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Why Tonight's China GDP Number Is Meaningless: "The Economy Is Already In A Financial Crisis"

Tyler Durden's picture




 

There has been much drama and even more propaganda heading into today's China Q2 GDP number (expected to print at 7.5%, down from 7.7% previously). As even the stunned FT explains, a week ago Xinhua reported that China's minister Lou Jiwei said at a news conference that China was aiming for 7% growth this year. "This figure was half a percentage point below the government’s official target, a seemingly small difference but one that opened a chasm in terms of policy.  The lower target was taken to imply that Beijing was unperturbed by the current economic slowdown, and that pleas for stimulus from companies and local officials facing bankruptcies and debt defaults would go unanswered."

Then yesterday morning, the world woke up to the most blatant example of revisionism, when the same Xinhua "decided to quietly touch up Mr Lou’s words. The original article was changed to show that he had said 7.5 per cent, exactly consistent with the target announced at the national parliament back in March." As the FT further shows, there is no "lost in translation moment" here and it was pure and simple propaganda meant to keep global markets steady at a time when the tiniest change from the trendline can lead to dramatic moves across asset classes.

Of course, all of the above is very much irrelevant: when it comes to economic data, in China whatever the Politburo's Goalseek.xls model says is what goes, and credibility - especially in the context of a historic CNY1 trillion deleveraging - is irrelevant. But one reason why today's GDP print is even more irrelevant than ever, is becuase as Xia Bin, an economist with the State Council's Development Research Center and government advisor, said "Arguments about whether China will grow at 7% or 7.5% are "pointless" because the economy is already in a financial crisis which may only worsen if the government doesn't address the country's crippling debt problem."

Indeed, whether China is growing at 8% or 3% is anyone's guess, and is largely irrelevant as long as the country can keep generating the required credit money expansion to avoid stall speed or a crash landing. However, what is very disturbing, is when dissident voices start emerging from within the placid lake that is China's economic hierarchy, such as Xia. His opposition to the Politburo is a far more worrisome sign than if China's GDP will print at 7.7%, 7.4% or stun the world with a just barely 7%+ print.

Market News has more:

Although monetary printing presses have kept the worst of the crisis at bay, the central government needs to face up to China's debt problem and brace the market for a deep and painful adjustment, he told a forum here at the weekend.

 

"We need to find ways to let the bubble burst and write off the losses we already have as soon as possible to avoid an even bigger crisis," Xia said.

 

"Deep adjustment means economic growth slows as costs are paid, it means hard days, it means the bankruptcy of some companies and financial institutions and it means reform," he said.

 

Although Xia has a reputation for being outspoken within a bureaucracy which tends to shy away from open discussion, his views reflect growing concern within the government about the costs of the credit and investment binge that was ushered in by the global financial crisis.

 

Xia said the government should mobilize its huge foreign exchange reserves, close bankrupt companies and encourage private investment to boost growth.

In other words, engage in far more aggressive tapring: something that the Fed tried and failed miserably at.

Ironically, it is now China's job to show the Fed how weaning capital markets off the Chairman's teat should be done.

Sadly, none of this will matter when in about one hour, China reports a number that is just slightly better than expected (at least according to whisper predictions) and the algos go into hyperliftathon mode, further disconnecting "markets" from fundamentals and reality.

 

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Sun, 07/14/2013 - 21:12 | 3752913 ArmyofOne
ArmyofOne's picture

BTFD.

 

 

EOM.

Sun, 07/14/2013 - 21:21 | 3752936 Jam Akin
Jam Akin's picture

We will soon see if China's real economy can pull through the leadership's current reset - featuring fake stats...

Sun, 07/14/2013 - 22:06 | 3753021 max2205
max2205's picture

And spy hits newer all time highs

Sun, 07/14/2013 - 22:23 | 3753053 RockyRacoon
RockyRacoon's picture

What's with all the coming to grips with the problems, letting bad stuff go under, and doing the right things?  You'd think they were talking about the U. S.!  'Bout time we did a bit of that doncha think?  Oh, I forgot.  The "markets" might suffer.  And those who are getting their hands on the inflated money first won't get to milk it for every cent of benefits.  That is, before the money makes its way into the "real economy".   This sucks.  We were/are Japan.  Maybe it's about time we became China instead.  Come clean and clean house.  That would be a great idea if we really had a nation of laws that were respected.  This is gonna be bad.

Sun, 07/14/2013 - 22:59 | 3753125 DeadFred
DeadFred's picture

China will be the one that that makes the US 'fess up and do what's right. Bennie will print as long as everyone accepts it. Who else but China can say 'No'? So far they lack the cajones.

Sun, 07/14/2013 - 22:08 | 3753022 Zer0head
Zer0head's picture

welcome back  my friends

to the show that never ends

 

in the  center ring replacing public enemy #1 (z-man) is the amazing and notorious  (fall guy)

'Fabulous Fab'

http://www.guardian.co.uk/business/2013/jul/14/goldman-sachs-fabulous-fa...

Sun, 07/14/2013 - 23:07 | 3753132 Jam Akin
Jam Akin's picture

Soon a Gypsy Queen in a glaze of vaseline will perform on guillotine.  What a scene.  What a scene.

Sun, 07/14/2013 - 22:37 | 3753081 Silver Bug
Silver Bug's picture

How much longer can central banks keep this game going?

 

http://schiffblog.blogspot.ca/

Sun, 07/14/2013 - 21:12 | 3752915 fonzannoon
fonzannoon's picture

"“The Savage nodded, frowning. "You got rid of them. Yes, that's just like you. Getting rid of everything unpleasant instead of learning to put up with it. Whether 'tis better in the mind to suffer the slings and arrows or outrageous fortune, or to take arms against a sea of troubles and by opposing end them...But you don't do either. Neither suffer nor oppose. You just abolish the slings and arrows. It's too easy."

Sun, 07/14/2013 - 21:20 | 3752927 Cognitive Dissonance
Cognitive Dissonance's picture

The more that people realize the economic numbers are meaningless the more desperate they will become to find meaning in the numbers. This is why desperate men do increasingly desperate things.

Sun, 07/14/2013 - 22:04 | 3753016 mayhem_korner
mayhem_korner's picture

 

 

Brilliant insight, CD.

Sun, 07/14/2013 - 23:17 | 3753160 optionsman
optionsman's picture

Exactly. The desperate men who increasingly desperately try make sense of the economic numbers- they are doing this to somehow help preserve the status quo.when you confront them and point out the futility of their efforts their only answer is- do you know of any better system? And for almost all people this question will kill the discussion.... but the answer is- I sure do ))))

Sun, 07/14/2013 - 21:19 | 3752929 NOTW777
NOTW777's picture

when it comes to data and stats, is there much difference with the US government?

Sun, 07/14/2013 - 21:30 | 3752949 NoDebt
NoDebt's picture

We only fudge GDP about 3% (+1.7 reported vs. -1.5 actual).  China does like 4% minimum so they're WAY worse than us.  WAY worse.  Obviously.

Sun, 07/14/2013 - 21:34 | 3752955 NOTW777
NOTW777's picture

so, in bob pisani language, the distortion by the US is better than expected

Sun, 07/14/2013 - 21:51 | 3752996 FreedomGuy
FreedomGuy's picture

No, or Europe. First, our GDP methods are severely flawed, mainly on counting government spending as equal to private spending and the incorrect concept of trade deficits.

Then there is the fudging of the numbers on top of that. Every major nation on earth is now centrally planned and controlled so everyone does it.

Last, I posit that it is not actually the economic numbers posted by China or anyone else that matters most. It is the anticipated reaction of governments and their central banks that drives the market. How else can you explain markets doing the opposite of the data? It is the monetary cocaine that will be pumped into banks and markets that is anticipated.

Add one more level and then this is where the JPM-Sachs-etc., collusion comes in. The game is manipulated, unpredictable and requires government connections to win consistently. The rest of us are outside gamblers trying to beat the house.

Sun, 07/14/2013 - 21:26 | 3752938 Alcoholic Nativ...
Alcoholic Native American's picture

"encourage private investment to boost growth."

 

Save us savy investor billionaires!  You are our only hope,  please invest in us so you can reap huge returns!

 

Capitalism is absolutely stupid.

Sun, 07/14/2013 - 22:04 | 3753014 DoChenRollingBearing
DoChenRollingBearing's picture

I disagree AN.  23 years ago, a budding young guy started a business with his in-laws.  In Peru.  A pure capitalist bet that we could find a good niche to serve, to add value.

And now that has turned into a real business!

Note that we are NOT in the 1% (me in the USA nor my in-laws in Peru) nor are we TBTF.  My in-laws just busted their butts for 23 years.

It can be done.  It might be very hard, you might fail (at a high cost) along the way.  But, we have shown that it can be done.

http://tinyurl.com/mhrfnzm

 

EDIT:

We are exposed to China...  If Peru exports less, that will affect us...

 

Sun, 07/14/2013 - 22:22 | 3753047 Alcoholic Nativ...
Alcoholic Native American's picture

add value, ok, and where did he get his investment capital from? adding value?? I'm sure it happens every now and then but praying for capital so you can get a cut of it doesn't seem that all inspiring to me.  In the age of hot money and unlimited QE praying to the gods of capital seems kind of stupid to me. You NOT being in the 1% is kind of obvious.  Not trying to insult and I'm glad you found your niche.

 

 

Sun, 07/14/2013 - 23:05 | 3753130 DoChenRollingBearing
DoChenRollingBearing's picture

I had some capital left after missteps earlier along the way.  So, yes, I did have that part of a leg up.

What we have done is assured that Peruvians have a permanent (well, we hope) shot at being able to buy certain spare parts at reasonable prices to keep their cars running.  We do not serve the high-end of Peru.

We make money because we add value, if our customers did not willingly part with their money, we would not have a business.

***

I agree with you re hot capital and QE.  That is just gangsterism practiced by suits.

Mon, 07/15/2013 - 00:31 | 3753288 IridiumRebel
IridiumRebel's picture

You're doing great DoChen. Stay positive.

Mon, 07/15/2013 - 01:05 | 3753332 old naughty
old naughty's picture

All the INs...IN-dependent; IN-tuition; IN-novative; IN-dustrious...

You do not need the Ms, hot, cold, or warm. They only f'ck u up eventually.

Be well,

Sun, 07/14/2013 - 21:25 | 3752942 StateofFraud
StateofFraud's picture

Nothing is true, everything is permitted. - Hassan Sabbah

Get used to it. It's going to get worse before the Great Default.

Sun, 07/14/2013 - 21:31 | 3752950 Ban KKiller
Ban KKiller's picture

Did China learn to lie from the bankers or did the bankers learn to lie from China? Or do all those in power just lie as a matter of course? Of course!

Confidence in what, exactly? Only an idiot would trust Wall Street, Bankers or any Government.

Sun, 07/14/2013 - 21:36 | 3752961 Atomizer
Atomizer's picture

China needs to talk to the hand, BIS [Bank of International Settlements]. China will receive a face palm. Just ask Japan.  

Sun, 07/14/2013 - 22:01 | 3752991 Smegley Wanxalot
Smegley Wanxalot's picture

Someone's gotta do it. May as well be me.

 

China's economy is headed up by the following people:

- Chairman Sum Ting Wong

- Kyu Ee Tu Lo

- Ho Lee Fuk

- Kahn Trahl Pi Nao

Sun, 07/14/2013 - 21:53 | 3752997 Atomizer
Atomizer's picture

Along with the concerns with China GDP, we must focus on the Boeing Pilot names. Just when Janet Napolitano quits, all of our ‘see something, say something’ reporting goes down the red hole.

Asiana Pilots names from KTVU News

Sun, 07/14/2013 - 21:54 | 3752999 q99x2
q99x2's picture

Why you always want that damn reality? When I was kid we had good acid. Never need for real illusions. Had lots of fun (to put it mildly). Tomorrow always came no matter what we do. Interseting, fun lots of talk about the way things were. We have Bernanke now. Almost as good as acid. Not so much fun. Maybe he needs a dose or two.

Sun, 07/14/2013 - 22:00 | 3753010 Ban KKiller
Ban KKiller's picture

Enlightenment is dangerous so no acid allowed.

Sun, 07/14/2013 - 21:57 | 3753004 wisehiney
wisehiney's picture

Confucius say: If a man take no thought about what is distant, he will find sorrow near at hand.

Sun, 07/14/2013 - 22:14 | 3753033 Jackagain
Jackagain's picture

Confucius also say; If Sum Ting Wong fly plane, Bang Ding Ow sure to follow...

Sun, 07/14/2013 - 21:59 | 3753008 ebworthen
ebworthen's picture

"No babe, I said it was 6.5", not 7.5", I swear! 

So here it is, do you want it or not?  Better than nothing now that we're naked, right?"

Sun, 07/14/2013 - 22:22 | 3753044 CPL
CPL's picture

Drunken idea years ago that seemed like it had teeth with the introduction of cheap webcams on the market.

6 inch rulers with 12 inch marker units.  

After another drunk months later we understood the insane power we would unleash on the world had we developed it any further than those bar stools.  

Sun, 07/14/2013 - 23:55 | 3753224 ebworthen
ebworthen's picture

You'd sell millions of them!

South Park T.M.I. Episode clip:  http://www.youtube.com/watch?v=YDDOHPssLrQ

Full episode here:  http://www.southparkstudios.com/full-episodes/s15e04-tmi

Cartman is furious when he thinks the school is posting the boy's penis sizes on the bulletin board.

(links open in new windows)

Sun, 07/14/2013 - 22:17 | 3753038 thismarketisrigged
thismarketisrigged's picture

sure enough, chinas gdp comes in at 7.5, like that number is real, lol.

of course u.s futures are up overnight, what else is fucking new?

 

what a farce, no way china fucking grew at 7.5, closer to 5.0 is prob more like it, and that is being nice.

Sun, 07/14/2013 - 22:23 | 3753050 smcapmachine
smcapmachine's picture

Your theory proved incorrect as Asian and US markets rally post data

Mon, 07/15/2013 - 00:58 | 3753316 Notarocketscientist
Notarocketscientist's picture

Roob

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