Don’t count on us, it said.
It’s fascinating how Wall Street soothsayers and American industrial companies, such as automakers, hype the Chinese economy, even as Chinese government officials are getting cold feet about their economic miracle, as they’re gradually figuring out what’s going on in their construct. And now, they’re trying to prepare the world for what they see coming.
With economic growth down to the official rate of 6.7% in the first quarter, the slowest official growth rate since the Financial Crisis, soothsayers are busily pointing out that it’s still astronomical compared to the growth rates – if you can call them that – in the US, Europe, and Japan.
But now the People’s Daily, the official paper of the Communist Party and thus a government mouthpiece, published an exclusive interview with an unnamed “authoritative figure” – a description that is “usually used for high-level officials,” the paper explained. It even ran the article on its English-language site for the entire world to see.
This authoritative figure told the People’s Daily that the Chinese economy won’t see a V-shaped recovery, or a U-shaped recovery, or any recovery of economic growth, but an “L-shaped path going forward.”
So a decline followed by no recovery.
This authoritative figure warned about growing problems such as, according to the People’s Daily, “a real estate bubble, industrial overcapacity, rising non-performing loans, local government debt, and financial market risks.”
The very things soothsayers have been denying for years, and that hard-landing gurus have been pointing out for years. And so the People’s Daily:
High leverage is the “original sin” that leads to risks in the market for foreign exchange, stocks, bonds, real estate and bank credit, the person was cited as saying.
According to the authoritative figure, the country should make deleveraging a priority, and the “fantasy” of stimulating the economy through monetary easing should be dropped. The country needs to be proactive in dealing with rising bad loans, rather than hiding them.
The authoritative figure claimed that the Chinese economy still has “huge potential, high resilience, and ample leeway,” according to the paper. So based on this theory, economic growth “will not plunge, even without stimulus policies.”
China will avoid a massive stimulus plan to boost growth, which would have a short-term effect but risk long-term damage. Instead, the country has chosen a much harder but more sustainable path of development in pursuing supply-side structural reform….
This makes us wonder what this authoritative figure calls the massive stimulus happening in China right now, the new construction projects, the push by the government to get its state-owned banks to lend regardless of the out-of-control nonperforming-loan fiasco, the resulting phenomenal credit boom in the first quarter….
No matter. Wall Street soothsayers were disappointed. They were hoping for even more massive stimulus that would go beyond their wildest dreams.
Then came the cold shower for stock-market jockeys, according to the People’s Daily citing the authoritative figure:
The stock market, foreign exchange market, and real estate market should return to their respective functions instead of being used at means of maintaining economic growth, the source said.
Whereupon the Shanghai Composite Index fell 2.8% to 2,832, now down 45% from its recent high last June, and the Shenzhen Composite Index plunged 3.6% to 1,804, down 42% from its high in June. Because that’s what an “L-shaped path forward” looks like: a plunge, and then flat without recovery.
The export and manufacturing powerhouse of the world, the locomotive that the world has been counting on to pull the global economy out of its funk, is now saying through its official mouthpiece, without having to taint an individual politician, Don’t count on us!
Apparently, the Chinese government finally figured something out, and it’s prepping the world for what it sees coming.
And the data was once again “unexpectedly” bad and disappointed economists once again. Read… China’s Furious Stimulus-and-Debt Binge Backfires
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China has been listening to GATA for a while(we know this because they quote them). Before that, Ted Butler wrote to them. Not having a stable numeraire is good for the tax collector because purchasing power is eroded while the term “Millionaire” is still supposed to mean something. Maybe China will eschew confiscation thru inflation of the money supply for long-term stability. I don’t consider that my life has improved when I have to pay more hours worked for the same stuff I bought as a child. For example when I was a young person I could buy 20 candy bars for an hours work…now it is 10 candy bars for an hours work.
I wonder when China will actually clamp down on the money fleeing to safer havens? They could if they wanted to. They used to execute the guilty the same day of their trials, with a bullet to the back of the head. I guess the leaders will keep this plugging along until they get their own money out.
Talk about mixed signals. If wall Street can’t hype China any longer, what will they hype, Antarctica? Undersea mining? Renewables?
For some time I’ve been commenting that the parroting of the 6.7 number, (down from 6.9 after years of 7 -7 -7) by the BBC and Bloomberg and CNBC, was a case of being at best willfully blind. How can an export driven economy have this growth with exports down double digits?
Oh right, it’s moved to a consumer economy and according to Bloomberg the new jobs include baristas, barbers and (get this) baby sitting.
If I read this on WS I would assume it was satire but Bloomy said it apparently with a straight face.
It’s just incredible that a supposedly authoritative source could talk such nonsense- the millions of laid off workers, mostly male, in the heavy industries- coal mining, steel, aluminum, concrete etc. are supposed to become baby sitters?
A few months ago when the UK and China were getting cosy and the BBC faithfully read the gospel according to Xi ‘6.7’, I commented that they couldn’t possibly believe that- the comment was deleted without any yack about ‘community standards’
This will all have to be walked back soon- let’s just hope the ACTUAL number isn’t negative. But in the meantime how many members of ‘Trading Nation’ have made decisions based on a fable?
PS: the scariest ‘fact’ I’ve read, which I would be interested to see verified, is that the containers heading back to China from the US west coast ports are going back empty instead of full of scrap.
This means that even with free or near- free shipping (the container is going there anyway) China still doesn’t want the scrap.
Well said Nick.
I’ve heard Shanghai economics grads when questioned *believe actual growth is less than 1% or close to zero. I’m inclined to believe them
The reason is very simple: despite a whole century of failures, from Lenin’s War Socialism to Chavismo, some parts of the Western media and academia are still genuinely convinced central planning works. It only needs a few adjustments. China seemed to provide the success story they just needed to prove their point, nevermind the fact their policies have generally been more Merchantilism than Marxism-Leninism.
Now, regarding those laid-off workers: we all know the Communist Party of China values one thing above all others, and that would be social peace. Differently from our own politicians, academics and legislators, their Chinese colleagues are not merely expected but required to have a good knowledge of their country’s history. Which is a long succession of uprisings, civil wars, famines, warlords running amok etc.
In spite of the Cultural Revolution, Confucianism still runs deep and strong in the halls of power. To give an example Hu Jintao has appealed time and time again to the Confucian concept of “Harmonious Society”, a concpet his public is usually well aware of.
Confucius himself wrote that social disorder stems from a single cause, this being failure to perceive, understand and deal with reality.
The first step to avoid this slippery slope is what Confucius called “rectification of names”, which is akin to “calling a spade a spade”. To give a modern example if your economy is stagnating, you don’t call it a “robust recovery” or “weaker than expected growth”. You call it a “stagnation”.
Confucius understood perfectly well the power of words to both lull rulers into complacency and to anger the masses into thinking they are being fooled and amply warned against it.
Albeit the concept predates Confucius himself and he never wrote on the matter (his followers and disciples covered it extensively though), Chinese culture has long had a concept called “Mandate of Heaven”, which says that a ruler that doesn’t do his part towards building a just and harmonious society can be legally removed by his subjects. In short, like the original draft of the Magna Charta, it legalizes taking up arms against the government if this proves tyrannical or grossly incompetent.
The private sector thinks Central planning works, that’s why they have boards of directors to do all the Central Planning.
All I can say is, welcome to peak consumerism and tech stagnation.
We already have all the consumer stuff we need by this point, cars are still boring ass 4 wheelers with rubber touching the ground and no, shit like dumping 4K screens and faster LTE speeds onto phones its not “innovation”, its inflating spec sheets that does nothing in reality. That word is sooooo overrated and overused, just like the politician’s all-style-no-substance favorite pet phrase of “keeping things in balance”.
I’ll believe this when they cut credit creation for real.
Never gonna happen.
All sounds good. Just as I’ve predicted. Return of reality. Steady as she goes.
The world has flipped upside down from when I was a child in Omaha when the BUFFs were flying in and out of Ouffut AFB 24/7. Pravda is telling their readers the ought to adopt our Constitution as it worked well for 250 years and after all, the Americans aren’t using it anymore. Now this from the People’s Daily. From my own experience: when you find yourself about to crash the trick is not to panic. After the emergency you can suffer your fit of ague but not during. Nuff said.
If a 6.7% decline is the “official rate”, then the only thing one can be sure of is that the people who call themselves “government” want that information to be released. The issues now are wholly balanced against the psychological gamesmanship of guvmints. Particularly since the de facto national bank of the US has been asymmetrically increasing the monetary supply out of control since 1972.
When I was a child in Beijing, there seemed to be more bicycles than people. Today, cars and pollution fit the bill of modernity. So too have psyops changed to fit a different audience. You may have inadvertently hit the nail in the head when mentioning B-52 flights from Offutt. I submit that it is much more important what the notable incoming flight to Offutt was on 9-11-01 (where a POTUS command -not- to launch a nuclear strike could be verified in person). BUFFs today have Diego Garcia and that is the direct point: the military game drives a backend economy that is better controlled by governments.
I think he means an “inverted L” – so a massive boom followed by stability forever.
A inverted L? Well, in both finance and production that would be the ‘permanently high plateau’ that was claimed just before the 1929 crash. Unfortunately, historically, there is no permanently high plateau, just a series of conjoined inverted ‘V’s.
The L-shape is just what the authorative spokesman hopes it will be: the bubble pops, or rather deflates, and the economy carries on, just at a slower pace, with any expansion at a much slower rate. This also reveals the hope of every government forecaster: stability. Maybe not quite an ‘L’, more like a check mark with a gently upward final stroke.
What happened in China is equally a financial phenomenon and a productivity boom. Beginning before 2007 they mopped up every ounce of stragetic metals and materials they could get their hands on, using foreign exchange from exports, built cities, built their Olympic venue and hosted the Olympics, built military capacity, and outproduced everyone in the world. That can’t go on forever without a significant pause. Pipelines get full.
A sideways 8!
Forever boom. To infinity! And beyond!!!
One thing you can count on when it comes to the ‘numbers’ coming out of China is that they are an optimistic LIE.
With that as a starting point: if they are saying they think the party is over then it means the S##t is about to hit The Fan.
The thing left out of this article, that increases the negative velocity. A lot
chinas negative demographics.
Without a miracle, demographically. china, can not transit to an advanced consumer economy, in this demographic cycle.
An “L” would be nice. Then, we can pare int with next years 7 getting an L7 or ‘square’ as we used to call them….
Actually, confronting their DET problem, non-performing loans, and map-investment is not a bad thing. We might consider doing it here as well. We still have unreasonably low borrowing rates, and interest rates. Hey, with an actual inflation rate of 3% + (based ONLY on the costs of my life), safe earnings should gently exceed that. If you want to borrow money, expect to pay more. Why should you be offered a 30 year fixed term on a mortgage, why not only 10 fixed, the other 20 years based on rates at the time of renewal? Today maybe 5% in 10 years it might be 3% or 30% who can tell? Same with a 30 year bond -why chose those?
I still think the DEBT bomb will be the undoing of the matured economic countries, we are just too stupid for our own good.
How ironic and strange that the only major country currently attempting to rationalize its economy and society/culture as an operating capitalist economy with market feedback based on >>reality<<<, and willing to project likely outcomes, at least to some extent [and make policy changes accordingly] is the PRC. Perhaps after 3,000 years of experimentation and experience the U. S. will do the same.
From my on the ground observation:
population density of major Yangtze delta city has decreased significantly from last year, possibly because migrant workers have returned home
Construction activity is still going at a blistering pace. Whole streets have been torn open to build subway lines. 2 subway lines have already been built, 5 more lines are under construction, supposed to be finished by 2020. It’s difficult to even walk with construction activity going on everywhere.
I went to Gate To The East, the whole place has been turned into a construction yard as far as the eye can see, the scale of the massive monuments been built far dwarfs the Great Wall of china.
How likely is it that the PRC has done the projections, and have concluded a massive credit event/crash is near, and are converting their “paper” assets to domestic construction, and precious metals/commodities stored in the PRC to limit their losses?
i interpret the article as saying we are going to flatline, and that’ll be the base.
china’s problem is…….everyone else’s.