If China’s Economy Hits a Wall, Look For the Little Things

Thursday, April 18, 2013 21:17
Posted in category The Big Picture
Comments Off on If China’s Economy Hits a Wall, Look For the Little Things

CNBC recently quoted Patrick Chovanec twitfeed in their article Has China’s Economy Hit a ‘Dead End’?:

“Slowing first quarter 2013 GDP [gross domestic product] growth despite massive credit expansion, much of it off balance sheet, spells bad, bad news for the Chinese economy,” […] When “exploding” credit growth is met by slower economic growth, this equates to a “dead end,” he added

It certainly is not the first piece that Patrick has written warning of dire consequences to China’s model, but the above line fed into several conversations I have been having about the durability of the economy and the anecdotal “little things” that are appearing.  Taxis are easy to get during rush hour.  Restaurants are empty.  Planes are running half capacity.

PErhaps it is due to H7N9, or the weather getting better, but in another recent CNBC piece ‘Absurd’ Chinese Trade Data Confound Analysts, the following paragraph reminded me games that were once played in the run up to the financial crisis

“While total export growth of 10 percent year on year in March is far more reasonable a number than in January and February, the breakdown of exports by destination veers towards the absurd,” Thornton said, pointing to the fact that China’s exports to Hong Kong, which are re-exported to the European Union and the U.S., grew by an astounding 93 percent year on year in March, but exports to the EU contracted by 14 percent and to the U.S. by 7 percent.

“With pretty weak growth in the EU and the U.S., which are two main global demand centers, we were surprised that China is reporting very healthy trade numbers – there was 20 percent [export growth] in the last month and now 10 percent this month,” Thornton said

It goes without saying, that if H7N9 turns into a full blown crisis, the Chinese economy is going to experience an artificial dip as the masses weather the storm behind closed doors, but if the above passages are really a sign of deeper economic issues, then the artificial dip is going to only exacerbate what is an unsustainable economic model.

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