China Grows At Slowest Pace In 26 Years Despite Record Debt, Currency Devaluation

Tyler Durden's picture

Amid constant liquidity additions, record credit support, a devaluing currency, and admission that the last three years of macro data was fabricated; China ended 2016 with the worst economic growth since 1990...

China's macro data avalanche was a mixed bag. The headline GDP grew more than expected (+6.8% YoY) but Industrial Production disappointed and while retail sales rose more than expected, fixed asset investment growth missed.

If debt is growth then China's transmission mechanism is officially FUBAR as Q4 saw the largest surge in aggregate financing ever...

Credit expansion at close to twice the pace of GDP growth will be tough to sustain without putting financial stability at risk.  

And a massive devaluation occurred in the yuan during Q4... (along with soaring bond yields and rising default risk)

 

And the result of all that...

  • GDP (4Q): +6.8% BEAT +6.7% Exp
  • Industrial Production (Dec.): +6.0% MISS +6.1% Exp
  • Retail Sales (Dec.): +10.9% BEAT +10.7% Exp
  • Fixed Assets Investments (YTD): +8.1% MISS +8.3% Exp

As Bloomberg notes,

"Stable growth has come at the expense of higher leverage and bubbles from bonds to bitcoin. A policy shift toward controlling financial risks and curbing housing prices will weigh on the economy in 2017."

On a long-term horizon, the economy seems to be filled by ever-growing debt rather than investment or consumption.

Reaction from Stephen Innes, a Singapore-based senior trader at foreign exchange company Oanda:
"GDP beat market expectations. Mind you, China’s growth remains supported by massive government spending and record-setting bank lending which in itself continues to fuel asset bubble fears."

*  *  *

As a reminder, Bloomberg notes that a shrinking working-age population, reduced scope for additions to the capital stock and diminished space for productivity gains mean that China's potential growth is slowing. Bloomberg Intelligence estimates potential growth at 7.1% in 2016, down from 7.3% in 2015 and on a path to 6.5% by the end of the decade.

As Enda Curran, Bloomberg's Chief Asia Economics Correspondent, concludes...

Of course, there is a cost to propping up GDP like this. And that's debt.

 

 

It's hard to look past the headline number without considering the gargantuan lending China's banks were forced to pump into the economy to keep things chugging along. We know that policy makers are aware of this risk given the recent signals about prudent monetary policy and a tolerance for slower growth.

The initial fallout was a drop in the offshore Yuan rate (following Yuan strength going into the numbers thanks to Yellen's dovish comments)...

 

 

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r0mulus's picture

Stop the spamming you prick. You must be a bot seeing how quickly you posted.

Somebody de-instantiate this fool ASAP!

Orly's picture

Dude,

You're talking to a bot.

:/

hoyeru's picture

it still grew a lot more than USA's GDP. Many times more

Stormtrooper's picture

Not to worry.  They got all(most) all of the gold money.

besnook's picture

you know it is really bad for the usa when, if the growth rate(that is growth. china is growing) of china's economy slows down to 5% the usa economy will tank.

20 years ago a 6.7% rate of growth was in a tiny economy relative to today's economy where 6.7% growth in this size economy is huge.......while the usa is barely growing at 2% in an economy that is only a coupla trillion dollars larger than china's economy.

T-NUTZ's picture
China Grows At Slowest Pace In 26 Years Despite Record Debt, Currency Devaluation, and Active Government Manipulation of economic statistical data. 

 

Fixed it for ya!

pc_babe's picture

USA ... Grows At Slowest Pace In 26 Years Despite Record Debt, Currency Devaluation, and Active Government Manipulation of economic statistical data.

Fixed it for ya!

bluskyes's picture

Mirror of us credit expansion?

ArtOfLife's picture

26 years ago the Chinese economy was about 30 times smaller. So in absolute number you could say that the Chinese economy is growing 30 times faster than 26 years ago. But I guess that's not a nice clickbait title.

Orly's picture

Plus the fact that the Chinese have allowed their currency to float somewhat and the overall economy is being re-tooled for a more consumer-oriented home base..

I think Mr. Xi is doing a fine job.

Unfortunately for him, populism is a global trend and Mr. Xi may find himself in the pickle of Mikhail Gorbachev in that his tools and attitude come too late to keep the jin in the bottle.

:D

U4 eee aaa's picture

The problem is that all the debt they have issued creates interest payments that work as a drag on spending. They brought future spending forward to buy things now. Thus their future spending will be consumed by servicing debt. So they have entered the vicious circle that debt traps people in

Debt can be good when the cash flow it creates exceeds the interest cost. The problem China has made for itself is all this debt just went into overcapacity, inflation and frivolous consumer goods. These are all things that don't help your cash flow but just mask a distorted economy

hedgiex's picture

This is not factual, they have stalled consumption reforms. Even their PBOC and their Politiburo acknowledge it. Xi is doing a fine job ? It is a matter of perspective. He is still fueling the export economy in a world now with deficient demand. As such, the zombie state owned banks and enterprises are kept alive. All these are protecting the vested interests. While the economy is tottering towards an implosion, His ego must reach out to forays in South China Sea and other trips. He must look good internally this year while the Politburo of 8 is due for a renewal. To look good is at the expense of the economy and the People. The global markets are not benign (righty so) to allow China to go on its long soft landing. 

readyforit's picture

Looks like Fake, Fake News.

 

Red Wire's picture
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Long memory man's picture

Their growth rate is 223% more that the UK, and please do not forget that Chinese banks have $22 trillion in their accounts, whereas most of the banks in the "modern free world" have consumer credit, a euphamism for debt, in their accounts.

Different game, as already mentioned real money (gold) is in the east, only paper gold at Comex and LBMA.

 

 

Citizen_x's picture

 

Yes...If China chose to...they could LBO the Federal Reserve.

DingleBarryObummer's picture

DJT should have said "Big Fat Ugly GLOBAL Bubble"