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The End Of Rebalancing: Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse
Submitted by Bryce Coward via Gavekal Capital blog,
Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth.
Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.
Is this sustainable? Of course not. As we have been saying for several years now, Chinese growth is going much lower as the economy rebalances from being an investment led model to a consumption led model. One of the signs we’re looking for to indicate that the transition is taking place is actually a slowing of new loan growth and improvement in the indicator in chart 1. We’ve got exactly the opposite so far, which is an indication of the Chinese pushing on the debt string even more to fuel growth rather than accepting slower growth still, but a rebalanced economy.
This, in a perverse way, probably increases the risk of the dreaded hard landing as the chances of a credit “event” rise even further.
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No, no, the markets will go up forever!!
/sarc
I just got this "warm" feeling that the needle that will actually pop the mother of all bubbles will be something that nobody had on the radar screen. Not China, not a big bank going bust, not the EURO breaking apart, not the migrants "crisis", not the war in Syria, not the situation in Ukraine. Something completely different.
Just brainstorming here, but for example:
- The internet being down for several days (could that be?)
- A group of terrorists or blackmailers reveiling that they can remotely control Airbus planes
- A major earthquake in a place that didn't have an earthquake since a long time
And just to be clear: By "warm" feeling I didn't mean that I am wishing for something terrible to happen. I would just be glad to see this stupid bubble finally burst so that we can all have a party and then finally go on with our lives again as we ought to.
Stop looking for reasons not to go on with your live, this shit has been going on for years and could take a while longer. Just be ready to party
Coupla places come to mind.......The Subduction zone off the coast of Washington, can't recall the exact name, San Fran/Andreas/LA, Teheran - way overdue, Canary Island Volcano Collaspe?Tsunami Atlantic Ocean - Goodbye fucking world! Any will have made this miserable fucking life worth living just to go out in stlye, and witness the grand scale of it all, best circus yet! make sure you don't die a virgin!
Something like huge asteroid hiting earth and killing all lifeforms.
That would pop all bubbles including overpopulation of earth bubble.
...and, depending on the composition of the asteroid, possibly increase the amount of available gold.
In which case, if I weren't dead I'd be angry.
No, no , no NOO.
There is no overpopulation of earth. There are many things we may have in over-supply, for example prognostication soothsayer experts, but people is not one of them.
People are a resource. The goal for every one of us is to best-help our fellow man exploit their potential. You may humanely exploit your fellows, so long as it is agreeable to both parties. 'Humanely' can be interpreted to local standards.
Pretty standard game and rules, it seems to me. The exact problem is the feedback of political power and money. That gets out of whack every few hundred years, enough that there is a peasant rebellion.
Can you believe that both sides are arming because of external enemies? What external enemies? And, whatever they try to tell us, we know Muslims are not an enemy, external or internal. Way fewer non-FBI Muslim terrorists than our own crazy young have produced, and with far more provication. And not blacks either, I think our young people are mostly past that.
I have a lot of confidence in the young friends of my son's, they know who is of what origin, but it isn't any big deal. Everyone is something, and something inside that that distinguishes them, and often inside that. Bits and pieces that you pick up about people, they all find so normal, they share it as part of a normal life in teenage America.
Double post, sorry.
We could have a game called.. name that Black Swan...
I vote for Chines check doesn't clear, Mainland Government says bank Never Existed.
"As it stands now, each new unit of debt is buying less than .5 units of marginal growth"
I am sure Jim Rickards gives the figure for the US as 0.03 per unit of debt.
Now, that's bad.
it's simple math, just use more USD ?!
With so many question marks hanging over Chinese statistics as well as their massive build-up of unserviced debt, non-repayable debt and excess capacity, I somehow suspect that the marginal productivity of Chinese debt might even be zero. Particularly if large swathes of new debt is simply used to prop up the zombies.
Pushing the debt string to stabilize social unrest from potential unemployment not fueling growth. Transition to consumer based economy is in the back burner. They may implode but they do know their priorities. They have a chance to go on Japan style long landing trip. Put your money where your mouth is and bite this snake oil of an imminent crash. Keep believing that the middle class of educated Chinese who really matter will not work with their leaders. That they are stupid, etc is just a matter of prespective from the eye glasses of just another tribe equally conditioned with democracy, liberalism and free markets.