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
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.