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The Global China Bubble
China’s Grim Outlook

After recovering somewhat from their terrible January, Asian stocks have been sliding the past three weeks on renewed fears about China. According to the WSJ, the economic outlook for the Middle Kingdom just keeps getting grimmer:

At a recent workshop hosted by the Council on Foreign Relations, a nonpartisan U.S. think tank, participants—35 or so academic economists, Wall Street professionals and geopolitical strategists—lined up around three different growth scenarios for China. Only 31% chose the optimistic one, defined as 4% to 6% annual growth, dependent on leaders successfully implementing reforms; 61% foresaw a “lost decade” of 1% to 3% growth; the rest thought a so-called hard-landing, or contraction, was most likely.

Of course it wasn’t a scientific survey, but what’s interesting is that apparently nobody considered the possibility that the Chinese government could deliver on its promise of “medium to fast” growth, meaning 6.5% or higher.

If the old-style bulls are virtually extinct as a species, a major reason is widespread skepticism that the Chinese leadership under President Xi Jinping is focused on economic transformation.

Instead, Mr. Xi’s attention seems to be fixated on his anticorruption drive, cracking down on internal dissent, bringing the media to heel, firming up his control over the security forces and challenging the U.S. for dominance in the South China Sea.

It isn’t just that the crackdowns come at the expense of economic reforms, either. Xi has been firming up the Party and centralizing authority precisely because he fears for China’s economic future. If the CCP can’t deliver rising living standards and employment as it has for decades, it needs a new grip on power. The more we learn about China’s economic fundamentals, the better we understand what Xi is facing, and perhaps even what he knew was coming years before the markets did. Xi believes the Party is the only political entity capable of ruling China, so hatches must be battened as the storm clouds swirl overhead.

If both Xi, an the economists who now say 4-6 percent growth is optimistic, are right, then that means the global economy is probably headed for a quite rough patch. Many governments and companies—particularly in developing countries—invested in factories and mines to feed the Chinese dragon; the collapse in value of all those assets is going to send even more shockwaves around the world.

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  • Anthony

    The year of the Monkey is well into its third month and the rest of the world must hope that China’s authorities will soon start to live up to the Monkey’s supposed cleverness. So far, the evidence is unconvincing. The Shanghai Composite Index dropped by 18% in the first two weeks of 2016, and has endured lesser falls since then; the renminbi has been on a downward trend since late 2014; and economic growth continues to slide. In short, it looks to many people as if China has lost the plot.

  • Dhako

    I hate to rain on the gloom-and-doom parade of the TAI’s folks, particularly when it comes to China. For this sort of spin about China seems to be their merit-less sport. And, indeed its a good sport for them to indulge in, since it allows them to truly avert their gaze away from the political and economical crack-up of the US’s alleged exceptional-ism in the form of that blow-hard Donald Trump, who is calling out the true economical reality of the US’s. And in particularly he seems to be calling out the reality of the hopeless Rust-Belt denizens losers, who in turn have finally learned that their USA is really the nearest “economical equivalent” of the “emperor cloths”.

    Or at any rate, they seemed to have realized that they been hard good when they were sold a “bill-of-goods” in the form of a free-trade and global free market, which only had the salutary effect of “exporting” their low-skills manufacturing jobs in their Rust-Belt regions, to a various corner in the world.

    However, be that as it may, with sport and all, may I take the trouble of informing with a different perspective of what is going on in China to the folks of this rag-sheet (or at least those who come to peruse it) lest they allow themselves to believe their own delusion about China. And, here is the good news about China. And I am sure of it, it will displease the gloom-merchants about China in this outfit.

    “China stabilises but economists warn on stimulus risk” –

    • RedWell

      Good example of the propaganda generated by an insecure regime and brittle ideology. Thanks!

    • Tom

      And y’all are still, somehow, worse off than we are.

    • Jim__L

      Could you put counterexamples in your own words, instead of just linking to another post?

      I think everyone here would be very interested to hear specifics from you about how China is doing.

  • Jacksonian_Libertarian

    “the better we understand what Xi is facing, and perhaps even what he knew was coming years before the markets did.”

    Xi has had access to the “Real” numbers, and knows that the Foreign investors responsible for the so called “Chinese Economic Miracle” have been leaving and taking their capital with them for over 2 years now. Over $1 Trillion in foreign currency left China in 2015, and the rate of capital flight has been increasing. If we judge China’s economy by the logistical numbers rather than accepting the Government Numbers at face value, the Chinese economy looks much different. Imports of raw materials have fallen 30%-40% in 2015. Railroad freight tonnage is down 12% (government number), electricity generation is down, 1.8 million coal and steel workers have been fired in only one region. All of these numbers add up to a crashing economy that has been shrinking for over a year.

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