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Chinese Premier Li Admits Central Planning May Not Be Optimal

Tyler Durden's picture




 

In an odd admission of the possible fallibility of a centrally-planned economy, none other than Chinese Premier Li recently noted, "we should never assume that we few at the top have more insight or power but should try to mobilize the intelligence and creativity of the many thousands of our people so as to create unrivaled value." Perhaps the Federal Reserve would do well to listen. However, Li did not excuse himself from the need to spin how well things were going. On the heels of our 11 awkward Chinese fact charts, Li explains "the Chinese market is booming, the economy strong [sic]. Enterprises are the mainstay of the market." However, as Diapason Commodities' Sean Corrigan, when trying to confirm this 'fact', "discrepancies abound."

 

Via Sean Corrigan of Diapason Commodities,

O Mirabile dictu! Just as Premier Li and a whole host of other members of the Madarinate told us handily in advance, the Chinese economy showed signs of ‘stabilization’, nay, actual improvement in both the all-important the GDP release for QII (7.5% v 7.4%) and the industrial production data for June (9.2% v 8.8%).

And why not when, pressured from above to ‘frontload’ their outlays, local government expenditures rose 16.4% year on year in the first half (and 6.1% in June alone) while basic tax revenues (i.e., receipts not including land sales) declined by around 4%? Why not, again, when under the approach of ‘Every stimulus of a macro import begins with a micro step’, the credit spigots were once more liberally opened as the quarter wore on, to the point that June combined the second biggest jump in M1 on record with a 32% yoy leap in ‘shadow’ finance (admittedly that latter calculated from a base which included last year’s quarter-end liquidity shock)?

...

In trying to parse the numbers themselves, as ever with China, discrepancies abound.

 

For instance, a US-style quarterly-annualized count of GDP supposedly shot from 6.1% to 8.2% between the first and second trimesters, yet the increase in overall electricity use (on a YOY basis) dropped from 5.4% to 5.2% making that either a glaring sign of fiddled numbers or glowing testimony to a remarkable improvement in energy efficiency. I wonder which it might be?

Similarly industrial production is said to have gone from 8.6% annualized to 9.2% annualized, yet power consumption in that area slowed from 5.3% to 4.9%, apparent oil demand edged up by less than 1%, the CISA said steel consumption showed no growth whatsoever to May, and. all the while, rail freight tonne-kilometres fell 4.5% over the first five months of the year.

Furthermore, the 3mma YOY output numbers for a range of major industrial products came in as follows: glass, +5.1%; cement, +3.8%; motor vehicles, +5.0%; chemical fibres, 4.9%; non-ferrous metals, 5.7%; steel, 6.6%, and coking coal, -2.7%. No sign of any 7-, 8-, or 9-handles in there, you will note.

Coming at it from another angle, H1 Nominal GDP was supposedly up 8.5% on the comparable period in 2013, with QI up 7.9% and QII a faster 9.0%. Though this is perhaps a bit racy, it is a pace which is not entirely out of keeping with the path of the SOE revenue data (5.9% in HI, split 5.6% QI and 6.2% Q2). The quickening sits a little less comfortably, however, with the first five month tally of sales of the universe of ‘above scale’ industrial companies which is running at 8.1% YTD after putting in an 8% clip during first three months and 8.2% for the next two.

If problems lie – as they usually do in Austrian-style busts - up in the higher orders of production where the SOEs tend to be bunched, an undershoot of business revenue to end-consumption focused GDP is in no way anomalous (just look at the GFC in the States where NGDP only dipped 3.2% peak-to-trough even as private non-financial revenues plummeted by nearly a fifth) and the specific application of a minus-1% PPI deflator could even get us back to the (real) 9% given for IP (ignoring the slower pace of sectoral increases mentioned a couple of paragraphs ago).

What this does not do, however, is leave much room for any more general price rises in the compilation of the final numbers, even though their presence is a constant source of complaint whenever the locals are surveyed. Such use of artificially favourable deflators to boost the real GDP number is a charge that is commonly levelled against the NBS by any number of respectable commentators, but that is to take us into very murky waters, indeed.

*  *  *

In any case, what is clear is that, taking the numbers at face value, debt levels are still rising with destructive rapidity in order to achieve even such spotty results as these.

Coming from the broadest perspective, Nominal GDP in the June quarter was an annualized CNY4.7 trillion greater than that of a year a year ago, but in that like period the stock of ‘total social financing' outstanding mounted almost four times as much, or by CNY17.7 trillion.

 

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Tue, 07/22/2014 - 08:21 | 4987207 topspinslicer
topspinslicer's picture

So replace the very few at the tippy top with a few thousand -- I can see the freedom now

Tue, 07/22/2014 - 08:31 | 4987235 GetZeeGold
GetZeeGold's picture

 

 

They sent all their money to the US....of course they're become capitalists now.

 

Note to the US....we've already tried what you're doing...and it doesn't work.

Tue, 07/22/2014 - 09:12 | 4987381 SMG
SMG's picture

"Chinese Premier Li Admits Central Planning May Not Be Optimal"

HA! They should tell that to the Oligarchs running the world right now.

Tue, 07/22/2014 - 11:49 | 4988170 Clint Liquor
Clint Liquor's picture

"we should never assume that we few at the top have more insight or power but should try to mobilize the intelligence and creativity of the many thousands of our people so as to create unrivaled value."

There is already system that does this; It's called FREE MARKET CAPITALISM.

Tue, 07/22/2014 - 12:39 | 4988507 Son of Loki
Son of Loki's picture

China's debt soars to 250% of GDP

 

China's debt has soared to two and a half times its economy, Standard Chartered (London Stock Exchange: STAN-GB) estimates, highlighting the difficulties Beijing faces in balancing growth with the risk of bubbles forming in its economy.

 

http://finance.yahoo.com/news/chinas-debt-soars-250-gdp-034214943.html

Tue, 07/22/2014 - 15:02 | 4989032 The Wizard
The Wizard's picture

It's good to see you used the term "free market" capitalism. What the mainstream calls capitalism is far from free markets. It is the manipulation, of not only markets, but terms that describe them

Now that the fine Chinese leader has come to such a realization, what is his solution for implementing such a system? Could it involve theft, through elitist government regulation, of what the thousands free marketers innovate? China does not seem like a candidate for free market innovation and control with a population educated under the precepts of Mao.

However, Premier Li needs to get an A for coming out of the closet on his revelation. The Chinese are much better at analysis via systems theory than their counterparts in the West who continue to be in denial of their manipulative ways.

Tue, 07/22/2014 - 09:51 | 4987557 Raging Debate
Raging Debate's picture

topspin - IF they follow through it would be better. I see a problem with our government as too few representatives. The more reps, the more debate being conducted in bill crafting. The more reps, the harder it is to buy off the government, it should be prohibitavly expensive.

Think of many 3D structures with one guy at the top of the pyramid. We have and are continuing to evolve into 4D structures. Tools and architecture are reflections of our evolution of our minds, our thinking and that is accelerating rapidly.

Harnassing creativity from the masses using 4D structures like social networks is something I hope the Chinese pull off.

Tue, 07/22/2014 - 08:23 | 4987210 buzzsaw99
buzzsaw99's picture

For instance, a US-style quarterly-annualized count of GDP supposedly shot from 6.1% to 8.2%...

didn't even need to read the article to know that was coming. thought it would be 9.2% though. jebus why don't they end their lies with something other than "point two"?

Tue, 07/22/2014 - 08:31 | 4987234 negative rates
negative rates's picture

When there are no truths left, you have to begin and end with lies.

Tue, 07/22/2014 - 08:32 | 4987240 GetZeeGold
GetZeeGold's picture

 

 

If you want your lies.....you can keep your lies.

Tue, 07/22/2014 - 08:36 | 4987249 negative rates
negative rates's picture

If you want your spies, you can keep your spies. : > )

Tue, 07/22/2014 - 08:42 | 4987267 GetZeeGold
GetZeeGold's picture

 

 

With spies like us......who need allies?

Tue, 07/22/2014 - 08:24 | 4987216 onewayticket2
onewayticket2's picture

"we should never assume that we few at the top have more insight or power but should try to mobilize the intelligence and creativity of the many thousands of our people so as to create unrivaled value."

 

the US president does not believe in self governance as much as a ChiCom leader.....wow.

Tue, 07/22/2014 - 08:27 | 4987225 AE911Truth
AE911Truth's picture

Why is this (following memo) not front page news on Alternative Media sites?

The World Bank 1818 H Street N.W. (202) 473-1000 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD

INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS

June 30, 2014

Tayuan Diplomatic Building No.1, Xin Dong Lu,

Beijing, People’s Republic of China

H.E. Mr. Anthony Liverpool

c/o Ministry of Foreign Affairs and International Trade Queen Elizabeth Highway, St. John’s, Antigua

Your Excellency,

The fractional reserve fiat currencies issued by central banks comprising the “network of global corporate control” described by Stefania Vitali, James B. Glattfelder, and Stefano Battiston of ETH Zurich, http://arxiv.org/PS_cache/arxiv/pdf/1107/1107.5728v2.pdf are to be replaced by gold coins, gold leaf, and aurum1, denominated in each of the world’s currencies.

My Memorandum dated June 22, 2014 to the World Bank’s Board of Executive Directors describing the Global Debt Facility which will provide the gold, together with the first Monetary Agreement to be entered into with the Government of Japan, can be downloaded from https://s3.amazonaws.com/khudes/mboard3.pdf. and https://s3.amazonaws.com/khudes/Monetary+Agreement1.pdf

Similar letters are being sent to other countries, with a target for signature of Monetary Agreements in Tokyo at the end of July. Please let me know the contact person for Antigua.

We would like to conclude the Monetary Agreements on the same closing date if this is feasible. It will also be possible to arrange for signature in counterpart.

Sincerely,

Karen Hudes

Acting General Counsel

International Bank for Reconstruction and Development

Source: https://s3.amazonaws.com/khudes/ltokyoembassiesoutoftokyo.pdf

Tue, 07/22/2014 - 08:34 | 4987243 negative rates
negative rates's picture

Thank you for your concern, it shall be deposited at the feds waste paper basket in approximately 5 minuts.

Tue, 07/22/2014 - 08:37 | 4987255 MrSteve
MrSteve's picture

In the USA, we mark to model per FASB, so the fiction is officially blessed here and no different from the more flamboyant ChiComms. With money now being electronic bookkeeping entries, why can't credit be infinitely available if "value" is "modeled"? Losses and debts are just "modeled to zero" and everything is in positive balance!

Tue, 07/22/2014 - 08:38 | 4987258 disabledvet
disabledvet's picture

Remarkable improvement in energy efficiency actually.

With mandates for electrical vehicles China has never really followed in the ICE paradigm (hence their massive investments in Africa) making investing in the energy patch outside the USA (by far the largest consumer) a risky proposition indeed.

The bottom line is that as natural gas prices collapse (yet again) oil is in grave danger of having a correction...no matter how massive the war with Russia turns out to be. (Right now it looks quite small actually.)

Tue, 07/22/2014 - 08:45 | 4987286 orangegeek
orangegeek's picture

Hey Barry - you listening to this???

 

If you still don't, then get the fuck out of the WH and move to China.

Tue, 07/22/2014 - 08:53 | 4987332 AnAnonymous
AnAnonymous's picture

It takes an 'american' to read that statement as doubting of planned centralization when it calls for perfecting central planning.

Tue, 07/22/2014 - 08:59 | 4987355 NoDebt
NoDebt's picture

That's what I was thinking.  Sometimes you have to read those things from back to front for the truth to fall out of them.

Tue, 07/22/2014 - 10:06 | 4987633 laomei
laomei's picture

Li has basically zero influence or power, he's more or less a Biden.  And that's a good thing.  Economists and lawyers should *never* be allowed to be put in charge of anything.

Tue, 07/22/2014 - 11:51 | 4987674 WhyWait
WhyWait's picture

If one were to ignore the role of debt, and look at these numbers from the vantage of an imaginary world where there is work to be done, natural resources to be worked with and people to do the work and apply their creative and imaginative resources to the problems, obstacles and opportunities before them, this looks like a basically healthy set of charts.  After all, if you take the black lines and set them to zero, practically every chart still shows positive growth.  

This is the way the world would work in a properly functioning socialist society, if one could be created. And that perhaps is the imaginative world many Chinese still live in, not having ever experienced a full blown capitalist crisis.  But despite having a state-owned central bank, many "legacy" state owned enterprises and a major state stake in many private ones, that's not the real world they live in.  

ZH readers are watching a parade of indicators that the Chinese economy, despite its apparent strength, is going critically unstable, driven by the same dynamic that is driving practically the entire world economy into instability.  The Chinese elite, intent on laundering their wealth abroad through schemes like buying Park Ave. penthouses and Beverly Hills mansions, evidently are acutely aware of this instability and are not confident they or their wealth will survive it.  And we get occasional reports of ongoing waves of strikes, struggles and demonstrations across China on a scale dwarfing anything we've seen here since the '30's.   

I have little doubt ZH is right.  China is going unstable.  Deng Xiaoping proposed based on a convenient interpretation of Marxism that China must use capitalism to industrialize and that real socialism would come later.  Now they are facing its limits - not that Chinese capitalism doesn't have the resources to absorb this crisis and emerge into a new cycle of growth.  There is still all the publicly held property to privatize and digest - or to fall back on if they choose to try retreating from capitalism. (In this they resemble Russia.) But this first great Chinese capitalist crisis is occurring in the context of a world crisis where the global elites and their banks have swallowed or are swallowing nearly everything and have no way forward except war, swallowing everything that's left on their periphery and then swallowing each other. Like a dying star consuming its last fuel before it implodes and detonates. 

It seems clear that the stage is set for a great internal conflict in China, a choice of paths, in the context of an increasingly desperate but still militarily very potent Global Empire led by the US, prepared to use all means, fair or foul, to break China's independence, swallow its remaining publicly held resources and eliminate Chinese resistance to its ability to dictate the terms of the coming global reset. And China, perhaps more than Russia, is facing this crisis deeply divided and "illusioned".  

The "choice" will not be made in a board room in Beijing or Shanghai.  It will be more like a "choice of history", coming out of a titanic life-and-death showdown between China's new billionaire class and those still clinging to the state sector and the "socialism later" side of Deng's game plan, with both sides trying to capture the narrative and channel the energy of an outraged and rebellious populace.  And it is foreseeable that the billionaires, when they feel sufficiently threatened, will turn for help to the Empire - and try to dress that up as something other than treason.

We are watching many different crises around the globe on ZH, all coming to a head together, merging into a single great global crisis. Hanging over us all is the cruel reality that if the power of the weapons that have been accumulated over the past 70 years is unleashed we all, our entire civilization and perhaps our entire species, will be destroyed. And the evidence is clear that our own criminal rulers are willing to threaten and risk this total destruction to get their way. China is a key part of this global crisis and in the denouement that is coming.  But what will that part be, how it fits with the rest of the global drama, will be determined by the unfolding dynamic within China, in interaction with the global economy, the Empire - and their own play for a dominant position within the fragile Anti-Empire Coalition being facilitated by Putin's Russia.

ZH is such a valuable, indespensible window into this drama.  But even through the lens of ZH the story is still occurring as disconnected pieces. Perhaps the fascination Tyler and many ZH readers have with Vladimir Putin is that he alone among world leaders seems to be struggling to grasp and synthesize this increasingly chaotic world scene and able to imagine and attempt to navigate a global path for Russia and the world, a realignment that could evade the choice between total submission and total destruction.

Putin has given no outward sign that he can picture what will happen inside China, but in cracking down on Russia's own billionaires he certainly reveals that he is as well equipped as any to see it coming and think about how to factor it into his game plan. 

Tue, 07/22/2014 - 11:40 | 4988118 teslaberry
teslaberry's picture

if there is one next major hope for wall street, that is the fed to unload the real bubble---BONDS-----it is the chinese bubble bursting.

if bonds can be unloaded safely , then the bursting of the next stock bubble will not result in a near instantaneous downgrade of all u.s. debt at the international level. there is no way for the fed to sell any more bonds without interest rates skyrocketing unless the chinese bubble bursts violently.

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