"Off The Charts" How China Fooled The World

Tyler Durden's picture


China is now the second largest economy in the world and for the last 30 years China's economy has been growing at an astonishing rate, wowing the world, as spending and investment has been undertaken on a scale never seen before in human history - 30 new airports, 26,000 miles of motorways and a new skyscraper every five days have been built in China in the last five years. But as we (and Michael Pettis, George Soros, and Jim Chanos - among many others) have warned, it is all eerily reminiscent of what happened in the West... the vast majority of it has been built on credit. This has now left the Chinese economy with huge debts and questions over whether much of the money can ever be paid back (spoiler alert: it can't and it won't).

The BBC's Robert Peston travels to China to investigate how this mighty economic giant could actually be in serious trouble.

As Michael Pettis, Jim Chanos, Zero Hedge (numerous times), and now George Soros have explained. Simply put -

"There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years."

The "eerie resemblances" - as Soros previously noted - to the US in 2008 have profound consequences for China and the world - nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained above.


Tired of reading about it? Then spend 2 minutes of your life with the following uncomfortable truth clips...

The past 5 years in China...


And here is Fitch's Charlene Chu (in a little over 60 seconds) laying out the ugly facts that are China's credit bubble...


Of course, the situation has become critical now as reform-imposed credit-crunch is rapidly spreading up the food chain proving that China has no painless way out and can only stoke the fire more in their already-burning house - as we noted here...


January's data was simply the final exclamation mark in a decade-long series in which China's prosperity has been simply the result of an exponentially increasing amount of loan and liquidity creation by the Chinese semi-national and government backstopped financial system.


Here's the problem: one can't put the January lending surge aside, as it came at a time when for the second time in six months the PBOC tried to taper, only to be forced to not only bail out its money markets, but is on the verge of a bankruptcy tsunami involving its shadow banking products, the first of which it also bailed out despite repeated warnings this time it means business and would let it die.

In this context, the January number is precisely what it appears: the bank's logical response to a liquidity crunch as the Chinese regime finds itself in the same spot that the Fed has been in for the past 5 years - it must keep the monetary spice flowing, or else the party is over. And just like the Fed, and now the BOJ, so too does China not want to deal with the fall out if all it takes to created yet another quarter of increasingly subpar economic growth is another record of funny money conceived out of thin air.

The only problem is that it is becoming increasingly difficult to hide all the pieces of funny money, most of which result in bad and otherwise impaired loans, under the rug. And just to show the problem in its context, here is how China's banks created some 50% more in bank loans in January than the QE credit money created by both the Fed and the BOJ combined.


And finally, here is China's nearly half a trillion in total liquidity added to the system in just one month (some deleveraging, right?) looks compared to the Fed and the BOJ's much maligned and unprecedented unconventional monetary policy.

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Sun, 02/16/2014 - 20:48 | 4443434 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

ho li fuk wei tu low

Sun, 02/16/2014 - 20:49 | 4443440 Dear Infinity
Sun, 02/16/2014 - 21:03 | 4443472 old naughty
old naughty's picture

no ting wong...all according to t






wor ldis fu c ked.

Sun, 02/16/2014 - 21:17 | 4443501 DoChenRollingBearing
DoChenRollingBearing's picture

Central Bank of China: The spice must flow!

CB of DoChenRollingBearing: The gold must flow!*



*Well, bearings too...

Sun, 02/16/2014 - 21:55 | 4443647 Crisismode
Crisismode's picture



And what happens when the credit runs out?

Why do you think the Chinese bought 2150+ tons of gold in 2013,

AND just bought another 247 tons in January, 2014 alone?


They KNOW the whole thing is going to implode, and want to have as much physical gold in the vault as possible before it does.




Sun, 02/16/2014 - 22:07 | 4443682 TruthInSunshine
TruthInSunshine's picture

China is fucked 180 ways to sideways.

As sick and indebted as many western economies are, including those of nearly every EU state and the United States, a huge % of their debt is comprised of "unfunded liabilities," a huge % of which will be either not repaid or "haircutted" to the point of being wiped out via something along what would happen in a bankruptcy process - though it won't be announced or considered as such.

China literally has the worst kind of debt imaginable; EXISTING, CONTRACTUALLY DUE DEBT, and although the central government can intervene to ameliorate the crisis, there's no approach that doesn't pummel a massive number of people and businesses, regardless of the approach they choose.

Add to this the fact that China is now in an incredibly decelerating mode of its export-fueled & based economy, whereby other nations are rapidly paring back their imports of Chinese made goods, and consider that there IS MASSIVE PRODUCTION CAPACITY (FACTORY, R&D, etc.) BUILT UP IN CHINA THAT WILL GO UNDER-UTILIZED (a capacity, mind you, that can not only service all of China's domestic needs, but just about the aggregate amount of the developed world's needs if trade barriers fell even faster) AT A TIME WHEN CHINA IS LOOKING DOWN THE BARREL OF A DEMOGRAPHIC STRUCTURAL CRISIS, and only then can one begin to understand how completely and totally fucked China really is.


China + Japan are going to be the real, core catalyst for the next global economic crisis, which has already started, but that central banks have tried to hide from view by "papering over the windows."

Sun, 02/16/2014 - 22:29 | 4443726 ZerOhead
ZerOhead's picture

That's not a bubble in China... it's the resurrection of the zeppelin Hindenburg.

Time to buy my last tranche of PM's...

Sun, 02/16/2014 - 23:29 | 4443984 SafelyGraze
SafelyGraze's picture

"the vast majority of it has been built on credit"

building based on credit is, au fond, the way nations build

more credit = more and greater building

the US should follow the chinese example

14 trillion of new debt would at least allow it to catch up


Mon, 02/17/2014 - 00:25 | 4444130 malek
malek's picture

"But don't they own all the money to themselves?"

You know I really think we need more simplifications all the way down to stereotypes in the discussion of China's credit bubbles or non-bubbles.

Mon, 02/17/2014 - 03:45 | 4444392 James_Cole
James_Cole's picture

Sure they overdid it, but...


I know, it's all 'funny money' totally unlike the US. The US is all straight legit shit. 


Silly Chinese, learn what a sustainable economy looks like:


Mon, 02/17/2014 - 04:34 | 4444435 The Vineyard
The Vineyard's picture

OK.  Ok.  The sky is falling.  We get it.  Bitches.

Mon, 02/17/2014 - 04:52 | 4444451 AldousHuxley
AldousHuxley's picture

US exports inflation to countries like China who manufactures consumer goods to hide true inflation from American consumers.


It is by design.

Mon, 02/17/2014 - 08:35 | 4444595 GetZeeGold
GetZeeGold's picture



It's worse than that.....they haven't been reporting their dore bar purchases.


Off the radar....that's how China rolls.

Mon, 02/17/2014 - 10:46 | 4444761 Muppet Pimp
Muppet Pimp's picture

Chinese girl gets run over and 18, count them, 18 people walk or ride by and ignore her plight.  Crazy.  Is there anywhere else in the world where that would happen (besides India)?



Mon, 02/17/2014 - 11:20 | 4444817 pods
pods's picture

Well Japan irradiated a good portion of their population.  Not as in your face as walking by someone in need, but the body count will be higher.

And then there is the Japanese homeless radiation cleanup crew, that ranks up there too.

Of course, Amerika has bum fights and the knockout game, so everyone has their share of worthless cocksuckers that need to die a horrible death.


Mon, 02/17/2014 - 11:31 | 4444839 Ying-Yang
Ying-Yang's picture

A good follow-on article:

Is China's Historic Credit Bubble About to Pop?

In five years, China's shadow banks have increased credit from 120 to 190 percent of GDP—a bigger run-up than the U.S. housing bubble.


Mon, 02/17/2014 - 12:19 | 4444928 bpj
bpj's picture

Using the term 'cocksuckers' is probably not PC as they now are a federally protected class. Perhaps we should refer to one of the last unprotected classes left...the 'muthafuckers' or if you Ivy league, 'mother fuckers'. Of course there is no telling what the left will do and at any moment Holder and crew might issue an edict giving legitimacy to the MFs.

Mon, 02/17/2014 - 14:13 | 4445183 Rafferty
Rafferty's picture

Just going to say India but you beat me to it.


I saw a corpse (traffic accident) by the side of the road while being driven into central Lagos (Nigeria).  People seemed to be going around their normal business,,,,

Mon, 02/17/2014 - 10:06 | 4444662 BoNeSxxx
BoNeSxxx's picture

"Hide true inflation from American consumers"

Harder to do with fuel and food however.  No fuel comes from China and they send America mostly food additives and finished processed foods like Melamine-infused baby formula and pet chow.

Now what were the two things that America doesn't include in its official CPI calculation again?  It's on the tip of my tongue...

Mon, 02/17/2014 - 10:21 | 4444731 dontgoforit
dontgoforit's picture

All they gotta do is cash in their T-Bills and presto-chango, accounts balanced.  Send 'em a carrier-load of new $100's.

Mon, 02/17/2014 - 10:42 | 4444755 Bangin7GramRocks
Bangin7GramRocks's picture

At least the Chinese have real physical objects to show for the trillions. Modern roads, non-crumbling bridges, modern airports and modern high-speed mass transit systems are all something most Americans dream of! What do we have to show for pissed away trillions?

Mon, 02/17/2014 - 10:47 | 4444764 FredFlintstone
FredFlintstone's picture

Maybe they should, but most Americans do not dream of high speed mass transit. I concur with your point though.

Mon, 02/17/2014 - 12:48 | 4444998 noguano
noguano's picture


Mon, 02/17/2014 - 02:26 | 4444311 Martel
Martel's picture

the US should follow the chinese example

Yay! McMansion for every citizen! Call it Obamansion. And while you're at it, why not top that with a brand new car or two? All courtesy of the Federal Reserve.

Mon, 02/17/2014 - 11:31 | 4444838 TruthHunter
TruthHunter's picture

"the vast majority of it has been built on credit"

Could we add "The vast majority of it has been built on substandard concrete"

In a few years will a building be falling down every 5 days?

Mon, 02/17/2014 - 03:27 | 4444365 Wile-E-Coyote
Wile-E-Coyote's picture

Yeah I'm buying today. Jesuuuus H Christ!!!

Mon, 02/17/2014 - 03:34 | 4444378 Space Animatoltipap
Space Animatoltipap's picture

The China crazy credit situation is of course just part of the $ based WW pyramid ponzi scheme. When one bigger domino falls the rest will follow. Already with tiny, tiny Greece the NY/London International Socialists had big problems to contain contagion. God's natural currencies, gold and silver, will protect one from the huge monetary madness coming. 

Mon, 02/17/2014 - 04:33 | 4444434 Remnant_Army
Remnant_Army's picture

I do not know why. But there was a funny feeling a month ago, when I went to my Ag dealer. Seemed like our last meeting...

More food, water and seeds, some books as well. That's what I need. 



Sun, 02/16/2014 - 22:50 | 4443846 DoChenRollingBearing
DoChenRollingBearing's picture

That's an interesting analysis, TIS, + 1.

Demographics, environmental catastrophes and now debt.


My understanding is that their bearing plants have way too much capacity.  Their product, slowly getting better on the average, is hitting a saturation point in export markets (like Peru).  And, even with the increased car production and highways built, there is no way that domestic consumption could buy up all their bearings...

Sun, 02/16/2014 - 22:59 | 4443892 TheFourthStooge-ing
TheFourthStooge-ing's picture

Overbearing blobbing up capacity of Chinese citizenism can not be absorbed by variegate demand.

Just have to bear with it.

Sun, 02/16/2014 - 23:24 | 4443963 satoshi411
satoshi411's picture

Compare USA to China

China right now is 1950's USA, and everybody is middle-class and happy.

The Chinese consumer has nothing the USA consumer is full to the gill with SHIT. The chinese have jobs, the USA has no jobs.

In the USA everybody is miserable.

In China, the biggest problem for MOMMA is find a rich husband for daughter.

In USA, the biggest problem is making a batch of METH, and trying to find your PIT BULL.


The UK is 15 years ahead of USA on collapse slope, the USA is 60 years ahead of CHINA.


Want a better life? Move to Asia.

Enough said.

Sun, 02/16/2014 - 23:28 | 4443981 Handful of Dust
Handful of Dust's picture

Keep buying all the houses our Mexicans are buiilding for you...."Moar is Good'" ... Confucius say.

Sun, 02/16/2014 - 23:45 | 4444047 FredFlintstone
FredFlintstone's picture

I thought that there are still 1 billion peasants in China? Have things improved or is the middle class more of a relative thing?

Mon, 02/17/2014 - 00:43 | 4444179 massornament
massornament's picture

Good point... the one thing the People's Republic of China fears is the one billion peasants who are expecting a higher standard of living but probably won't get into the middle class.

satoshi411: two very big things are left out of your comparison... the U.S. was really the only major power left unscathed after WWII and throughout the 50s and 60s had ample supplies of cheap petroleum. China must compete like mad for resources and has already polluted the crap out of its country. I guess another important point is that since China has come to power during the West's financial autmun it in a way also imported the West's ponzinomics schemes. I shudder to think what those 1 billion peasants with think when China's bubble bursts (and generations of savings vanish). 

Mon, 02/17/2014 - 01:13 | 4444236 TMLutas
TMLutas's picture

Surely just the savings since Deng took over in '78. Mao and company killed them for hoarding if they were saving before then. 

Mon, 02/17/2014 - 02:32 | 4444314 TruthInSunshine
TruthInSunshine's picture

All China has to do is rotate their debt into bitcoin.

Done and DONE, bitchez.

Mon, 02/17/2014 - 10:25 | 4444732 dontgoforit
dontgoforit's picture

When those polluted areas force people out, watch out.  The will to survive is strong.  Who's will is stronger?  Theirs or ours?  There's a pot boiling, watch for the over-flow.

Mon, 02/17/2014 - 09:40 | 4444672 FredFlintstone
FredFlintstone's picture

Although there may be many uprisings, I hear that those 1 billion peasants will do anything the government says especially when spooked.

Mon, 02/17/2014 - 04:59 | 4444458 lakecity55
lakecity55's picture

"I knew the markets were going to crash when I stopped in a small peasant village and got some hot stock tips from the guy who carries the night soil. I called my broker in NY and sold everything."

Mon, 02/17/2014 - 00:15 | 4444111 hobopants
hobopants's picture

"everybody is middle-class and happy"

"the USA has no jobs."

"In the USA everybody is miserable."

"In USA, the biggest problem is making a batch of METH, and trying to find your PIT BULL."

"In China, the biggest problem for MOMMA is find a rich husband for daughter."

Hasty generalization fallacy:

"Hasty generalization is an informal fallacy of faulty generalization by reaching an inductive generalization based on insufficient evidence—essentially making a hasty conclusion without considering all of the variables. In statistics, it may involve basing broad conclusions regarding the statistics of a survey from a small sample group that fails to sufficiently represent an entire population."

Mon, 02/17/2014 - 07:38 | 4444534 Apostate2
Apostate2's picture

'China right now is 1950's USA, and everybody is middle-class and happy.'

What a codswallop tool you are. I doubt you have ever set foot in China except your local restaurant. Keep the dissembling and nonsense flowing you POS. We call you Guailo for a reason.

Mon, 02/17/2014 - 09:15 | 4444638 Spumoni
Spumoni's picture

Down arrows be damned, you make a point worth discussing. I personally prefer Brazil-just as corrupt as Asia, but just as many resources and far less pollution. Fewer generals to deal with too.

What I really wish, though, is that the idiots running the US and Europe off the rails would get a new idea, and realize that human freedom is the author of their success. Police states do not run well or end well. At the end of the day, wtf is wrong with having a prosperous, well-educated population? They spend money and don't riot.

Plus, we could spend our capital figuring out how to colonize another rock somewhere. This would provide some planetary relief from the locust-plague of consumerism and give ZH'ers a chance to go miine that giant diamond in the sky!

Mon, 02/17/2014 - 09:30 | 4444660 People'sRepubli...
People'sRepublicof CT's picture

Come the global reset, locally sourced natural resources will be key because international credit will be zero. China has already exported most of its "energy" through cheap steel and aluminum. That is why they are mining low quality coal in the most remote western regions. While the USA is (and will be ) broke, they will not have to source many of the needed natural resources globally . Therefore the USA could be one of the few countries post global reset to somewhat self reliant. China will have 1.5 billion hungry, mainly urban citizens.

Mon, 02/17/2014 - 10:17 | 4444717 sessinpo
sessinpo's picture

satoshi411   China right now is 1950's USA, and everybody is middle-class and happy.

The Chinese consumer has nothing.

In China, the biggest problem for MOMMA is find a rich husband for daughter.


That does not compute. Try again.



Mon, 02/17/2014 - 10:21 | 4444729 FredFlintstone
FredFlintstone's picture

Why not? In 1950's America every mother wanter her daughter to marry well. A rich doctor was the prize.

Mon, 02/17/2014 - 10:58 | 4444779 kaiserhoff
kaiserhoff's picture

Hard to believe now, but doctors were not rich in the 50s.

That didn't really kick in until Lyndon Johnson made all their bad debts good with medicare and medicaid.

Example from the 60s.  I remember the buick being pitched as the Doctors' car.  Upper middle, but no big deal.

Mon, 02/17/2014 - 11:33 | 4444846 FredFlintstone
FredFlintstone's picture

Rich is relative and to the middle class, doctors have been perceived to be rich for at least the past 60 years. Most doctors are still upper middle. But I get your point.

Mon, 02/17/2014 - 11:24 | 4444826 BandGap
BandGap's picture

You're really stupid.

Do you know how many more men there are in China than women?

I wouldn't live in China for free. It's a shithole.

Mon, 02/17/2014 - 03:31 | 4444372 effendi
effendi's picture

DCRB, a question for you.

So all that existing Chinese bearing capacity will still be churning out product at a break even cost (no depreciation, no recovery of sunk costs, no loan repayments etc) and dumping it on the worlds market for years to come utilizing the enormous labour pool they have post economic collapse who will work for a few bowls of rice/gruel each day.

Other on quality how will the rest of the world obtain any market share for their bearings?

Mon, 02/17/2014 - 05:08 | 4444464 lakecity55
lakecity55's picture

ChiCom roller bearings are made with lead in the ingredients. They wear out fast, so  surplus will be quickly used up.


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