Guest Post: 4 Reasons Why You Should Stop Believing In Chinese Leadership

Tyler Durden's picture




 

Submitted by Zarathustra of Also Sprach Analyst,

 

Did you know that Chinese government officials are all corrupt?

Did you know that many of Chinese statistics look either weird or totally unreliable to a point that even the Vice Premier can’t help admitting it?

People outside of China have never really trusted the Chinese Communist Party as far as politics are concerned, and probably never will. However, the seemingly unstoppable growth engine of China has produced a remarkable level of complacency among investors that China is going to do well. Indeed, our contacts in Europe even suggest that investors are looking to invest in China because China seems to be in better shape than Europe, and that seemingly depressed Chinese stocks represents a buying opportunity.

Read more: the death of China cult

While recent economic data from China are mixed at best, the market consensus is unanimously biased towards believing that the second quarter is the bottom.  We acknowledge that there is a chance that the government does have enough ability to stimulate growth in the short-run, it was precisely that ability which made matters worse for the long-term. And with the current economic growth model in-place, we argued that China will be a very bad place to invest in even if growth can be artificially pumped up by massive stimulus.

 

Premier_Wen
By World Economic Forum from Cologny, Switzerland [CC-BY-SA-2.0], via Wikimedia Commons

We do not understand the reasons behind the faith in the Chinese leadership as far as running the economy is concerned.  We do have a few reasons on why you should just stop believing in the Chinese leadership when it comes to running the economy.

 

1. Chinese government cannot even get the numbers right

This is not even news. All of those who have actually worked with Chinese economic data know very well how bizarre these numbers can look, and how some of them make no sense at all.  We as a keen watcher of the Chinese economy is not alone in making that judgment.  In fact, vice premier Li Keqiang said it as well.

Poor quality data always leave economists and analysts baffled and unsure of how the numbers should be interpreted (especially in some monthly indicators). Now imagine running the country with a bunch of numbers that either looks weird or simply wrong.

Economists like to use all sorts of aviation-related metaphor to describe an economy (like stall speed, hard landing, etc). To use this to depict the Chinese economy, running the Chinese economy with inaccurate numbers is like flying in a dark night with wrong instrument readings. We all know how dangerous it actually is.

Read More: 10 signs of economic trouble that China’s official data won’t tell

 

2. Reforms? Rebalancing? What?

There is very little doubt that China has some structural issues: low consumption, high reliance on investment, a foreign exchange system which tended to create too much liquidity within the banking system, high involvement of state-owned sector despite apparently lower efficiency, etc. 

Economic data are not totally reliable, yet Chinese leadership know all these for years. The desire to rebalance the economy did not first appear in the 12th five-year plan. It has been mentioned for years. Likewise, internationalisation of Chinese Yuan, freeing capital account, liberalisation of interest rates and many other things that we are hearing a lot these days have been mentioned, on-and-off, for years.

But beyond occasional baby steps, very few have been actually achieved. This is especially true whenever the economy slows and growth became a big concern for the government, like it was in 2008/09: the government did know that the contribution from investment towards the GDP calculation looked too high (which is just part of the symptoms of an unbalanced global and Chinese economy), yet the government managed to boost it to an even higher level for the sake of maintaining economic growth.

They have failed to rebalance for quite a while, and it becomes increasingly clear that the large share of investment within GDP is at the heart of the “growth engine” of China.  So why should you be so confident that they will succeed this time round?  And perhaps more importantly, why should you be so sure that the rebalancing will be in the forms of high growth of consumption and stable growth, instead of falling investment and dramatically slower growth?

Read More: Has the Chinese government given up on rebalancing already?

 

3. Chinese government officials are corrupt at all levels

We are not the only ones who think Chinese leadership are all corrupt. In fact, you cannot be not corrupt in order to survive (that is, of course, excluding the moment when you got caught or you lost out in a power struggle). As a result, we heard a joke that 101 out of 100 government officials are corrupt.

Exactly how? Well, businessmen often bribe officials and/or their families in order to gain benefits. Perhaps it would make bank loans easier to come by, or perhaps they could be contracted to build something for the government, or they could get land at a cheap price for their real estate developments.

The above are just some random examples of how corrupt those people running the Chinese government are. Bao Tong, the former policy secretary for Zhao Ziyang, put it more vividly in an interview with the New York Review of Books:

If you’re in that system, they’ll say, oh, your son should be a CEO. If you say, no, he shouldn’t, then they say, how can he not? If your son can’t be one then ours can’t be one either. Then they’d push you out of the boat. So if you’re in the boat, you’re corrupt. Everyone has a villa and they give you one. One in Beijing, one in Hangzhou, one in Suzhou, one in Shanghai. You say you don’t want it. What? But even the provincial leaders have villas, how can you not? It’s legal, take it.

And as we put it earlier regarding the role of corruption and over-investment, the more large-scale and extravagant the projects are, the more chance for officials to gain in the process. 

 

4. How about the unintended consequences?

There remains a lot of bulls who insist that China has greater control over its economy, thus the government is able to shift gear in a way that the Western developed economies are unable to do so. This is nonsense.

Some of the actions by the Chinese government in the past many years illustrated perfectly how a far-from-omnipotent government led to potentially disastrous unintended consequences.

Take the one-child policy, for example. One the positive side, the policy reduced dependency ratio in the past 2 decades at least, and led to the increase of working population relative to other age groups. The so-called demographic dividend from the artificial reduction of fertility rates propelled growth in China.  Yet as the demographic dividend comes to an end now, one then realises that China is ageing very rapidly and dependency ratio could rise very rapidly. Also, working population will start to shrink as the rapid artificial decline in fertility rates over the past 3 decades lead to less young people coming into the working population. On top of that, the traditional preference for boys leads to selective abortions of girls, increasing the gender imbalances. These combined produce what Nicholas N. Eberstadt called a “demographic version of ‘the perfect storm’”, which will contribute to a dramatically lower economic growth in the years to come.

We also thought of the last massive stimulus programme after the 2008/09 financial crisis as a “failed gamble”. It could be thought of as an attempt to offset the slump in external demand by increasing domestic demand, but mainly come through investment as it is much harder to boost consumption in the short-run, not to mention that the growth model of China has been essentially based on hurting consumers. The Chinese government-led investment binge has ended up building a productive capacity that is now able to serve a global demand that they thought would exist. The problem is it does not exist. The US has been growing, yet below trend. Europe is in a deep recession, if not downright depression. The last massive stimulus also inadvertently created a nation-wide real estate bubble despite massive over-building and short bout of high inflation, yet the over-building of real estate and productive capacity now points China to a problem which is arguably more difficult to tackle: debt deflation.

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Thu, 07/26/2012 - 13:26 | 2653762 surf0766
surf0766's picture

 

 

 

1. They are communist.

2. They are communist.

3. They are communist.

4. They are communist.

Thu, 07/26/2012 - 13:29 | 2653774 gmrpeabody
gmrpeabody's picture
"3. Chinese government officials are corrupt at all levels"

I prefer to concentrate on what we have in common...

 

Thu, 07/26/2012 - 13:29 | 2653779 Richard Chesler
Richard Chesler's picture

As opposed to American government officials who are a... oh wait.

Never mind.

Thu, 07/26/2012 - 13:35 | 2653783 hedgeless_horseman
hedgeless_horseman's picture

 

 

All this finger pointing at the Chinese, Europeans, and Iranians makes me wonder what the Anglo-American prestidigiflationist planning committee is doing with its other hand.

Thu, 07/26/2012 - 13:35 | 2653798 Careless Whisper
Thu, 07/26/2012 - 13:55 | 2653851 NotApplicable
NotApplicable's picture

Did you know that [ insert target here ] government officials are all corrupt?

FTFY!

government = mafia

This should surprise absolutely no one.

Thu, 07/26/2012 - 14:03 | 2653867 Badabing
Badabing's picture

What a bunch of bullshit!

Make others look bad to make yourself look better.

A tactic used in USA political campaigning.

All I know is that the Chinese government promotes its citizens to buy gold, and that cant be all that bad!

 

Thu, 07/26/2012 - 14:21 | 2653929 gmrpeabody
gmrpeabody's picture

Unless, of course, they're planning on taking it off their hands....

Thu, 07/26/2012 - 14:40 | 2653990 miro1a
miro1a's picture

Exactly.  Chinese commie govt good because they promote gold sales?  Are you fucking kidding me?  You've obviously never lived in a communist country.  Either that or you had all your chinese commie buddies +100 you on your post.  I've lived and escaped from one.  I'll take our currently messed up fiat system any day over a fucked up commie system.

Thu, 07/26/2012 - 15:15 | 2654075 Bullionaire
Bullionaire's picture

Wow.  I had no idea government officials could be corrupt.  I bought a bunch of gold because the Chinese government was encouraging it's citizens to buy the stuff, but it must be a giant scam.  Anyone here wanna buy my stash?

Thu, 07/26/2012 - 16:32 | 2654473 AldousHuxley
AldousHuxley's picture

The word "corruption" takes a different meaning in China.

 

In US, corrupt ruling elites just steal money.

In China, corrupt ruling elites like Bo Xilai has his wife poison a foreign national and harvest organs from prisoners to sell them.

 

China is so bad that they make US look legit.

Thu, 07/26/2012 - 14:48 | 2654015 Badabing
Badabing's picture

What! You mean boating accidents don’t happen in china.LOL

Thu, 07/26/2012 - 18:56 | 2654968 robobbob
robobbob's picture

sure they do.

but if the investigating officials don't get their expected cut, they stand you in front of a ditch, and nobody questions it.

Thu, 07/26/2012 - 14:11 | 2653896 bank guy in Brussels
bank guy in Brussels's picture

To add to that list from an offbeat wild Irish website ... And speaking of totally corrupt government ...

Colorado red-haired accused shooter James Holmes, is said to have a father Robert Holmes, described as an expert on banking fraud, and as a top man at the US bank credit score company FICO, and also said to have been scheduled to testify before the US Senate about LIBOR fraud etc. before the tragedy ...

And there once again seems to be other helpers besides the named supposed 'lone gunman'

FYI this is a 'conspiracy site' bashed by Tyler himself ... they had run the story that Strauss-Kahn was arrested on the fake rape charge after allegedly discovering there was no gold in the NY Fed basement ...

But interesting reading:

http://www.whatdoesitmean.com/index1600.htm

Fri, 07/27/2012 - 02:31 | 2654232 billsykes
billsykes's picture

Actually I checked it out;

1.Fair Isaac Corporation (FICO) does have a San Diego office, where there is a Robert holmes.

2. James Holmes is from san diego

3. Robert does work at FICO- http://www.linkedin.com/pub/robert-holmes/4/47b/24a as a senior scientist on their proprietary fraud detection software for banks.

4. If you want to see that this robert is THE robert holmes look at this video showing the father walking at the 2:12 mark, (only works in IE)
http://www.cbsnews.com/video/watch/?id=7415664n&amp&amp&amp

 

everything but the hearing.

 

Thu, 07/26/2012 - 13:35 | 2653799 ghengis86
ghengis86's picture

wanking off

Thu, 07/26/2012 - 13:39 | 2653807 SWRichmond
SWRichmond's picture

Planned economies don't work.

Thu, 07/26/2012 - 13:37 | 2653804 HelluvaEngineer
HelluvaEngineer's picture

Right.  Communist is now relative.

Thu, 07/26/2012 - 15:11 | 2654061 eatthebanksters
eatthebanksters's picture

Yes, and how are our stats any different?  BLS stats from the government, housing stats from the NAR, bullshit from the Fed. No wonder the only people making money are those with connections who play the inside info game. The market info is totally bogus and manipulated.  If you do your pwn research and have accurate data you can stil get slammed by the larger market reactions to government bullshit, er, data.  Time to start shooting and ask questions later...this shit has got to get cleaned up!

Thu, 07/26/2012 - 13:29 | 2653778 zuuma
zuuma's picture

Granted.

But the General Tso's Chicken is fairly decent. As long as that keeps coming, we'll all be fine.

Thu, 07/26/2012 - 13:33 | 2653789 A Nanny Moose
A Nanny Moose's picture

Form matters little. All governments lie

Thu, 07/26/2012 - 13:35 | 2653797 Let them eat iPads
Let them eat iPads's picture

Yes, all goverments lie.

 

The difference is that in China if you call the government liars you disappear.

Thu, 07/26/2012 - 14:11 | 2653890 pods
pods's picture

Might want to Google "extraordinary Rendition" or watch the documentary after the movie "Rendition."

You know of Chinese "bullet in the head and then they bill your family for it" because OUR media tells you about it.

Our media also does not tell you about no knock no tell searches, which may or may not lead to kiddie porn showing up on your computer, etc.

We are just much more subtle in the USSA.  

Just cause you can drink Natty lights all day in your plastic Walmart chair playing Skynyrd does not make you free.

pods

Thu, 07/26/2012 - 15:33 | 2654161 bankruptcylawyer
bankruptcylawyer's picture

I was trying to explain to my girlfriend why child pornography laws are actually pushed forward by the FBI and CIA so that they can use them for entrapment. and that the laws are totally illegitamate and will not stop child pornogrophy  . 

these laws are meant to be used to set innocent people up. just like marijuana possession laws, only worse, because you simplly use a computer virus to plant the porn on the computer. 

 

there is almost no way to defend against these allegations. try and find one child pornography case that was fought and won by the defendant. 

 

Thu, 07/26/2012 - 13:54 | 2653847 derryb
derryb's picture

sounds a lot like American Capitalist. You sure he's talking about China?

Thu, 07/26/2012 - 13:57 | 2653855 MassDecep
MassDecep's picture

Karl Marx my words. China's gonna look like paradise after we experience the hell to come in this Amerika fiasco.

Thu, 07/26/2012 - 13:26 | 2653763 Let them eat iPads
Let them eat iPads's picture

The scumbags who run China make our scumbags almost look like stand up guys.

 

Fuck China.

Thu, 07/26/2012 - 13:34 | 2653794 Skateboarder
Skateboarder's picture

But if Chinese slaves don't assemble things at the speed of whip, I won't have a bunch of useless shit to buy. I NEED MORE USELESS SHIT, DAMNIT!

Thu, 07/26/2012 - 13:29 | 2653764 bigdumbnugly
bigdumbnugly's picture

ok, but outside of the one child policy this is materially different from the u.s. government how???

Thu, 07/26/2012 - 13:26 | 2653767 Godisanhftbot
Godisanhftbot's picture

sorry, how do you stop something you never started?

Thu, 07/26/2012 - 13:33 | 2653790 Seasmoke
Seasmoke's picture

bunch of fucking little RATS

Thu, 07/26/2012 - 13:35 | 2653796 disabledvet
disabledvet's picture

Because they are not running the economy and there are only 2500 of them.

Thu, 07/26/2012 - 13:36 | 2653801 robertocarlos
robertocarlos's picture

Beaujolais' wife was just charged with murder.

Thu, 07/26/2012 - 13:36 | 2653802 bugs_
bugs_'s picture

We all have lessons to learn ... and in some cases relearn.  The hard landing coming for the no limit spending crowd of world politicians is going to be a brutal econ 101.   The game now seems to be who can put off the lesson the longest?  China or Europe first?

Thu, 07/26/2012 - 13:38 | 2653805 Jason T
Jason T's picture

yet ask any chinese in china if their lives are better today than 10 years ago and I bet 90% would say better today,  not the case in the U.S. 

Thu, 07/26/2012 - 14:08 | 2653878 Toolshed
Toolshed's picture

You might be right. Or not. I recall an article I read several months ago ( on ZH I believe) that described a survey's results, where the number one desire of the millionaires polled in China was moving themselves and their families OUT OF CHINA. Interesting.

Thu, 07/26/2012 - 14:16 | 2653913 bank guy in Brussels
bank guy in Brussels's picture

Was talking to a visitor from China here in Brussels, and I asked him, In what part of China do Chinese people dream of retiring, if they get a little money saved up?

His answer:

Canada

Thu, 07/26/2012 - 14:12 | 2653899 ZeroHedgeFan
ZeroHedgeFan's picture

Very true! Nice observation!

Thu, 07/26/2012 - 13:43 | 2653820 alien-IQ
alien-IQ's picture

people tend to believe lies that make them feel good about their place in the world.

Thu, 07/26/2012 - 13:44 | 2653823 laomei
laomei's picture

Laugh... Pointing fingers again are we?  Relative to the shitstorm unfolding in the west, China's doing absolutely great... no matter how much you whine bitch and scream about it, nothing is going to change that.  Sorry Amerifailures, your notiong of "universal values" is, like yourselves, a fucking joke to be laughed at by the rest of the world.

 

Hell, you're already BEHIND china.  Banks moving money around in complicated ways does not a GDP make.  Kill that off, and your GDP is 5~6t tops.

Thu, 07/26/2012 - 13:55 | 2653850 LFMayor
LFMayor's picture

Just wait until all your tiger ball-sack powder runs out.  Then you'll experience peak - Chi and have to take your masks off, too.

Thu, 07/26/2012 - 14:11 | 2653887 Toolshed
Toolshed's picture

" Banks moving money around in complicated ways does not a GDP make."

But creating ghost cities does I guess. China is one giant fraud......deal with it.

Thu, 07/26/2012 - 14:31 | 2653964 laomei
laomei's picture

Nothing in them remains unsold however.  The only issue is that there was demand for it and speculators snapped it up before tighter regulations were put in place. Compared to the crazy shit going on in the west, this is nothing.

Thu, 07/26/2012 - 15:30 | 2654149 Toolshed
Toolshed's picture

Ummmm. Speaking of not knowing what you are talking about...........

You can tell your overseer that you tried your best (sad as that may be), but the crazy Westerners just arent' t falling for the bullshit like they'd hoped. So sorry.

Thu, 07/26/2012 - 15:40 | 2654179 Toolshed
Toolshed's picture

Since you are now officially the Eternal Fountain of Nonsense, please give us your spin on this little tidbit straight from Wikipedia:

"New South China Mall (Chinese: ???MALL; pinyin: Xinhuánán MALL) in Dongguan, China is the largest mall in the world based on gross leasable area, and ranked second in total area to the Dubai Mall.[2] However, it is largely vacant. Unlike other "dead malls", which have been characterized by the departure of tenants, the New South China Mall has been 99% vacant since its 2005 opening as very few merchants have ever signed up."

Let me guess.....all spaces are actually leased, but the Chinese peasants are so rich now that they no longer need to bother with the inconvenience of conducting business?

C'mon.....let's have it. I am getting bored.


Thu, 07/26/2012 - 16:05 | 2654309 SAT 800
SAT 800's picture

Exactly; it's a wall-to-wall clusterfuck. There is a critical quantity of corruption that makes all forward progress ultimately impossible; and China has it. The Chinese "Economic Miracle" consists in the US Politicians selling the US Citizens down the toilet by opening up trade with China. There's only one reason to have trade with china; so the capitalist corporate owners can use cheap labour and sell into the dollar market; period. It's been their dream for decades and they have achieved it. Without manufacturing there is no economy.

Thu, 07/26/2012 - 16:39 | 2654518 laomei
laomei's picture

It's cheaper to build it on a gamble while maintaining ownership on valuable land that is legally required to be developed into something.  The end game, of course, is tearing it down for redevelopment that can be sold at a massive profit.  Same game is played all the time with golf courses and "parks" here.

Thu, 07/26/2012 - 16:47 | 2654572 TPTB_r_TBTF
TPTB_r_TBTF's picture

Chinese Central Planning has been unable to man AnAnonymous' account for over 36 hours now.  China's going down hill!

Fri, 07/27/2012 - 01:13 | 2655590 thefedisscam
thefedisscam's picture

China is ONLY going down hill after the U.S. is ALREADY IN HELL!

Do NOT follow this link or you will be banned from the site!