The Gloom in China's Glowing Economic Stats
Daniel Fisher, 08.19.09, 06:00 PM EDT
Forbes Magazine dated September 07, 2009
http://www.forbes.com/forbes/2009/0907/outfront-global-gloom-in-china-economic-stats.html
A curious article appeared in People's Daily, China's state-owned newspaper, a few weeks ago. It detailed how citizens were ridiculing a government statistic suggesting wages had risen an improbable 13%. According to the paper, the new sarcastic catch-phrase circulating on the Internet is "I've been given a raise."
China bulls beware: When the mouthpiece of the Communist Party of China questions the country's economic statistics, investors should take cover.
Officially, China is firing on all cylinders. The China National Bureau of Statistics reported gross domestic product increased 7.1% in the first half of 2009 over year-earlier levels, down only slightly from the 9% growth rate for all last year. Sales of textiles, cement, soft drinks, tractors and automobiles grew at double-digit rates. The Shanghai stock market is up 86% since January.
But behind those numbers is an unprecedented expansion of the country's money supply. The government has poured $586 billion into a stimulus program it started this year to combat the world financial crisis. Banks have issued new business loans at four times the rate of last year.
If that spending stops--and there are hints that the government is trying to put on the brakes--China's economic growth rate will stall. It might fall all the way to zero, says Albert Edwards, global strategist at France's Soci??t?? G??n??rale.
If China falters, it would remove one of the most important props supporting whatever economic recovery is under way.
Part of the effect would be psychological. Stock market gains in China likely have bolstered markets in the U.S. and Europe, as investors are made bolder by the paper wealth they've accumulated in their international mutual funds.
"Of all the major bubbles I've seen over the last few years, this is the one investors really want to believe in, because there's so little else to believe in," says Edwards. "The Chinese story falling apart will be a far bigger shock to investors than if the U.S. doesn't go into recovery."
Daniel Fisher, 08.19.09, 06:00 PM EDT
Forbes Magazine dated September 07, 2009
http://www.forbes.com/forbes/2009/0907/outfront-global-gloom-in-china-economic-stats.html
A curious article appeared in People's Daily, China's state-owned newspaper, a few weeks ago. It detailed how citizens were ridiculing a government statistic suggesting wages had risen an improbable 13%. According to the paper, the new sarcastic catch-phrase circulating on the Internet is "I've been given a raise."
China bulls beware: When the mouthpiece of the Communist Party of China questions the country's economic statistics, investors should take cover.
Officially, China is firing on all cylinders. The China National Bureau of Statistics reported gross domestic product increased 7.1% in the first half of 2009 over year-earlier levels, down only slightly from the 9% growth rate for all last year. Sales of textiles, cement, soft drinks, tractors and automobiles grew at double-digit rates. The Shanghai stock market is up 86% since January.
But behind those numbers is an unprecedented expansion of the country's money supply. The government has poured $586 billion into a stimulus program it started this year to combat the world financial crisis. Banks have issued new business loans at four times the rate of last year.
If that spending stops--and there are hints that the government is trying to put on the brakes--China's economic growth rate will stall. It might fall all the way to zero, says Albert Edwards, global strategist at France's Soci??t?? G??n??rale.
If China falters, it would remove one of the most important props supporting whatever economic recovery is under way.
Part of the effect would be psychological. Stock market gains in China likely have bolstered markets in the U.S. and Europe, as investors are made bolder by the paper wealth they've accumulated in their international mutual funds.
"Of all the major bubbles I've seen over the last few years, this is the one investors really want to believe in, because there's so little else to believe in," says Edwards. "The Chinese story falling apart will be a far bigger shock to investors than if the U.S. doesn't go into recovery."
