"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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
DoChenRollingBearing's picture

effendi, first of all I am not an expert, even though we buy from them, they keep many things secret.  As to your question, I believe that the rest of the world, overall, is losing market share.  But, there will always be a market for the high-end bearings (for Mercedes owners, for Cat equipment and big bearings for mines).

TheGoldMyth's picture

DoChenRollingBearing: "there is no way that domestic consumption could buy up all their bearings..." ....exactly!!

During difficult times caused by the banking system directly, the military industrial complex is now the rolling bearing buyer of last resort in the same way that central banks have become the gold buyers of last resort to keep the price of gold high.

tickhound's picture

Like the west debt money can be infinite and ultimately relies on confidence. Shorter term, and assuming our current economic models, China's bigger worry is technological innovation and automation and the need to "employ."

However, their populace is used to a "one child left behind" strategy as opposed to our "no child left behind have as many as you want strategy." They are used to subsidy in mass and have little guilt relative to the west. They consume much less. In other words, they've been managing growth for years and are more prepared for a world with less "economic growth" than what we depend on. The west isn't managing growth, it's looking for it anywhere it can find it.

The money/profit systems are cannibalizing from both ends. As fewer borrow and spend, profits suffer. As profits suffer, labor (has always been a cost) is cut. As automation replaces more and more labor from unskilled to skilled, subsidy grows.

It's a no win. There is no "way to do it better." There will be a global transition. Some cultures may be better prepared than others.

Raging Debate's picture

Tickhound - Well put. It is a global transition period. First in depression, first out is the general rule but we do have some serious headwinds here in America. For China, it is more like 1932 in America. There policy response plowing huge money into infrastructure (alongside a lot of Western capital) was similar to ours in 1932.

I think your seeing confidence rise here a little not because its awsome, but because its bottomed out here and businesses know stagflation will be what we have for a few more years but there can be growth. Tepid growth sucks but not financial armaggedon either and busineses are baking that into the came

I could grow my small business faster but I am catious (many risks caused by government taxation) and it is a shame about Obamacare in particular, it discourages me from hiring full time employees because providing healthcare insurance now creates expensive employee burden.

thestarl's picture

No wonder the Macau casinos have been going gangbusters all that funny money being washed by all these corrupt little fuckers man this will be something else

tarsubil's picture

The first three words is all you really need to say.

ZerOhead's picture

Credit runs out?

Simply unpossible... after all that's what central banks are for...

salvadordaly's picture

Damn it, a race to the bottom! This is not what I was planning on. Must sit down and work out a new strategy. Quick give me that eraser!

spdrdr's picture

The eraser worked then, did it?

kaiserhoff's picture

"China will be fine."

  Dim Sum Dick Bove

Anyway, the US only has empty malls backing its real estate debt.  China has whole ghost cities.

Why does that not fill my heart with everlasting joy?

SoilMyselfRotten's picture

Wonder if they're paving those streets with gold...

satoshi411's picture

Ghost city's versus GHOST-MALLS?

What is the fucking DIFF?

Only one I can see, in USA GHOST mall owned by wall-street aka USA pension paper.

In china ghost-city  ( all new made of concrete ) are owned by government,...

*

When SHTF the US 'ghost' model implodes and hurts the PENSIONER. In China, .. the worse thing that can happen is free housing for poor.

 

rbg81's picture

Went to China last year and toured a relatively new university campus that was about 5 years old.  Despite it being "new", it was already falling apart.  If I hadn't known it was new, I would have guessed that it was at least 20 years old.  The construction was very shoddy.   The sad part was all the Chinese seemed so proud of it--they just didn't know any better.  Same thing later when they took me to a riverfront part.  The river was extremely polluted and foul-smelling, but people were swimming in it.  Again, my hosts had no idea of how bad it looked--at least to Western eyes.

That, plus a lot of other observations, left me less than impressed with China.  My take is they have tried to force modernization and made a lot of mistakes.  The bill for those mistakes has yet to come due, but it will hurt like an SOB when it does.

Spumoni's picture

True-but building and health stanfards in the early 20th Century in the US and Europe were no better-which is why building codes and licensing for medical practitioners were instituted. A good read on the subject is Lewis Mumford's book The Brown Years. 

lakecity55's picture

Hey, I see signs everywhere that say "Space Available," whatever that means. So, the space market must be doing great.

thestarl's picture

One could only imagine how piss poor the workmanship would be in all this shit they've built over the years

sunnyside's picture

I've been thinking that the whole time they were building the Yangtze River dams.  Wait until one of them blows.

Fish Gone Bad's picture

No one ever wins a race to the bottom.

BeanusCountus's picture

Always kinda wonder bout how much of their data matches, or beat, consensus. Lots of contradictory stuff given electrical power use, etc, etc. this growth story that fuels the markets may not be right? Ho, Li, Crap. But i still appreciate a general Tso chicken now and then.

BlueStreet's picture

I posted this the other day in another related story but this VICE story on Chinese real estate is worth checking out.  Chanos is featured. 

 

https://www.youtube.com/watch?v=trs_udhjWqc&list=UUZaT_X_mc0BI-djXOlfhqW...

AngelEyes00's picture

China's lost their collective minds!!!  How can that situation not end badly?  Their idiots.

TheFourthStooge-ing's picture

.

Their idiots.

Easy to say with hind legs. But hey, when you remove our idiots, only thing left is their idiots.

Mix mashed potatoes.

G.O.O.D's picture

Their idiots. No you fucking idiot, it is they're idiots. As in they are. If you are going to bash intelect, make sure you do it correctly or you will look like a TOTAL idiot.

akak's picture

MY idiots, write or wrong!

zorba THE GREEK's picture

only holding physical PMs comforts me. How about you?

TheReplacement's picture

First, on topic, and funny... golf clap.

Thurifer's picture

Must keep the Spice flowing eh? I think the Guild navigators see trouble ahead..

fockewulf190's picture

Here is the plan:  China is buying every last gram of gold it can get it´s hands on. After the LBMA and the Comex are bled dry and disintergrate, the Shanghi Gold Exhange takes over. Gold marches to $50,000 an ounce.  It could go even higher, but lets take this number for example.

1 metric ton gold = 35,274 ounces @$50,000 an oz. = $1,763,700,000

100 tons @$50,000 an oz. = $176,370,000,000

1000 tons @$50,000 an oz. = $1,763,700,000,000

China last reported having 1054 tons back in 2009. It probably has five times that amount today at least.  When the dollar finally implodes as the world´s reserve currency, the Yuan takes over.  The sheer amount of gold they will posess, coupled with a high gold price controlled through their own exchange, means they will have their debts covered. Gold will be priced relative to Chinese debt levels when they have full control. The west will be financially destroyed in comparison  because they will have little to no gold left.  The Chinese public, having been encouraged by the government to buy gold and silver the whole time, will be enjoying the ride big time.

Why else is China buying so much gold? 

 

Crisismode's picture

 

 

See my comment above.

You are absolutely right in your analysis.

The Chinese are amassing huge amounts of credit.

While, they are amassing huge amounts of gold.

They will default on the credit, BEFORE the west has a chance to default on theirs.

AND THEN, they will declare the RMB a gold-backed currency and scoop the world reserve status right out from under the dollar.

Clever, no?

 

fockewulf190's picture

The must gain control of gold pricing first IMO before they make their move.  I even expect  Sprott´s PHYS to be eventually ravaged by the Chinese.

Fish Gone Bad's picture

The New World is full of gold.  Did you ever wonder where the Aztecs and Incas got all their gold from?  They did not mine it, they picked it up off the ground.  China can buy all it wants.

kevinduhand's picture

And what do you think will happen when they declare the RMB a gold-backed currency? You think our corporate masters are that dumb? Remember Abe Shinzo? Yes Abe will help us turn the tides by starting WW3!!! USA and the allies of the free world will liberate the Chinese with bombs!

As soon as Beijing gets nuked, the warlords will declare independence from the Gaddafi and guess what happens to the debt? POOF! Just like Magic!

We as slaves should have faith with our Jewish corporate masters!

TheRideNeverEnds's picture

Exactly, we will liberate the Chinese (gold) from Tyranny, just like we did to Germany. 

satoshi411's picture

That's funny when AIPAC(OBAMA) told the US-MIL to bomb and invade SYRIA the US-MIL told OBAMA "GO FUCK YOUR SELF"

Same now with UKRAINE, ... US-MIL tells OBAMA go fuck yourself.

*

The US-MIL will never go to CHINA on behalf of AIPAC, sure AIPAC would love that their 500LB gorilla on leash ( USA ) kill the rob, and rape the world, but the KILLER's, aka US-MIL, can and does say "FUCK YOU" to AIPAC.

 

laomei's picture

China's got a shitload of nukes as well.  Japan's in a position of reliance on China economically and has a shitload of investment in China, as there's zero growth in Japan.  So Japan picks a fight.  China responds by slapping an embargo on Japan, freezing all Japan-related accounts and nationalizing all Japanese investments.  Japan's in a bit of a pickle now, as their only choices are escalation, collapse or admission of defeat.  Escalation will be met by glassing the place.  It's right next to China, there's zero actual warning, and no time for the US to do much in the way of stepping in.  There, now all the Japs are dead, people might bitch at China about it, but all the Japs are dead, that part of history is now over.  The rest of the world now faces a decision, fuck themselves over by attempting to sanction China, or just move on.  China still has the whole war criminal and attempted genocide cards to play, so it's not like it's coming from nowhere.  

satoshi411's picture

I agree with what your saying, the only problem is you get your information from western BIAS, and mis-information.

*

Yes, gold is bought on credit and yes it will go UP, but make NO mistake that anybody is going to KEEP the GOLD forever.

Land is held forever, and farms, and homes for future family, but GOLD is just a cyclic investment, and it will be dumped when it reaches the expected cyclic peak of 500 RMB/gram,

Asian's NOT are stupid, only a western hairlip thinks BTC will go to a 1M USD, or gold will go to $50k.

[ We have a saying in CHINA you don't FIGHT CHINESE MOMMA, and if she say's she will SELL her gold at $2392 USD ( ounce ), then she will, and GOLD, will go down, until MOMMA see a new BUY range and then process repeat itself. ]

 

fockewulf190's picture

Asians are indeed not stupid.  If a chinese mother wants to sell her gold at that level, then she will, but the main player in this Game of Thrones is the Chinese Communist Party, and I guarentee you THEY will not sell their gold for that amount.  Not with the amount of debt they have on the books and with a very good possibility that they will gain control of the gold market in the near future.  No, the Chinese are the only nation on this Earth right now who are truly planning for the future and they are looking out for number one. 

satoshi411's picture

Asians sell their GOLD for CASH on the street and only CASH, GOLD is the most liquid asset in ASIA.

The GUBMINT don't have a fucking thing to do with GOLD.

The GUBMINT however has TOLD the people "BUY ALL THE GOLD YOU CAN", cuz when the USA-RESET comes and it will, the CHINESE GUBMINT doesn't want its people hurt.

on the other hand the USA gubmint doesn't give a fuck about its people,

and in the USA buying/selling GOLD on street isn't possible and it is government controlled.

Is asia buy/sell GOLDi is just a cash transaction with no paper record.

 

hobopants's picture

China is going to go boom like a nasty fart because they decided to copy our dumbass system of central planning. They don't have any kung fu super powers, or moral superiority. They will be in the same boat everyone else is in when this thing blows. Do away with your nationalistic optimism bias and think objectively.

DoChenRollingBearing's picture

satoshi411, you say CHINESE MOMMA is going to sell her gold at around $2500 or so.

No way I am selling any of mine until we hit mid-5 figures...

satoshi411's picture

So CHEN now your telling us that your a CHINESE-MOMMA?

I hope your young, cuz it will take a long time to go mid-5 figures in USD, sure could happen, but I think USD will evaporate long before.

Remember CHINESE-MOMMA is 50+ she can't take it with her, so she has to cash out in next 10-20 cyclic high to enjoy good life.

You sound like an 18 year old white-kid probably ABC, ... but for sure young, so sure you HOLD your GOLD in SGD or CHF,... it will go up.

Yes, when the USD is worthless it will take 100 M USD's to buy a loaf of bread so fucking what?

*

Anyway's your talking 'speculation' ( not unlike fonestar ), chinese-momma talking investment ( sure thing ).

 

DoChenRollingBearing's picture

Well, thanks for playing, good guesses, but wrong on all counts.  I am a 57 yr white bread married to the nicest Peruvian-American in town.

That would be $55,000 / oz non-hyperinflated 2009 US$.

My physical gold is in six different places.

***

"Do Chen" means "rolling bearing" in Mandarin a Chinese-Peruvian guy told me years ago.  That's why I chose my moniker.  We buy some of our pieces from China.

***

10-4 re speculating in BTC.  That is about the ONLY thing I speculate in now.

hobopants's picture

The 800 pound gorrila in the room is the US military and whether or not the citcumstances surrounding the coming collapse will allow for it's mobilization. If things hold together long enough for a false flag, then we would simply plunder the resources we need from China or whoever. Not saying that's a good thing, just saying the people up top will do anything to stay there.

On the other hand shit could go so bad that the military stops getting paid and we end up selling all the equipment at fire sale prices. Either way it sucks.

satoshi411's picture

IMHO CHINESE and USA love each other.

Let's NOT forget here that we fought the JAP's in WWII, but CHINESE were are friends.

Most CHINESE to this day love USA, cuz we BOMBED Japan with NUKES.

*

Why in the fucking hell would US-MIL want to fight CHINA? Stupid fucking assertion.

US-MIL wants free OIL. US-MIL doesn't want rice or desert.

US-MIL is fed by FIAT, and when FIAT goes bust, US-MIL is fucked, which means PENSION is fucked.

CHINA is buyer of USA FIAT, thus US-MIL pensin is fed by CHINA.

US-MIL Generals are stupid.

All this CHINA bashing is gold-man-sacks orchestrated and not a fucking thing to do with US-MIL.

 

hobopants's picture

You do love your over simplifications and baseless generalizations don't you.

"IMHO CHINESE and USA love each other."

"Most CHINESE to this day love USA, cuz we BOMBED Japan with NUKES."

The united states is allied with Japan and subject to a mutual defense treaty. No such arrangement exist with China

"US-MIL is fed by FIAT, and when FIAT goes bust, US-MIL is fucked, which means PENSION is fucked."

This is only one possiblility among many, depends upon the speed and magnitude of the collapse and also the American militaries response in such an event.

"Why in the fucking hell would US-MIL want to fight CHINA? Stupid fucking assertion."

Look up Thucydides Trap. 

"US-MIL wants free OIL. US-MIL doesn't want rice or desert."

China has more that just rice and deserts they have Gold in abundance now for example and:

"China has abundant mineral resources. A total of 171 kinds of minerals have so far been discovered, of which 158 have proven reserves. These include 10 kinds of energy mineral resources such as petroleum, natural gas, coal and uranium; 54 kinds of metallic mineral resources such as iron, manganese, copper, aluminum, lead and zinc; 91 kinds of nonmetallic mineral resources such as graphite, phosphorus, sulfur and sylvine; and three kinds of water and gas mineral resources such as underground water and mineral water. Currently, the supply of over 92 percent of China’s primary energy, 80 percent of its industrial raw materials and more than 70 percent of its agricultural means of production come from mineral resources."

"CHINA is buyer of USA FIAT, thus US-MIL pensin is fed by CHINA."

China only holds 8 percent of total US debt.... they are not paying the military.

"US-MIL Generals are stupid."

This isn't an argument. It's just an ignorant statement.


 


 

Gief Gold Plox's picture

It seems that China is economically more free than the EU. At the very least they're allowed to default. Say that word in the EU and they'll force a Grecovery on you.

Noone defaults evah! EVAH! Draghi will do whatever it takes to prevent defaults.