Friday, July 13, 2012
News Forward: China gets worse
In what seems to be a general theme these past couple of months, things are getting worse for China. MSNBC reports the slowest growth rate in 3 years. Now you might say, but Cogitans, their growth rate is at 7.6%, that isn't exactly suffering and most developed nations would kill for a growth rate at that level. And yes on the surface that seems the case, however, as the article mentions, the data being presented from the Chinese is highly circumspect, even some of the highest leaders in the Communist Party admit as such. Whether using coal consumption or electricity usage, the metrics show that economic growth is decreasing, or perhaps even contracting, its tough to say for sure. But here are some things are known.
1) Much of China's growth recently has come from their stimulus program, which relied heavily on infrastructure projects. I have said this many times but these kind of projects can have a long term negative GDP impact.
2) China's consumption is no where near the levels it needs to be for their production, so they are an export based economy. Which means that if other markets, can't or won't purchase their goods then they will have economic troubles. With the two largest consumption markets, America and Europe, struggling this means economic woe for China.
3) Real estate bubble. Yes, there are some that argue that China's property market won't collapse, but I tend to ignore these. You can make up a whole host of convoluted arguments on why so many things are good. But I have found that the analysis of the most simple metrics is generally more accurate than whatever super duper formula some whiz kid thought up. China's real estate market is in great excess of real demand. That's a bad thing.
4) And lastly, and perhaps the most important point of all. There is no such thing as controlling an economy. You just can't do it. No matter how smart or how knowledgeable your team is, they are doomed to fail. And given that those in power are often the most economically illiterate of us, well, we should simply call technocracy the top men fallacy. China is not doing anything that the USSR, Japan, France, or the Asian Tigers has not already done before it. We know how this story ends.