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Why Chinese Growth Forecasts Just Crashed To A Paltry 3.9% - And Are Going Even Lower - In One Chart
Up until a few years ago, conventional wisdom was that China would grow at nearly double digits as long as the eye could see. Then, however, something happened, and China's 9% growth became 8%, then 7% and even lower, as suddenly the Politburo made it quite clear China would not chase growth at any cost, especially when the cost is trillions in bad debt and other NPLs, as we have explained time and again. The collapse in Chinese growth expectations is shown best on the following formerly hockeysticking chart of IMF's revised Chinese growth projections which has completely collapsed in the past few years.
However, now that "7% is the new 9%" the world may have to brace for another major repricing of Chinese growth, one which would put it just above where the consensus, as wrong as it is as usual, sees US growth in the near future: a miserable 3.9% long-term growth rate!
According to the WSJ, citing a report by the business-research group the Conference Board, China's growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy, according to a report expected to come out Monday.
More:
The Conference Board forecasts that China’s annual growth will slow to an average of 5.5% between 2015 and 2019, compared with last year’s 7.7%. It will downshift further to an average of 3.9% between 2020 and 2025, according to the report.
The New York-based Conference Board argues that productivity in China is declining, in part because investments in infrastructure and real estate don’t have the payoff they once did. Meanwhile, government and Communist Party officials who don’t give market forces a large-enough role are stifling innovation.
“The state is too present in the market,” said David Hoffman, managing director of the Conference Board’s China center.
...
Such an outcome could batter an already fragile global recovery. But the report by the business-research group the Conference Board also finds that multinational companies in China would benefit. Lean times would give foreign firms more local talent to choose from. Foreign companies and investors could also expect “more hospitable” treatment from Communist Party and government officials and a wider selection of Chinese firms they could acquire, according to the report, which was shared with The Wall Street Journal.
Foreign companies should realize that China is in “a long, slow fall in economic growth,” the report said. “The competitive game has changed from one of investment-driven expansion to one of fighting for market share.”
Of course, there are many ways to spin the decline as a silver lining, but what is assured is social turmoil: recall that once upon a time the conventional wisdom was that China needs 9% growth just to keep pace with the natural growth rate of the population, the inbound province-to-city migration of the population, and keep everyone employed. Then the 9% became 8%, then it became 7%, and the fundamental reasoning for China's historical supergrowth was quickly forgotten, because the last thing the world needs is a reminder that Chinese social instability is always just one mass civil riot away. A riot where mass unemployment would merely serve as a catalyst for. A riot of which what is going on in Hong Kong right now is merely a pleasant appetizer.
Sadly for China's social instability, Chinese growth is going not only to 3.9% but much, much lower.
The reason? Quietly, over the past 5 years, China raked up an epic debt load, which by 2015 is expected to hit a whopping 252% of GDP, or a 100% of GDP increase in debt, just to keep its growth dynamo running. A dynamo which has now fizzled, as can be seen best in the Chinese housing bubble which as we have reported previously, has now burst, and China is desperate to keep imminent hard landing, as controlled as possible.
Here is Exhibit A.
Needless to say, this is an exhibit which China is very well aware of and is already taking measures, only not in the conventional Keynesian sense of issuing even more debt to fix a record debt problem, but somewhat more pragmatically, as we showed before in "China's Rising 'Working Class Insurrection' Problem" and, more importantly, "Stunning Images Of Chinese Riot Police Training For A "Working Class Insurrection"."
The good news for China at least, is that it is preparing for what it now quite well is the endgame. The bad news for all other Keynesian banana republics such as the US, is that when said insurrection comes, "nobody will have seen it coming."
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When the fuck have the Conference board predicted anything correctly?
Guys, I'm really struggling with my econ assignment - I know a lot of you guys are pretty clued up on the economy so I wonder if you can help me out? The topic is "Advanced Economic Planning" and the question is as follows:
You have just been appointed as the new Chairman of the Federal Reserve Bank. The economy is recovering from a recent stock market crash and inflation has been ranging from 3-4%, substantially below your target rate of 6%. Consumer spending has been consistently poor, and economic confidence is at an all time low. Name three courses of action you would take. Justify your answer.
Any ideas?
this is Amerika
either pay prof a bribe
or
follow and take compromising pics
National Lottery is the correct answer. Sell Tickets at 10 dollars each. The winner gets to keep all the Feds Money and Gold. The debt is gone and Countries we owe will have to sue the Winner. Too bad when the winner finds No money and no Gold.
1) Print lot's of fiat.
2) Suppress the price of PMs with naked contracts and buy them up on the cheap.
3) let the system implode.
Bonus answer:
Distract the populous with plague, famine, and war.
Only problem with your bonus answer Doc is cant seem to find any Ebola news, Headlines on Fox are a pupply sized spider and a mass murder in Indiana...... I presume, Ukraine is solved, Isis/Isil has been defeated, and Ebola is contained.
I submit an alternate bonus answer as District the population with a question is Kim Kardashians ass fat or Phat?
Famine, war and the plague aren't distractions.
They are if its not happening to you and when its happening to you it's too damned late to bitch. America has no recent experience of starving and freezing in the dark....
Doc, say it isn't so. You work at the FED? /s
http://www.zerohedge.com/news/2014-10-17/friday-humor-forget-qe4-present...
1. Continue pretending something actually can be done to return the world to pre-2008 party mode.
2. When things start to go sideways again, make sure attention shifts squarely onto Washington DC.
3. Exit stage left in a hurry the moment Washington DC grabs the levers.
Justification: ha ha.
First thing I'd do is triple the hookers and blow petty cash fund.
MDB- It's a trick question. The answer is ALWAYS expand the money supply. Always. One, two and three- same answer. Hint on the details: Fed funds rate, Reserve Ratio Requirements, Interest on Excess Reserves.
Why? Because what else does the Fed do but expand the money supply (or contract it, which has never happened, although it is theoretically possible)? It's only the RATE of expansion in question, not whether there is going to be expansion.
My formal training is in economics, but I'm feeling much better now.
Alternatives to QE: (Not that I like these, just trying to guess our Future)
- Take all Income taxes & Corporate Taxes for 2 years and pour them into the US Stock Market, should be $1.5 Trillion plus, it is all Fiat anyway, and by the end of the first Year Public Outcry on the Federal Budget would Drive Congress back to really doing budget work and cutting costs
- Federal Platinum Fund in US Treasury which would pour money into US Stock Market, it is all Fiat anyway
- Privatize Social Security, pour money into US Bonds & US Stocks
- US National Industry for Global Radio Active Waste Storage & Disposal, Pay us, we put the money into US Stocks & Bonds
- US National Lands Leasing, Mining, Drilling, perfect for small rich countries like Singapore who need land, pour the money into US Stocks & Bonds
- US National Fund of Real Estate that is Vacant/Foreclosed, after inventory, sell to foreigners, make loans available for Foreign Buyers, pour money into US Stocks & Bonds
Buy all kinds of dog-shit assets from banks along with equities and equity options and mark it all in the "Other assets" line item.
1) Cut regulation, use as much printed money as needed to cause this to happen. Outside criminal law, and direct liability you basically want the government to leave all business alone from the mom-n-pop's up to the big corporations.
2) Ensure the currency is well backed with tangible reserves.
3) Resign.
Choose any of the three or all three.
(Forget your 'inflation' target, but understand that the lack of public direction of the means of production, with legal consequences limited to criminal activity and direct liability, money will come pooring in from all over the world. In doing so the national currency will be more expensive - ergo prices will drop. Banks that have maintained a proper reserve and excellent loan standards will do well with all the incoming investment from overseas. The rest should and will fail.)
Well, MillionDollarBonus. The first thing that needs to happpen is to give everybody over the age of 18 a wage from the Fed and raise taxes to get back from those that dont need it. Second i would put an import tax on all American Companies that have shifted their Factories out of the Country. Thirdly I would give the States Funds to fix all those overdue repairs that are just waiting for funds and this would also give plenty jobs to the People and with Money in their Pockets you would then have a real recovery.
"the state is too present in the economy..."
the same is true here.
my neighbor's half-sister makes $63 /hour on the internet . She has been out of work for 10 months but last month her pay was $16551 just working on the internet for a few hours. More Info... www.job-reports.com
europe china's biggest export market
europe entering another recession ...
TPTB better start blowing things up soon so we can get these economies rolling again by fixing them. A couple well placed war heads should be stimulating.
Betcha, China's electrical use shows much less than 3.9% growth.
Yes. If the numbers the Chinese let us see are this bad, the reality has to be much, much worse.
Yes, would take lengthy analysis to really cover everything.
But China doesn't have derivatives.
rachaelsdaad
Electrical use is down because they stole all Tesla's technology and are counterfeiting their designs.
Still triple the growth of the US.
todays zh brought to you by: barclays, aarp, blackrock ( x 5), vanguard, hsbc (x 5), merrill lynch, and synchrony bank. :)
"predictions"....
LMFAO!!
Elboa was just a test,
for real pain
the Yellow man has a name
Eunuchs.
Who cares about China. All that matters are the US elephant markets. 60% of global market cap! What a joke.
Welcome to the party .... say hello.....May not happen today but It will happen Tommorrow.....sorry....I be drinkin my beer.....my-as-well have a bit of fun before the stupid
sick
I like how nobody is expecting Chinese deflation. Largest credit bubble ever? Yep, there's zero chance of that deflating.
MINUS 8%
That is current chinese GDP
If you think China, Germany etc will continue to be enslaved to the rest of the world and provide goods and services for USA and rest of EU, then you might be living on Mars or Venus, but not on planet Earth.
World trade is dying because USA and EU bank lobby oligarchs simply controll all pricing or world goods by controlling digits on computers.
Globalization is dying. Nobody will trade real goods unless world wide the way it is going, just local
That is what I said in May 2013 and that is what is happening
ekm1,
Perhaps your perspective is from experience.
With all the human suffering that globalization has fomented, I pray you are spot on with it being in the death throes.
None of us will more than likely enjoy the results, but something's got to give. Beside the proles of course.
There are advantages and disadvantages of globalization.
If world goes local, standard of living in the west will collapse.
Most of our factories have been shipped to east asia. The first to collapse from deglobalization will be EU and USA
Those "Wonderful Freedom Loving Bankers"... I mean Fiat Loving Bankers.
Why don't our Academic Fiat Lovers invent Countries that are just Consumers and Pumpers of Fiat where the cost of living goes up every year.
Oh I guess USA is that. We just also have Engineers & Designers who's factories and research facilities are overseas... Well we still make Weapons, Bioweapons, and start Wars. We just don't want to pay for them.
Imagine getting 6% on your savings.
China must be where our interest rates and jobs went, eh?
For years, 8% was proclaimed the minimum necessary to stave off social unrest. Of course, not even China's own president ever believed his own governement' statistics. This should get interesting....
The entire world is moving towards the bottom of potential. Yet those that think they have the cure and and doing the most damage stand in the way, blocking the path to a complete reversal of this misfortune.
Why is their ignorance so high?
Because they think that data equals knowledge, and knowledge is power.
Data is just data. And if you cannot grasp what it is saying, or pcik the data only to support your beliefs, you are screwed.
From globall warming to central banks, the mistake is pretty much the same.
To break their stranglehold on the world will be very painful.
A growth rate of the order of 5% is really bad news .
It means revolution in China , or at the least severe unrest .
Why ?
The growth rate is intimately connected to the type of society through millions of feedback routes .
See http://andreswhy.blogspot.com/2012/03/reduced-chinese-economic-growth-ra...
A war with Japan will bump Chinese GDP by 3 full points -
I seriously doubt China will ever report 4% growth anytime soon. That isn't to say they won't actually see that or even lower, but they won't be reporting it.
3.9%???
In terms of REAL, properly- and profitably-allocated investment Chinese growth is ZERO.
yea not sure how building ghost cities is considered real gdp
The Chinese have been there before you .
https://www.academia.edu/8872647/Non-Aristotelian_Universes
The debate continues as to how stable china really is. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need.
Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html