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Inflation Calls BS on the China "Miracle"

Phoenix Capital Research's picture




 

 

The following is an excerpt from a client letter published in early March.

 

As noted previous articles… the global central banks have begun to realize that the success of their reflationary efforts has resulted in yet another speculative bubble in asset classes, specifically stocks and real estate.

 

Nowhere are these issues more evident today than in China.

 

Many commentators have spent a great deal of ink proclaiming China to be the next great economic power. While it is true China has seen dramatic improvements in its economy over the last 30 years, my view has been and remains that most of the “growth” of the China “miracle” is just a debt-fueled bubble built upon a loose foundation of Government corruption and fraud.

 

The reason 99% of investors fail to see this is because:

 

  1. They believe Chinese economic data as gospel.
  2. They fail to understand China’s economic policies from a political perspective.

 

Regarding #1, Chinese economic data is absurdly gimmicked to the point of making the US’s look clean in comparison (no small feat).  Indeed, back in 2007, no less than current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

 

Put another way, one of the top-level Chinese politicians admitted in private that China’s economic data is a total fiction. However, the reality is even worse than this admission. The truth is that even China’s electrical consumption data is dodgy at best as it has become a political tool for the Chinese Government to illustrate its “growth” much like China’s GDP.

 

The reason for this economic gimmicking pertains to #2 above: the political perspective of China’s economic data. As a communist regime, China’s government has one focus and one focus only. It’s not economic growth for growth’s sake, nor is it improving the quality of life for China’s population.

 

No, China’s Government is obsessed solely with remaining in power.

 

The reasoning for this is that a Government job remains the easiest, cushiest means of becoming wealthy in the People’s Republic. Case in point, last year Chinese officials are known to have stolen at a minimum the equivalent of $157 billion.

 

The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxury homes had been sold by government officials in Guangzhou and Shanghai alone last year.

 

It also claimed that an astonishing $1 trillion (£630 billion), equivalent to 40 per cent of Britain's annual GDP, had been smuggled out of China illegally in 2012.

 

Economists and experts cast doubt on the figure, but said the flow of money from China was dramatic. Li Chengyan, a professor at Peking University, suggested that a total of roughly 10,000 officials had absconded from China with as much as £100 billion.

 

http://www.telegraph.co.uk/news/worldnews/asia/china/9815998/Chinas-Communist-party-cadres-launch-property-fire-sale.html

 

To put the above numbers in perspective, this theft is equal to roughly 2% of China’s total GDP. On a per official basis, we’re looking at roughly $15.7 million… not over the course of a decade but in ONE year.

 

In contrast, the average college graduate in China makes $2,500 per year. So you’re talking about an average theft equal to over 6,250 years’ worth of work for a college educated Chinese civilian.

 

A few other indications of just who is getting ahead in China:

 

  • Immediate family members of Premiere Wen Jiabao control assets worth at least $2.7 billion.
  • Gong Aiai, a deputy chief of a county bank, (not even a major bank) was found to have assets worth $160.2 million.
  • Zhang Xiuting, an anticorruption official, is currently under investigation for amassing 19 properties along with his former wife.

 

In simple terms, many if not most of the people who have gotten wealthy in China over the last few decades were corrupt Government officials or those close to them. In this light, you can see that China’s Governmental policies are all really aimed at one issue: keeping the Government in power by keeping the Chinese population content enough not to demand real change.

 

All other issues (economic growth, improved air quality, stimulus projects, etc.) are secondary to this issue. And the single biggest threat to Chinese officials’ abilities to live high on the hog is inflation.

 

This concludes this article. If you’d like more information on inflation and protecting yourself from it, we feature a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a FREE copy of this report at:

 

http://gainspainscapital.com/the-inflation-secrets-your-broker-wont-tell...

 

Best Regards,

Graham Summers

 

PS. We also On that note, feature a FREE report concerning the threat of a European Banking Collapse. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

 

This report is 100% FREE. You can pick up a copy today at:

 

http://gainspainscapital.com/what-europes-collapse-means-for-your-savings/

 

 

 

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Thu, 03/21/2013 - 22:05 | 3360321 diogeneslaertius
diogeneslaertius's picture

miraculously building ford plants before the NWO even organized WW1 and put chiang kai-shek into power - just ask the reanimated corpse of sun yat-sen, brought to you today for the first time through the power of unicorn tears and bernank toner

 

but i digress

Thu, 03/21/2013 - 12:53 | 3357749 Aegelis
Aegelis's picture

Oops, clicked on it before seeing "Phoenix Capital Research"

Thu, 03/21/2013 - 12:41 | 3357705 Son of Loki
Son of Loki's picture

RE rose 5.6% in their major cities again last month despite all the new curbs I read.  Soaring food prices will be the real clincher.

Thu, 03/21/2013 - 12:10 | 3357490 shayneals shayneals
shayneals shayneals's picture

.

Thu, 03/21/2013 - 12:07 | 3357488 shayneals shayneals
shayneals shayneals's picture

actually im sorry, i have to once again say this is a piece of shit article about china. breaking it like we are being revealed with something new. 

Thu, 03/21/2013 - 12:05 | 3357479 shayneals shayneals
shayneals shayneals's picture

shit article. old news, this is pure china bashing which does not help us decipher anything.

The simple fact is that because china's banking system is run by the government. Bankers are not creating leverage levels of 50 times and paying themselves bonus's and dividends that exceed the gdp of the countries they are operating in. The anglo saxon banking system is like having a 50% tax on the wealth of 95% of the population. you think capital is being misallocated, yeah at a leverage of 2:1. mis-allocate it at 50:1, then destroy the real economy so you can be bailed out and keep (sorry increase) your ill gotten gains. 

You know why china is moving forward and not hitting a brick wall - simple. they lend out what they have in the bank. and they spend less what they earn. which means more money in the bank, which means more lending out. every financial crisis china has enough money to fix it. 

i hate the fact that china as everyday passes grows more powerful/richer. but the fact remain that even after all the fuckups they have made, the destruction caused through the anglo saxon central banking model is even worse. in a dog-eat-dog world, it is a zero sum game. and the bankers of europe and america are destroying these countries.

 

Thu, 03/21/2013 - 11:30 | 3357247 judejin
judejin's picture

china is not miracle.

if it ever were, it is only because USA is a disaster, a matrix, a ponzi scheme, a lie, a war-monger, a welfare pot, a brain-washed retard, a lazy fat ass, a land stolen by extremists like cheney and bush and obama(ever heard of Huguenot)?

god doesn't exist. if it did, it is a merciless, heartless monster.

some humans are monster because they want to be as big as god! they're doing god's work! karl marx wanted to kill god so that he could become god himself!

Thu, 03/21/2013 - 11:48 | 3357379 dumpster
dumpster's picture

no clue post .. keep your human god out of the picture .

your worse than the joo people posts

Thu, 03/21/2013 - 10:53 | 3357064 dumpster
dumpster's picture

and the BS comes from Graham
Summers

who is now as clueless as he was with QE..

inflation is 10% in usa .. with debt of trillions .. what is chinas debt ?   hell graham china is building a consumer base .. going to a backed currenciy of gold yadda

Usa will be brought in kicking and screaming the whole way.

are you an analyist or a broken down paste and copy guy. running off the top of pointed head..

Thu, 03/21/2013 - 10:50 | 3357058 SWIFT 760
SWIFT 760's picture

The chins are the joos of the orient. The chins are as ruthless, cunning, deceptive, brutal, anti-social and racist as the israelis. No wonder they don't like each other, nations can't stand to see themselves as ugly as the other. 

Thu, 03/21/2013 - 10:38 | 3356991 Stuck on Zero
Stuck on Zero's picture

China is a miracle.  They consume half the world's raw materials and do half the manufacturing.  And where does that leave the U.S?

 

Thu, 03/21/2013 - 10:29 | 3356923 madcows
madcows's picture

But, But, But, the Gay/Commie/Bearded-Obama-Humper on Marketwatch.com said real inflation going back to 1983 is really just 2%.

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