falled much,but its (export-import) is still quite considerable.

     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

    Joined:
    Feb 16, 2009
    Messages:
    20,339
    Likes Received:
    6,290
    Gordon Chang is a Lawyer and highly respected author, his predictions may have been off because he gave a date, but for someone who is respected by many would not stake his reputation by making a claim like that without facts, he has given his reasons the Chinese communist government and the fact that exports are 45% of Chinese economy are two good reasons for the collapse,and most of the Chinese growth is really an infrastructure buildout which cannot be supported by low wages in the future which will make Chinese exports more expensive and less competitive.
     
  10. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Joined:
    Feb 19, 2009
    Messages:
    4,434
    Likes Received:
    1,719
    Location:
    Land of the GODS - "Dev Bhomi".
    Baddie,

    That is where we make a fundamental mistake, something even I used to make till not so long back, a notion which got cemented when “the economist” carried an article suggesting that exports had only around 5% impact on the prc’s gdp.

    Exports for the prc last fiscal was to the tune of 1.43t usd, now imagine the absolute figure for the exports for the prc was “0”, then what would have been the size of the prc’s economy. You will have to reduce 1.43t usd from the over all gdp of 4.32t usd, which would make it 2.9t usd, so exports have an impact on the gdp and as a % the “weight” it carries is a lot more than 300b usd or 7% (1.43t usd [exports]-1.13t usd[imports]).

    And the buck just does not stop there since a lot of investment taking place in the economy would be in the direction of industries specific for the exports which will again take a hit and if the sourcing of all such ram material is happening from with in the economy then well the consumption would also take a hit, so the impact is certainly a lot more.

    Just my observation, might be wrong as well.
     
  11. Vladimir79

    Vladimir79 Defence Professionals Defence Professionals

    Joined:
    Jul 1, 2009
    Messages:
    1,404
    Likes Received:
    65
    Chang went wrong in 1999 with his date of 2006 because he didn't think the CCP was going to be able to sweep their bad debt under the rug. The formation of AMCs managed to do that and he didn't see it coming. If they hadn't, he would have been right on target. China's strategy is to continue double digit growth to make their bad debt a smaller percentage of GDP, so far they have been able to cut it from 50% to 25%. With all the massive lending going on without assesment risk, that number is going to climb back up to historical levels unless they get exports back up to their all-time highs. They will argue that domestic consumption will replace falled exports, but they won't tell you that most of those companies are operating at heavy losses and they are waiting for exports to return to save their arses. The real tragedy in all of this is that all the money is going to make more crappy products and low quality housing instead of trying to make production more efficient with better quality.
     
  12. Daredevil

    Daredevil On Vacation! Administrator

    Joined:
    Apr 5, 2009
    Messages:
    11,613
    Likes Received:
    5,669
    This was my response to the forbes comment on Gordon Chang which you have also posted on the other thread.

    Well, this guy who wrote that comment looks like a CCP stooge. If the book is published in 2001, how this guy can take his advice from a future book and shorted Chinese markets in mid-1990s.:lol:

    It is better if you research a little bit and not post such stupid comments from somewhere.

    Next time you post this tripe it will get deleted Badguy.
     
  13. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    well.

    1.the balance of export and import is something to the growth of GDP.

    Just as my posted, to GDP itself, export is nothing,but {export-import) is something.

    case is that PRC's export fell,but its import fell more. it causeed more (export-import).

    2.however, the fall of export is something to the employment. when export fall, it may cause lots of lay-off.
    when many people are laid off, they may reduce their consumption.the reduction of consumption may cause fall of GDP.


    3.For time being, I have not seen any indication that chinese consumption is affected by "lay-off" .
    Instead, Chinese consumption is still growing rapidly.....the sale of autos even grow 70+% this year.
     
  14. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    [mod] next time you edit a moderated message I will ban you/ ok cool yourself for some time and come back [/mod]
     
  15. Vladimir79

    Vladimir79 Defence Professionals Defence Professionals

    Joined:
    Jul 1, 2009
    Messages:
    1,404
    Likes Received:
    65
    Chinese shipbuilders lower prices 40%

    If you folks really believe Chinese GDP increases 9% in this economic climate, look at what has happened in their huge shipbuilding industry.

    Over the past 18 months, Chinese and South Korean shipbuilding companies have lowered prices by 40%. Such a fall in prices due to the crisis and a sharp decrease in bulk carrier orders. For example, today the value of the vessel type Hendisayz "is $ 25 million and a half years ago the cost of the same ship was $40 million vessel type Keypsayz" now costs $ 56 million (in 2007 the cost of such a vessel was nearly $ 100 million) - there goes the transport business.

    Source: Korabel.Ru
     
  16. badguy2000

    badguy2000 Respected Member Senior Member

    Joined:
    May 20, 2009
    Messages:
    4,954
    Likes Received:
    611
    whenever I read those outdated "china to collapse" prediction, I can drive frustration away and feel easer...
     
  17. Ray

    Ray The Chairman Defence Professionals Moderator

    Joined:
    Apr 17, 2009
    Messages:
    43,118
    Likes Received:
    23,517
    Location:
    Somewhere
    Is the Chinese economy heating up?
     

Share This Page