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Guest Post: Is China's Economy Staring Down The Bottomless Pit

Tyler Durden's picture


Submitted by Zarathustra of Also Sprach Analyst,

All major macro data from China over the last 2 days have been disappointing.

The third quarter started on a surprisingly weak note for China despite all the talks (and hope) on stimulus and monetary policy easing.

The macro data pretty much confirm our view that economic growth did not reach a bottom in the second quarter as the consensus used to believe.

If anything, the economy seems to be worsening somewhat again.


Wrap up of July macro data:

CPI Inflation +1.8% yoy, PPI –2.9% yoy

Industrial production +9.2% yoy

Fixed asset investment +20.4% yoy

Retail sales +13.1% yoy

Exports +1.0% yoy, Imports +4.7% yoy

New loans +RMB540.1 billion

After these weak numbers pointing to hardly any recovery, we believe that the market will step up their talks on further and more aggressive stimulus both on fiscal and monetary sides, and we suspect that the consensus will be shifting from believing in a Q2 bottom to a Q3 bottom (which has been happening for a few quarters now: the economy will recover next quarter, said everyone in every quarter).

There is very little doubt, to our mind, that this series of weak numbers will put more pressure on the government to ease policy further. However, let us review a few facts: the People’s Bank of China has already cut interest rates twice and RRR has been reduced three times since late last year. The government has expressed their intention to bring future investment projects forward, and now that growth is their top priority.

On top of that, local governments have been, in the last few months, announcing massive plans to stabilise growth, and some have suggested banks to lend to local governments for growth stabilisation purpose.

Surely, many of these have not been implemented (especially the local governments stimulus), and we still have no idea just how much of these investment plans will actually come through. However, with the easing that has been done, obviously it is not working yet. This is consistent with our belief that it will require much more stimulus in order to ensure growth can get above 8%. What have actually been implemented (mainly in forms of interest rates and talks of stimulus) were far from what we would regard as “enough”.

The problems that are left now is whether the government is willing to stimulate the economy like crazy (as they did in 2009), and whether the government still has that ability.


Is the government willing to stimulate the economy like crazy?

The answer, unfortunately, seems to be no, not quite.

As we mentioned for a number of times, the fact that the real estate market warming up in the past few months has already caused some concern. While the government is not likely to implement extremely harsh measures to curb home prices at this point as the economic slowdown is getting much worse than most expected, it is not likely that they would like to ease either. As we believe that it is next to impossible to ease policy to stimulate growth while at the same time cool the real estate market, this leaves the government in a position that limit their willingness to implement full-on easing.

The on-going drought in the US is also going to delay more aggressive stimulus and monetary easing. As we noted before, meat prices in China tend to lag global corn prices. With corn prices reaching a record, it will probably put some inflationary pressure on food prices later this year. Although inflation in China on an ex-food basis is low and is expected to remain very low owing to massive over-capacity, food prices account for 30% of China’s CPI basket, and food prices have been historically very volatile in China. Thus while “core-inflation” will be low or negative in medium to long term, inflation in food prices will probably have reached a short-term bottom and is set to rebound somewhat. Although we are not expecting headline inflation to go back to 4.0% yoy all of a sudden within 2 or 3 months, a rebound in food prices will undoubtedly limit the perceived room for policy easing.


Does the government actually have the ability to stimulate the economy like crazy?

Of course, we would accept that the government will be willing to do more when things turn even worse. In fact, this is probably what the market has been expecting for every major central bank: just print more money when things look bad. Thus the more important question to consider is whether the Chinese government and central bank really have the ability.

The consensus invariably believes that China “has a lot of room to stimulate the economy”, “has a lot of tools at its disposal”, etc. This could not be further from the truth.

The latest data actually confirm the point. Loan growth is not really picking up after interest rate cuts, and deposit growth remains weak. Meanwhile, prices pressure continues to subside, with PPI falling 2.9% yoy. This actually fits into our debt deflation call surprisingly well.

Meanwhile, we noted that China has record rather consistent capital outflow since late last year, and this picture has been confirmed in the balance of payments, which showed that China had the first BoP deficit since 1998. As explained in more detail in our guide to China’s monetary policy, central bank creates money to prevent Chinese Yuan from appreciating during the period of inflows and massive trade surplus, thus creating more liquidity in the banking system. The opposite will happen: central bank withdraw money from the foreign exchange market to prop up Chinese Yuan (as they have been doing recently), thus tightening monetary condition. It is true that the central bank can cut reserve requirement ratio (as they have done for a few times) to offset, but cutting RRR is not real easing, and there is only so much the PBOC can cut (i.e. about 20% or so).

In theory, the government can run much higher deficit (and run up larger debt) for the sake of creating growth with a fiat currency. But with a peg like it is now, with smaller trade surplus and capital outflow, that severely limit the central bank’s ability to ease credit. Although government directed lending (i.e. government forcing state-owned banks to lend) is a key tool within China’s monetary policy toolbox, Chinese exchange rate regime (as it currently stands) limit the ability for banks to extend credit when the country is facing shrinking trade surplus and capital outflow, even if the government wants them to.


Staring down the bottomless pit

We hope that the consensus is (finally) right and that we are wrong. We hope that we will not be repeating the joke that “the consensus is expecting a recovery in next quarter during every quarter”.

Unfortunately, we just don’t see that, and we doubt if the government has the willingness at this point to do much more, and we doubt whether the government really has the ability as the market thinks. We do not see convincing signs of recovery (except, perhaps, Wen Jiabao making waves every other week), and we even struggle to see signs of stabilisation.

If we see anything, we are seeing a bottomless pit.


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Sat, 08/11/2012 - 20:34 | 2698034 realtick
realtick's picture

Bottomless pit.

Endless pot.

Sat, 08/11/2012 - 21:00 | 2698057 GOLDTEETHSILVER...

Brad Pitt smoking pot.

Sat, 08/11/2012 - 21:39 | 2698100 Silver Bug
Sun, 08/12/2012 - 00:50 | 2698314 DoChenRollingBearing
DoChenRollingBearing's picture

Barron's this weekend has as its Cover Story a piece on Chinese brands we "must know" about.  Also reviewed is their column on silver miners, junk bonds, high-frequency trading, cheap (?) German stocks and a note about how the stock market is up five weeks in a row now.  Read all about it:

Sun, 08/12/2012 - 02:53 | 2698395 DoChenRollingBearing
DoChenRollingBearing's picture

NICE link,  will look at it tomorow...

Sun, 08/12/2012 - 11:05 | 2698681 DoChenRollingBearing
DoChenRollingBearing's picture


Good article, thanks for the link!  Careful re China...

Sat, 08/11/2012 - 22:12 | 2698131 philipat
philipat's picture

I shouldn't worry too much. China has over three Trillion in reserves which could be dumped, sorry I meant re-invested, if necessary. The US should be so lucky?

Sat, 08/11/2012 - 22:20 | 2698144 Michael
Michael's picture

With 64 million empty vacant Chinese real estate properties and a housing bubble the size of Jupiter, there is nothing in the known universe that can stop the Chinese housing bubble from popping.

Sat, 08/11/2012 - 23:29 | 2698231 kito
kito's picture

Housing bubble in china? Perhaps you should research what percent of housing makes up their gdp.....most of their 1.4 billion people dont have mortgages....there is no chinese housing bubble......china isnt crashing....wake up mikey......the chinese people are savers....... they dont get medicaid, section 8, obamacare, disability....they dont bum rush walmart for 60 cent towels.....they work hard, they are self reliant.....the country is a creditor are looking at the wrong country for bubbles.....

Sun, 08/12/2012 - 02:10 | 2698376 eaglefalcon
eaglefalcon's picture

"Chinese people don't pay mortgage"

That statement is grossly incorrect, Chinese people do pay mortgage. Not only that, the typical interest rate is about 6-7% which would be considered subprime in the US. Not only that, to buy a house, you need to pay at least 50% upfront. Not surprisingly, a lot of homebuyers have to borrow money from friends and relatives to make the down payment. Consequently, many young people spend a greater part of their income paying back their loans and interest. It's quite common that a couple makes 10000 yuan a month and 7000 yuan goes straight to the mortgage. Moreover, since they have already spend mom and pop and auntie susan's money on that 50% down payment, there is no way they can walk away from the loan even if the house goes under water. If you wonder what indentured servitude means, this is a perfect example. The Chinese call such people "fang nu" which means "house slave"

Sun, 08/12/2012 - 03:21 | 2698410 LudwigVon
LudwigVon's picture

Kito is right about everything else, but wrong about mortgages. Commercial banking is quite well developed throughour China, but high down payments and austere spending keeps bubble-highs in anglo land. Many developers and speculators will lose it all, but the population and economy as a whole are much bigger and buffered from the losses in parts of one sector. 

The larger question to Chinese hard landing is the speed and extent to which they can serve new customers, save and recognize a storm brewing in their top export destinations today.

Sun, 08/12/2012 - 01:49 | 2698366 philipat
philipat's picture

And China has 1.5 Billion people, a very small percentage of whom will eventually occupy the housing stock. IMHO it is more productive to build infrastructure than using the same amount of money to bail out Banks.

Sun, 08/12/2012 - 12:50 | 2698809 andrewp111
andrewp111's picture

HaHaHa. China can invade other countries (like Australia) and turn its empty new cities into prisons for foreign displaced populations.

Sat, 08/11/2012 - 20:55 | 2698049 vast-dom
vast-dom's picture

the entire planet is at the rim of this blackhole and they keep telling us we're not yet getting sucked in, that there's hope....hahahaaaa

Sat, 08/11/2012 - 21:40 | 2698102 neptunium
neptunium's picture

I'm not worried about a Chinese crash, it'll have as many positive long-term impacts for the Chinese and for the rest of the world (Sans BRICS) too - they've defied expecations as every bubble does for just a bit longer than I'd thought possible - major reforms are needed, and the net effect will be to push certain parasitic investment entities past the point of too-big-to-save so it's a win-win for us too - the status quo is unacceptable, once you accept that you'll sacrifice a lot of "economic stability" to get to that point. 

Sun, 08/12/2012 - 00:58 | 2698325 old naughty
old naughty's picture

Economic destruction, not economic stability...and the point is reached, bottomless pit we are all getting sucked in!

So in fact, bifurcation didn't work, bad planning, TPTB.

Sat, 08/11/2012 - 20:59 | 2698053 billwilson
billwilson's picture

Is China's Economy Staring Down The Bottomless Pit - YES!

Sat, 08/11/2012 - 23:51 | 2698259 kito
kito's picture

Sat, 08/11/2012 - 20:59 | 2698055 GOLDTEETHSILVER...

Laundry boy says to May West: "Me come licky split." to which Ms. West replies: "Forget about that, just give me the laundry."

Sat, 08/11/2012 - 21:55 | 2698117 WmMcK
WmMcK's picture

She also said "Any time you've got nothing to do and lots of time to do it come on up".  And was it also her that said something about visiting her between the holidays?

Sat, 08/11/2012 - 20:59 | 2698056 Lore
Lore's picture



When did primarily-American analysts begin substituting the word "Stimulus" (usually in a reverent tone of voice) as Newspeak for "tossing bits of paper at things?"  It's primarily a Greenspan boondoggle, yes?

Somebody should explain that tossing scraps of paper is no more stimulative than banging pots and pans. Handouts to insolvent banks merely reward corruption.  You might as well encourage drug addicts to get clean by subsidizing their next fix.

Wherever you hear the word "STIMULUS," substitute "BRIBE" in the interest of clarity.

Sun, 08/12/2012 - 03:15 | 2698409 LudwigVon
LudwigVon's picture


BRIBE implies it is their currency that is handed to banks, the PAYMENT is drawn from others who hold the Fed's dollars - in the form of dilution.

Sat, 08/11/2012 - 21:01 | 2698059 Hype Alert
Hype Alert's picture

Obviously governments want to be all things to all people.  It's a scary thought that they are willing to sacrifice our future to keep pushing that misconception. 

Sat, 08/11/2012 - 21:24 | 2698073 A Lunatic
A Lunatic's picture

Obviously governments want to be all things to all people.


Really............because quite a few of us just want to be left the Hell alone.

Sat, 08/11/2012 - 21:09 | 2698062 EZT
EZT's picture

Buy the fucking pit

Sat, 08/11/2012 - 21:09 | 2698063 Monedas
Monedas's picture

The bottom of my pit is full of hermetically sealed silver !

Sat, 08/11/2012 - 22:14 | 2698139 El Oregonian
El Oregonian's picture


Sat, 08/11/2012 - 21:09 | 2698064 runlevel
runlevel's picture

curious as to fiftybaggers thoughts on this.

Sat, 08/11/2012 - 21:12 | 2698066 ArrestBobRubin
ArrestBobRubin's picture

ZH has really been pushing this bullshit about China's "impending doom". How fucking laughable. It's sad really that ZH either buys it, or is whoring it. Or both.

Here's another view. Have your kids learn some Chinese folks, as that's where they'll be going for jobs to escape the impending calamity the banksters have waiting for them here.

Silver Update 8/10/12 American Delusion
Sat, 08/11/2012 - 22:28 | 2698152 post turtle saver
post turtle saver's picture

My kids don't need to learn Chinese because the Chinese have learned English.

Sat, 08/11/2012 - 23:08 | 2698195 GFKjunior
GFKjunior's picture

That is absurd on every level.


If you think the banks are terrible in the US you have never seen or experienced the government-corporation dynamic that exists in china. Bailouts and TARP? Nah just nationalize the banks. When a person thinks of china the one word that should come to mind is KLEPTOCRACY.

Sun, 08/12/2012 - 01:06 | 2698331 LMAOLORI
LMAOLORI's picture



"When a person thinks of china the one word that should come to mind is KLEPTOCRACY."



Wealthy people are leaving China.  Many of them are kleptocrats, corrupt officals and financial criminals, and some are seeking havens in the U.S. and Canada.   


Now that the country has been looted, the ultra-wealthy are clearing out of China.

in full

China’s Superwealthy Leaving Country


Another word that comes to mind is COMMUNIST irregardless of how bad some people think they have it in the U.S. at least we still have more freedom and protection then the people in China.

Sun, 08/12/2012 - 00:02 | 2698274 otto skorzeny
otto skorzeny's picture

you mean the same way we should have been "teaching our kids Japanese" in the 80s. how did that work out?

Sun, 08/12/2012 - 20:57 | 2699788 RafterManFMJ
RafterManFMJ's picture

Pretty well. I can speak some Japanese still.

"You come now!"

Sun, 08/12/2012 - 02:58 | 2698400 Sandoz
Sandoz's picture

If knowledge of China's economy could be represented as a spectrum, one end of that spectrum would consist of people who actually know something about China's economy. On the opposite end of that spectrum would be you. 

Sun, 08/12/2012 - 10:22 | 2698631 Kayman
Kayman's picture

Other than slave labor, what exactly is China's economic strength ?  Their economy is founded on selling cheap shit to the West.

Their main entrepreneurial skills are stealing ideas from other people/countries.

Close Walmart and you close China.

Sat, 08/11/2012 - 21:14 | 2698068 Monedas
Monedas's picture

I like the "layered look" !      Mayonaise jars inside ammo cans inside paint buckets full of cement and lime !

Sat, 08/11/2012 - 21:25 | 2698077 A Lunatic
A Lunatic's picture

You must really like your mayonnaise..............

Sat, 08/11/2012 - 21:31 | 2698086 Zero Debt
Zero Debt's picture

How can +20.4% annual growth of anything be described as "weak"? Then what is "strong"? Did the author imagine +30% or +40% laid out on an exponential chart on a 10-year timeline?

The data must be flawed because it is all nominal. If inflation is/was higher than reported (likely) then 10% more yuan does not buy 10% more labor, material etc. Actually, fixed investment in real terms may be flat or declinig. But the "data" does not show this.

Sun, 08/12/2012 - 00:04 | 2698276 otto skorzeny
otto skorzeny's picture

because Chinese economic #s are about as unmanipulated as the BLS's.

Sun, 08/12/2012 - 01:58 | 2698371 Zero Debt
Zero Debt's picture

Undoubtedly these numbers are a total fraud and merely party slogans and propaganda tools.

However an "independent analyst" should know better than to run away with these numbers and pretend any conclusion derived from them constitutes independent thinking.


Sun, 08/12/2012 - 06:22 | 2698472 Poetic injustice
Poetic injustice's picture

There were some articles, but in your infinite wisdom you passed them. One was based on China energy consumption, which shows completely different picture.

Sun, 08/12/2012 - 12:30 | 2698767 Zero Debt
Zero Debt's picture

I'm no wise guy and it's A-OK for them to be a China bear and they do have many angles on their analysis and yes they wrote about power stats and hydro etc before... but again post 20%+ growth figures now and start analysing from there... plain indefensible ....

Further, the trouble is, even power stats are not reliable any more. Just as in Libor, they are not measured, they are "reported".

Jun 23: Power statistics are being reportedly falsified by officials who are being told to report declines as zero change -

July 30: Coal inventories are reaching new highs post-08 crisis, coal prices are falling -


Sat, 08/11/2012 - 21:33 | 2698091 Never One Roach
Never One Roach's picture

Don't forget that more then 50% of the Chinese live on less then $1 a day BBC reported. The spin off of China's crash will domino into Australia where the median house  price has Bubbled up over $650,000 and get this...the median income is still less then $65,000 and dropping due to slowing in the 1) construction industry and 2) in the resource sector.


Sat, 08/11/2012 - 23:10 | 2698198 GFKjunior
GFKjunior's picture

Yes. Canada is experiencing the exact same thing, their largest lumber purchaser is china.

Sat, 08/11/2012 - 21:45 | 2698108 americanspirit
americanspirit's picture

I have lived in China. Only the top 1% of the top 1% have any cash available to buy anything. The rest of the 99.9% have no cash and no reserves. They live day to day and exist without money - barter is the name of the game. I'm not sure how China has been made into this giant economic machine in the eyes of westerners but I am sure its all a con. Just like QE 1&2&3 - all a con job. The reality is that the vast majority of people in China have never had any money and never will have. The "trade surplus" is all paper - it is worthless. How the meme that China will save the west got started is beyond me. Chinese factories - give me  break! Chinese economic policy - please, stop, you're killing me!  Even if they had the means - make that especially if they had the means - they would never do it. For most Americans the mental image of China is of one large coordinated entity - this could not be more wrong. China is a vast, ungovernable mass of seething humanity. Doesn't anybody remember the laughable "five year plans"? Turn your woks into rebar! Jesus - how much more of this stupidity must we bear.

Sat, 08/11/2012 - 22:29 | 2698153 post turtle saver
post turtle saver's picture

China... putting the "con" in "economy"

Sat, 08/11/2012 - 22:41 | 2698167 Lore
Lore's picture

Sorry friend, but your perspective seems substantially erronious and/or out of date and/or simply dishonest. 

I have also spent time in China and am going back next week.  Shopping malls in China are jumping. The people are nicely dressed, and spending is evident by all the shopping bags. The feeling there even in cities far from the coast is like America back in the 50s. The optimism is pervasive. And they spend time outdoors with theri children. No tattoos and obese lardguts or nose rings there, TYVM.

Drive in a straight line through downtown Chongqing and the skyscrapers like downtown New York City go on for nearly three hours, These are new, modern cities filled with people who are not working for barter. The incredible scale and modernity of their factories is like nothing I have ever seen in my American travels.  The industrial areas go on and on and on and on. 

I don't know where the "China will save the West" meme got started, because I agree with you: WHY WOULD THEY BOTHER?  They have their own economy and their own people to worry about, and they do productive things with real manufacturing jobs. They don't need to engineer credit bubbles.  The only reason they continue to accumulate U.S. Treasuries IMO is for geostrategic purposes. 

Sat, 08/11/2012 - 22:47 | 2698172 FRBNYrCROOKS
FRBNYrCROOKS's picture

Just wait until the Chinese fuck that ass clown Bernanke by dumping their 1.5 trillion in US Treasury debt for pennies on the dollar. What will those jackass douche bags at the FRBNY do then?

Sun, 08/12/2012 - 00:06 | 2698278 otto skorzeny
otto skorzeny's picture

how about when the Bernank tells them "Sorry Charlie Chan- go wipe your ass with that paper". why do you think the Chi-Coms are loading up on PMs?

Sat, 08/11/2012 - 23:13 | 2698206 GFKjunior
GFKjunior's picture

China is more like the USA in the 20's, when they were the up-and-comming powerhouse of the global scene. But we all know what came in the 30's...

Sat, 08/11/2012 - 23:44 | 2698236 JohnKozac
JohnKozac's picture

The housing bubble there is still inflating and when it meets the 'pin' will result in a Gigantic Smelly Fart across Asia (including Australia and NZ) when it bursts forth. 1,500 sf condos for $800,000?  $1.1 million?  Reminds me of the "invincible Japanese" in the 1980's...until they went belly up. That's when the CBD in downtown Tokyo was $6,000 psf ......until it wasn't.

No one beats market forces for one.

Sun, 08/12/2012 - 00:28 | 2698296 Lore
Lore's picture

"erronious" = erroneous. I typed in a hurry. :)

Sun, 08/12/2012 - 05:55 | 2698458 BigDuke6
BigDuke6's picture

It doesn't matter ,you were right

China's demise has been predicted for over 10 years now, and I've posted here many times that it's a resilient place.
That spirit dude just smoked too many cones and slept outside a Chinese restaurant I reckon.

Sun, 08/12/2012 - 10:29 | 2698638 Kayman
Kayman's picture


If China was more than a bag of wind, they would free their currency from the U.S. dollar.

Mon, 08/13/2012 - 02:29 | 2700251 Zero-risk bias
Zero-risk bias's picture


"Shopping malls in China are jumping"

I'd say that there's some high-street resiliance in the commercial centres of Shanghai, Beijing and other first-tier cities, many second tier cities I've been in, seem somewhat less so.

Interesting, albeit inconclusive, ancedotal information:

Sat, 08/11/2012 - 22:42 | 2698168 FRBNYrCROOKS
FRBNYrCROOKS's picture

AS you are a cluless ass. When is the last time you were in China? 1948? China has a huge Civil Service and military and they save plenty of money. My father-inlaw is retired from the Railroad Court, has saved plenty of money throughout his career and most professional Chinese I've hung out with, in Chengdu, are well off by US standards. I don't know where you get your ideas but, you are way off base. I will admit people in the country side have it pretty rough but, those that take advantage of their education, work hard in school, they have equal oppurtunity to compete of positions in Peking University. I love China, her people and her Gov't. This country, the USA, has major structural flaws which cannot be overcome in our current system. China owns 1.5 trillion dollars of US Treasury debt and has no debt of her own to service. You have no idea of what you are talking about.

Sat, 08/11/2012 - 23:03 | 2698191 Freddie
Freddie's picture

China has a huge Civil Service...

How is that a good thing?  The USA, Greece, France and most of Europe have huge civil services of lazy unionized govt scum who are parasites on the backs of taxpayers. 

The only difference between the USA and Communist China is Obama is a bigger commie and is not doing organ harvesting like China..........yet.  I see an executive order for that soon.

Go eat some dim sum.

Sat, 08/11/2012 - 23:10 | 2698199 FRBNYrCROOKS
FRBNYrCROOKS's picture

Why don't you try and make your first trip out of the state of Mississippi before you comment on lands you haven't been to?

Ummmm-DimSum!!!! I would like a good hot pot too!

Sun, 08/12/2012 - 03:44 | 2698416 Tirpitz
Tirpitz's picture

"The USA, Greece, France and most of Europe have huge civil services of lazy unionized govt scum who are parasites on the backs of taxpayers."

At least our super-efficient banks with their trillions in fantastic earnings are making up for all those lazy tax paying union bums.

"The only difference between the USA and Communist China is Obama is a bigger commie and is not doing organ harvesting like China..........yet."

But that's outsourced in truly crony-capitalistic manner to the greater Rabbi fraternity.

Sun, 08/12/2012 - 05:25 | 2698452 lasvegaspersona
lasvegaspersona's picture

I have been to China 4 times in 3 years. My view is also that of endless buildings and factories. I met with a guy who builds motorcycle parts. He told me all the resources he needs for a successful retail via ebay business could be had within a few miles of his shop in Guangzhou. The bullet train took me from (the equivalent of) Vegas to Salt Lake City in 3 hours. The parks in Shenzhen are filled with folks singing and playing instruments. Afterhours the girls come out of the KTV in the hundreds, all decked out...and the shops are crowded. A friend makes a couple of thousand a month doing Youtube from a town in the middle of nowhere. I won't leave the USA cuz I like my guns too much but if I was looking to go somewhere Asia is full of opportunity.

Sun, 08/12/2012 - 10:04 | 2698618 post turtle saver
post turtle saver's picture

I'm tired of hearing how great China is because some clueless asshole got a tour of their Potemkin village. Fucking fifth column traitors, shameless bootlickers, go die in a fire. You are the Chinese 1%

China can't even see the top ten of per capita GDP from where they sit. The only countries that score higher than the USA don't have enough raw numbers of people to matter. They can't even feed their own people with what they grow themselves whereas the USA is the breadbasket of the world.

When I grew up my father made a living running a gas station at a buck an hour. By every US measure we were poor but we still had reliable electricty & gas service, clean water, indoor plumbing... the list goes on. Even TODAY the average Chinese would kill their mothers to have this. Anyone who thinks that a) China is great, or even worse b) getting ready to take over is stone fucking dumb. They're going down hard and it will make the Japanese economic collapse look like a fart in a hurricane.

Seriously, show me the Chinese equivalent and associated SUCCESS of the USA rural water and electric programs, just as a starter. You can't, no such thing exists. It's pathetic.

Sun, 08/12/2012 - 11:18 | 2698705 FRBNYrCROOKS
FRBNYrCROOKS's picture

Three Rivers Dam for electricity. Kinda like TVA, yes? High speed rail and new subways all over the place. New airports, new Aircraft Carriers. 4G network. You haven't even been to NYNY let alone China, I'll bet?

Sun, 08/12/2012 - 13:47 | 2698893 Overfed
Overfed's picture

I'm sure that everyone who is in good with "The Party" is doing well.

Sun, 08/12/2012 - 03:44 | 2698414 LudwigVon
LudwigVon's picture

The "trade surplus" is all paper - it is worthless.

They spend them, they buy Ts with them as reserves, valuable to lever against. Can they repo them to CCP's in London for cash to invest in other assets, paying a small fee?

They are managing to buy hard assets and build out capital investment and infrastructure along the lines of the US period of industrialization.  Will there be set-backs? Absolutely, but if capitalism and dual money policy remain they may not be set back quite as far as others. Granted 1/2 of their exports may evaporate for a period and many expenses will become useless.


How the meme that China will save the west got started is beyond me ---

Save the west from what? Deflation and economic stagnation, labor market readjustment?

Really, it is beyond you? It is a MSM meme. A BTFD on the SP@the1400low - muppet moment of a generation lifetime.

Ok that was my stab at it.

Sat, 08/11/2012 - 21:57 | 2698119 MinnesotaMD
MinnesotaMD's picture

I have a hard time imagining the prolonged pain when the house of cards collapses. At times, I have thought the recent rash of zombie themed movies may be prophetic. Hand guns may not be enough. I'll take my cues from the next election. Either we step on the gas and destroy America with Obama, or we try to somehow curtail spending enough to get toothpaste of unreality back into the tube? Do post-modern Americans accept sacrifice and delayed gratification as a viable way to live life? We will soon find out.

Sat, 08/11/2012 - 21:57 | 2698120 q99x2
q99x2's picture

I refuse to reincarnate until the world ends.

Sat, 08/11/2012 - 22:01 | 2698126 Whats that smell
Whats that smell's picture

There are rumors many of the top.01% are bailing.

Sat, 08/11/2012 - 23:39 | 2698246 Winston Smith 2009
Winston Smith 2009's picture

He used the term "weak." 

I don't see:

Industrial production +9.2% yoy

Retail sales +13.1% yoy

as being "weak."

Sat, 08/11/2012 - 22:10 | 2698132 savagegoose
savagegoose's picture

im in australia, we have aud/usd 1.05 !  and massive coal and iron exports to china.  back in 08 aud fell to around 0.60 apart from currency hedge or gold, as i already have. what else is a  safe place for aud deniminated cash    seeing a coming fall?

Sat, 08/11/2012 - 22:16 | 2698140 FRBNYrCROOKS
FRBNYrCROOKS's picture

Bank of China offers reminbi (yuan) denonminated savings account.  Madison Ave. Branch.

Sun, 08/12/2012 - 00:11 | 2698282 otto skorzeny
otto skorzeny's picture

Canucks are huge commodity exporters to Asia and their jobs # losses are getting big. the commodity exporters always far the hardest-Asstralia will resume being a penal colony known best for its shark attacks.

Sun, 08/12/2012 - 00:30 | 2698297 Lore
Lore's picture

Where are you seeing Canadian job losses?  Are you Canadian?

Sun, 08/12/2012 - 00:33 | 2698301 otto skorzeny
otto skorzeny's picture

it was on this site the other day- and don't insult me be asking if I am Canandian

Sun, 08/12/2012 - 10:03 | 2698616 hardcleareye
hardcleareye's picture


Wed, 08/15/2012 - 03:21 | 2706027 Lore
Lore's picture

"it was on this site the other day- and don't insult me be asking if I am Canandian"

Get over yourself. I merely asked a legitimate question. If you're going to generalize, be prepared to back it up.  The part of Canada where I do most of my business is quite prosperous.  Ontario has a few cities where unreasonable union demands are reputed to have hurt manufacturing, but it's a big country with lots of opportunities. Canada as a whole is hardly depressed.

Sat, 08/11/2012 - 22:29 | 2698146 silverdragon
silverdragon's picture


Sorry but I doubt you lived in China or you would not say such nonesense, which city and when? Unless you are a troll and are intentionally misdirecting others.

If you had lived in China you would know that cash in multiple bank accounts is how the Chinese roll. Now the workers and managers are all cashed up and spending on increasing their quality of life.

Reality is the economy is still ticking over even while Beijing has its foot on the breaks.

Sun, 08/12/2012 - 02:42 | 2698391 LudwigVon
LudwigVon's picture

The reality is - you are getting lammed on red arrows and you are right.

Industrial production +9.2% yoy

Retail sales +13.1% yoy

NOT "weak." Weird this guy doesnt cite the recent stats on how the rate of Chinese growth has stopped increasing mom, or the HSBC PMI... Contraction from these rates of growth to smaller rates of growth would even be better than the legacy economies will do.

The CCP stated their national gold program is to achieve internationalization of the Yuan. They mention how promoting gold in the hands of the people acts as a reserve intself, allowing inflation in tandem with the Fed at the managed peg ratio to impact the real Chinese savings to a lesser degree. The Chinese understand that the "silver house" can make you "fang nu," and to just go there to swap paper for phyzz for the savings OTC w/ the teller.

Now, as the legacy economies implode, the broader export markets for Chinese goods will gush employees, and labor will seek to fulfill demands where there is a profit to be made. In a time of deflation and reinflation abroad, perhaps it will be marketing to those with creditor positions and actual MONEY, ie: transitioning to serving more local and regional markets in SE Asia and Africa - The Richest Continent. There will be pain in China, and furthermore to the 1.05 #, Australia, their housing bubble, Canada, and theirs. The transition towards hard assets and away from fiat currencies will snowball, reinforcing itself as the currency returns to a system with less actors.

Sat, 08/11/2012 - 22:25 | 2698147 Monedas
Monedas's picture

China, after 60 years of growing as a people under Communism, has managed to become our biggest Ponzi victim ?    How deliciously inscrutable !

Sun, 08/12/2012 - 03:05 | 2698405 LudwigVon
LudwigVon's picture

It seems to me that they accumulated many strategic positions, much capital investment, capital goods, by playing our game. They pegged to the Fed, and allowed the people to buffet the price inflation by allowing and promoting concurrent moneys. Making it easy, the silver houses - chinese commercial banks - exchange paper for money OTC with the teller, or in the vending machine out front.

They have taken good advantage of the policy to supress the price of gold, building their national position at a quaterly rate approaching the UK's total holdings. This is offsetting the losses you imply dumping their treasuries would cause.

The T market is so large, and so liquid, they could quietly move mad T's to good-asset seeking institutions all over the globe. You forget. When the SHTF, the T a gets demanded on knee-jerk as it is acceptable collateral in the private credit market and with CBs. The issue would be routing & the realization that they are dipping out. This may cause others to lose confidence and the price moves lower to the bid upon sale.

As others have said, the Fed are the #1 buyer of T, owing over 90% of long bonds. Looks like US banks are LTRO/Repo-ready - bring on the foreclosures, asset impairment and fiscal-housing-program-miasma.

Who has lost real resources in exchange fo paper have been Canada and Australia. While China plays the hand well, and their people get that the Yuan policy has allowed for the relo of many businesses and tech and opportunity into Chiner. Whats up with those warehouses of copper, iron, coal, steel, the rare earth oxide capacity dominence, thorium piles and yes... gold.

While they do steal tech, this is smart, and human, and good. We need more that recognize the best in breed technology and seeking to embrace it. One example would be their apparent capacity to assemble idevices, and now attempting Liquid Floride Thorium Reactors  - -

What is not recognized is the prevalence of state mandated credit creation and top-down and not market derived investment. This will prove to be wasteful, and their economy is heavily dependent on delivering to the EU/Anglo-type consumption model, this process of unemployment, and subsequent reemployment will be painful, may produce ugly numbers, and will ultimately repurpose factories, spaces and labor towards new markets and profits.

Sat, 08/11/2012 - 22:28 | 2698149 silverdragon
silverdragon's picture


Quoting made up old statistics makes you a bit of a fool

Sat, 08/11/2012 - 22:50 | 2698175 silverdragon
silverdragon's picture

American spirit why were you making sh*t up?

Did you forget this site is frequented by people from all over the world some who live and work in China.

If you are just a racist then it is understandable, if you are a troll and need the bucks get better training, if you are just plain dumb then there is no helping you.

Sun, 08/12/2012 - 00:14 | 2698286 otto skorzeny
otto skorzeny's picture

I had General Tso's Chicken for dinner so I consider myself an expert on China. And yes- I am a racist.

Sat, 08/11/2012 - 22:53 | 2698179 savagegoose
savagegoose's picture

yeah nixon went over and filled em in  on capitalism, " thats right my pinko friends,  over here our slaves are happy and eager to work for us."

rest is history

Sat, 08/11/2012 - 23:10 | 2698193 BanjoDoug
BanjoDoug's picture

TPTB have successfully united the planet into one economic inter-dependence (including China) verses the previous m.o. model of isolated regions that allow locals to govern & control regional economies. 

It does appear that TPTB have decided to stop or slow the lending bubble that has been propelled the planet along for quite a while.... the only thing we can expect from this financial slowdown is more depression,  not necessarily reflected in dropping prices, but reflected in economic slowdown & stagnation..... a lot of good peeople will be hurt from this purging process....

Sat, 08/11/2012 - 23:08 | 2698196 silverdragon
silverdragon's picture

"Just wait until the Chinese fuck that ass clown Bernanke by dumping their 1.5 trillion in US Treasury debt for pennies on the dollar."

Seriously funny.

Sat, 08/11/2012 - 23:18 | 2698211 FRBNYrCROOKS
FRBNYrCROOKS's picture

You heard it here first. They could destroy our currency in one day. Most posters have no clue to what the chinese are planning. Game over.

Sun, 08/12/2012 - 01:16 | 2698337 LMAOLORI
LMAOLORI's picture



The Chinese own less of our debt then Social Security furthermore the Fed could buy what they dumped if they wanted to the Fed bought 61% of our debt this year. 


The TRUTH About Who Really Owns All Of America's Debt




WSJ: Fed Buying 61 Percent of US Debt


Sun, 08/12/2012 - 02:28 | 2698384 eaglefalcon
eaglefalcon's picture

The chinese dumping US treasuries pennies for dollar and thereby destroy own saving? The notion is pretty lame. Why not use the Triple A rated Treasuries as collateral to get loans and buy real stuff? After the money is spent, just tell your creditors, sorry, can't pay you back, here's some treasuries, hope you enjoy eating them

Sun, 08/12/2012 - 08:31 | 2698540 Winston Churchill
Winston Churchill's picture

Exactly what I would do if I was them.

Making sure only western banks were the counterparties.

So how many UST's do the Chinese REALLY hold ?

I think we are about to  find out if the Fed hits Control P.

Sun, 08/12/2012 - 11:03 | 2698678 FRBNYrCROOKS
FRBNYrCROOKS's picture

The Chinese hold 1.5 trillion. I like your idea but, the Chinese are adverse to having debt. Visa and Mastercard are having a hard time trying to sell their busness model, pertetual debt, in China. They are rolling Treasury's into PM at maturity.  I thought the China would start dumping after Harry Reid ran his mouth about Made in China and totally suprised they didn't when the IOC yanked the badmittion Gold Medal.

Sat, 08/11/2012 - 23:18 | 2698212 BanjoDoug
BanjoDoug's picture

The Chicomms (Chinese commies) don't buy U.S. T-Debt because the want a nice investment, they do it as part of the currency manipulation scheme (also done by the Japs - since WWII).   Although at some point it is likely that the world will lose big on U.S.T-Debt, it is not today, & probably not this year either.....  the world (esp the europians) will park their money in T-Debt because it's the "best" paper parking place at this point in time ("best" being a very relative term)

Sat, 08/11/2012 - 23:34 | 2698237 FRBNYrCROOKS
FRBNYrCROOKS's picture

Did I mention Chinese women all look like they are 17 years old? A pedophile wonderland. I married a Chinese woman and see is 34 and looks like see is 20 years old. China is a pervs paradise.

Sun, 08/12/2012 - 00:36 | 2698303 otto skorzeny
otto skorzeny's picture

only white nerds marry Pacific Rim chicks- look at Zuckerberg

Sun, 08/12/2012 - 10:55 | 2698667 FRBNYrCROOKS
FRBNYrCROOKS's picture

Zucks wife is ABC. Not the same. You have to get the real thing to see what I mean. No US birth certificate. MF greencard is the only way to go. Then when you do go to China you get to see the real deal, eat real food and drool over the cousins.

Sat, 08/11/2012 - 23:17 | 2698209 silverdragon
silverdragon's picture


The positive thing about the China civil service is that it is a user pay system. The govt spends f*ck all on them. If you need something done the user must pay a go fast fee. Unlike the western system where they are useless and cost a fortune.


Sun, 08/12/2012 - 01:13 | 2698336 MSimon
MSimon's picture



I believe you just admited the Chinese CS is useless and you pay a fortune. Extracted as taxes vs extracsed as bribes. Please explain the diff.?

Sun, 08/12/2012 - 11:34 | 2698725 i-dog
i-dog's picture

Are you yet to start grade school? Do you have a reading comprehension problem? He explained the difference ... user pays a higher fee vs. high taxation on those who don't even use the service, in order to pay for those who do [frequently] use it (eg. universal low-standard healthcare).

Sat, 08/11/2012 - 23:25 | 2698220 dolph9
dolph9's picture

China is one big bubble and everybody knows it.

Out of the "stuff" I have, it's hard to think of anything that wasn't made in China, and it's hard to think of anything that actually originated there.

That should tell you something...China is one large offshore factory for the Western and Japanese corporations.

The Chinese can't produce anything original.   They can't even come up with a functioning political system, something the U.S. did more than 200 years ago.

Sun, 08/12/2012 - 03:53 | 2698418 Tirpitz
Tirpitz's picture

...if only the later would have lasted beyond the North's invasion...

Sun, 08/12/2012 - 08:46 | 2698547 Winston Churchill
Winston Churchill's picture

You mean like Japan until the mid 70's ?

Took them 30 years to originate their own products.

What functioning political system is that ?

The one owned by GS,maybe.

You aren't new here on ZH,but you may as well be.

Sat, 08/11/2012 - 23:23 | 2698222 silverdragon
silverdragon's picture

Will all you numbnuts that have not been to China nor lived in China STFU as your opinions are valueless.

It's like listening to some retarded kids with dribble coming down their cheeks.


Sat, 08/11/2012 - 23:38 | 2698240 dolph9
dolph9's picture

One thing that the Chinese do seem to be doing is getting into gold, which is good, but it may be too little too late.  It's no fun being the patsy but that's the position that China has been cornered into.

The Chinese can't dump the T bills because their entire enterprise is dependent on them.  If they stop buying, their holdings become valueless and their currency appreciates, making the offshore factory model obsolete, and leaving alot of bulldozed land and polluted air behind.  And nobody around the world trusts the Chinese to manage a currency.

Otherwise, China has little in the way of resources or finished goods to sell to the world.  They only thing they ever offered was unlimited cheap factory labor, which is now ending.

Meanwhile, their one child policy had the unintended consequence of creating too many boys and not enough girls, which is going to leave alot of frustrated males.  Not exactly a good recipe for the future.

Central planning on the Chinese scale is leading to disaster.  Not that the U.S. will be spared, the U.S. is a madhouse and there are consequences to that as well.

Sun, 08/12/2012 - 04:30 | 2698421 Tirpitz
Tirpitz's picture

"unintended consequence of creating too many boys and not enough girls..."

Rumor has it, they are now contemplating to permit gay marriages, at least if Rom-Ryan gained the presidency. Kind of more unitended consequences.

Sat, 08/11/2012 - 23:34 | 2698238 silverdragon
silverdragon's picture


Which part of Shanghai, Beijing, Shenzhen or Guangzhou gave you the feeling that China was like the US in the 20's.

Oh wait up you have never been to China have you?

The only truth that you have written is the "junior" bit in your name.

Sat, 08/11/2012 - 23:37 | 2698244 silverdragon
silverdragon's picture


Wipe the dribble off your cheek.


Sat, 08/11/2012 - 23:40 | 2698247 dolph9
dolph9's picture

No dribble here.

If you can come up with arguments, then post them.  Otherwise go back to whatever hole you crawled out of.

Sat, 08/11/2012 - 23:54 | 2698263 pamriallc
pamriallc's picture

The world would pray for numbers this strong. And these numbers are on a 9 trillion dollar economy that has 3 trillion in cash. Strong relative to absolutely everyone on the planet. Hardly a problem.

Sat, 08/11/2012 - 23:59 | 2698271 silverdragon
silverdragon's picture

dolph9 aka "the dribbler"

"One thing that the Chinese do seem to be doing is getting into gold, which is good, but it may be too little too late. It's no fun being the patsy but that's the position that China has been cornered into."

Are you implying getting into Gold makes China a patsy?

"The Chinese can't dump the T bills because their entire enterprise is dependent on them."

Of course they can this simplistic thought process is why you will now be referred to as "the dribbler"

"And nobody around the world trusts the Chinese to manage a currency."

The Chinese currency is one of the few solid currencies with a fair chance of currency appreciation.

"Otherwise, China has little in the way of resources or finished goods to sell to the world."

They make almost everything and sell it to almost all countries.

As I said before "the dribbler" wipe the dribble off your chin.





Sun, 08/12/2012 - 00:12 | 2698284 silverdragon
silverdragon's picture


There are ten times more Chinese than Japanese and they are in every country. If we want to sell our goods to them it will be easier if we speak their language.

The whole quoting Bernanke thing is all a bit sad. He is an economic terrorist and should be charged with treason.


Sun, 08/12/2012 - 00:32 | 2698298 otto skorzeny
otto skorzeny's picture

the Chinese are not innovators like the Japanese Germans and Americans- merely thieves of technology and a cheap pool of labor to produce copies. for god sakes they had to bring in American and German engineers to finish the 3 Gorges dam or the thing would still be unfinished

Sun, 08/12/2012 - 03:50 | 2698417 moskov
moskov's picture

Is that the reason Germans can't send out their own space station and Americans can't have their own high-speed railway. And for Japanese, they can't even beat South Koreans these days in electrical products.

Sun, 08/12/2012 - 09:56 | 2698612 hardcleareye
hardcleareye's picture

"...Americans can't have their own high-speed railway"

The lack of a high speed railway in the US has nothing to do with "lack of inovation", some people might view your statement as a "straw man argument".... 

With respect to China, IMHO M Pettis has the most grounded insight into their future...

Sun, 08/12/2012 - 06:45 | 2698481 Observer
Observer's picture

Otto, the west stole the secrets of the middle east and the east before and when they invaded and colonised them. Mathematics and Science were flourishing there when people in the west were barely out of their caves so please don't display your ignorance. The patent system of today has simply legalised this theft backed by the threat of force. It will end sooner than later...actually it seems like its over and its time to pay the piper

Mon, 08/13/2012 - 01:19 | 2700190 squexx
squexx's picture

Your mom and dad were related before they got married, wern't they?!?

Sun, 08/12/2012 - 07:51 | 2698521 css1971
css1971's picture

They said that about the Japanese 20 years ago.

They said it about the Americans 100 years ago.

Sun, 08/12/2012 - 02:55 | 2698398 Colonial Intent
Colonial Intent's picture

Shurely Chinese Citizenism should of been mentioned somewhere in that article...........

Sun, 08/12/2012 - 04:47 | 2698437 warchopper
warchopper's picture

Just like Marc Faber said...the chance for global recession is 100%.

Sun, 08/12/2012 - 08:06 | 2698529 orangegeek
orangegeek's picture

So much emphasis on communist China's capitalist data that comes for China's "make those numbers up" system.


Makes a lot of sense.  I particularly like China's built cities that no one lives in.  More communist China wisdom.  Bring it on - there's much to learn.



Sun, 08/12/2012 - 11:01 | 2698669 Thamesford
Thamesford's picture

I would question any statistic coming out of China, especially as, in China, you are not allowed to do that.

In the spirit of the old joke about an accountant being asked what is 2 + 2?

He answered: "What do you want it to be?"


Sun, 08/12/2012 - 13:13 | 2698850 caustixoid
caustixoid's picture

I lived in China (Beijing) for 3 years -- full of posher restaurants than you've ever seen, or unbeliebly cheap, down and dirty greasy spoons.  High-rise complexes (on sites where thousands evicted)  being constructed as far as the eye can see, often using donkey-pulled carts...  official GDP sky-rocketing and tens of thousands of riots unreported in the countryside.  Describing China is like the blind men describing an elephant.  Who really knows what's happening?  It's all guess work by anyone, expert or arm-chair quarterback.  It could all crash, or they could dominate the world for a hundred years.  No one should be all-in on either bet.

Sun, 08/12/2012 - 13:26 | 2698865 Dareconomics
Dareconomics's picture

30% of China's CPI is related to food prices. The Chinese love eating chicken and pork, which eat feed corn, and soybeans for tofu and cooking oil among other culinary uses. Record high prices for corn and soybeans will translate into a vicious spike in inflation. China cannot risk fueling this inflation by excessive easing. I wrote a post about this in relation to an earlier ZH Post:

It's a beautiful day in Manhattan, and I'm going to Central Park. 

Mon, 08/13/2012 - 01:25 | 2700194 billsykes
billsykes's picture

nations cannot go bankrupt and have their shit sold off.

Ya weird but look at Greece, Argentina, china (2000's), Thailand, Malaysia, etc.

They can do a chapter 11 but its just a burn on the bond holders.

What china is doing is locking in good will and buying real assets around the world. (africa) if they go BK- the bond holders/ which to my knowledge is none just hurt the currency by...... devaluing it. Just the thing that kills usa competition and keeps them afloat.

am I on or off point on this.

Mon, 08/13/2012 - 09:08 | 2700543 duckarooni
duckarooni's picture

China retail sales +13.1% YOY.

That's a number western economies can only dream of.

No probs for China with sales figures like that.


Tue, 08/14/2012 - 07:36 | 2703243 laozi
laozi's picture

I have been studying Chinese for many years and lived there on an off (not only costal cities). I say you a correct, the Chinese do not use barter, except perhaps in the countyside. And the factories are the place where almost everything we use are manufactured.

The big difference between us and them is: Chinese are more driven. We are not as hierarchical.

It is sad that so many apparently smart people speak out in this matter when they do not know. It makes me doubt a lot I read here.


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