The Unbearable 'Factual' Lightness Of The Chinese Economy

Tyler Durden's picture

Factual data point after factual data point is indicating more than a little stress in the Chinese economy (and the Asian engine of growth in general). Whether it is bank loan losses escalating, shadow-banking stress, real-estate corruption, dismal retail spending, the shrinking textile industry, the artificial production in the crushingly slow metals industry , the construction industry's contraction, or the massive '50%-above-demand' channel-stuffing now occurring in the Chinese auto market, Diapason Commodity's Sean Corrigan succinctly notes: "China bulls will not heed any of this, of course, for they are prisoners of the nested illusion that all increases in outlay represent genuine growth (cf, Occidental property bubbles) and that higher growth must imply greater profitability. They will also argue, on any uptick in the macro numbers, that the worst is not only behind us, but that it has been more than fully priced in." Given a picture paints a thousand words, Asian trade volumes have ended their rebound and are exhausted.



On Chinese real-estate and bank loan losses:

For hardly a day now goes by without some other tale of misplaced investment financial chicanery, or growing commercial distress filling the pages of the local business press.


In real estate, for example, Beijing is said to have become sufficiently alarmed at what the creaking state of developers? finances could mean for bank balance sheets that they have formed a ‘task force’ to investigate the true extent of exposure. Another story is of the deceits practised by credit-hungry developers, whether ?paying? suppliers in apartments, not cash; lending otherwise unqualified buyers the deposit they need to secure a mortgage; or raising false sale documentation with which to provide anxious lenders evidence of cash flow.

On Chinese retail-spending:

the nation?s No.1 home appliances retailer, Suning, just warned of a possible 30% fall in profits, while industry No.2, Gome, saw its shares hit their lowest ever level when it indicated it was actually trading at a loss.

On the textile industry:

The textile industry where Adidas has followed the lead of rival Nike by closing down production. Understandable enough when business leaders in the key province of Zhejiang are to be heard bemoaning the loss of business not just to lower?wage Asian competitors such as Vietnam and Cambodia, but also to Eastern European alternatives such as Romania.

On Metals:

...almost a third of such companies ran at a loss last year. So, production cuts, anyone? Not likely, that?s only something which need be contemplated by capitalist running dogs like Alcoa, Rio, or Rusal! No, instead output hit a new record of 1.7 Mt in June as, according to Yao Xizhi, an analyst at state?backed research firm Antaike, around 500,000 tonnes of idled capacity came back online in May, while the first half as a whole saw a million tonnes added, with another million likely to come on stream in the second half. How can this be? Well, the clue is that several local governments were said to be offering artificially cheap electricity in order to keep the fires burning. Helps with the nation?s Himalayan?scale, 300 million tonne stockpile of coal, one supposes.

On Construction:

Japan’s Komatsu, it is rumoured, saw sales to China halve while Caterpillar suffered a QII fall in regional revenues of 11% in QII... The company announced plans to scale back production, to increase exports (!), and to offer more ?merchandising incentives?. Have bright, yellow, cellophane?wrapped, wheel?loader ? will rehypothecate.

On Shipyards:

Overbuilt enormously in the boom and now facing a 50% slump in orders as global freight rates plunge, taking new?build prices to an 8?year low on an index compiled by shipbrokers Clarkson. Qinhuangdao Port on China?s northern coast – ‘seen as a barometer of the economy’ – has seen daily throughput drop from ‘at least 50 vessels per day’ to ‘only one?quarter of that capacity’ so far this month.

On Vehicle Sales (and channel stuffing):

More ominously yet, for a nation still supposedly ploughing its way resolutely through the softest of soft landings, commercial vehicle sales slid 10.4% in the first semester, compared to the same period in 2011.

...passenger car ‘sales’ rebounded smartly in June – possibly in a rush to beat the looming registration restrictions shortly to be imposed in several major cities – though even this only took the overall YOY tally for the first half up to an anaemic 2.9% increase, but the problem is that a ‘sale’ in China means the maker has delivered the car to a dealer, not to a satisfied customer who will soon be proudly driving off the lot in his gleaming new roadster.

?There is overcapacity in the automotive industry. We will most likely see some consolidation,? said James Chao, Asia?Pacific director with IHS Automotive Consulting, in what sounds like an heroic understatement of the case.

As the China Daily noted, against a hoped for 20 million sales this year, it is estimated that the planned auto capacity of China?s 12 major automakers will soon surpass 30 million units, thus exceeding market demand by a cool 50%


It is not to be overlooked that the Chinese authorities are still giving off signals that they will not repeat the indiscriminate orgy of spending which was unleashed at their behest in 2009?10. Indeed, the very same day that President Hu noisily categorised the employment situation as ?complicated and grim? (his own included, one might add), the usual party organs were rehearsing front?page arguments against another mass infusion of credit, while positing the view that some ?friction? was an unavoidable concomitant of the nation?s necessary rebalancing.


Attacking the problem from another angle, we might wonder how – if things have gone as far as they seem to have done – even an authoritarian regime can drive sufficient temporarily?productive credit outside the coterie of its biddable, capital?destructive, princeling?packed, SOEs and into the hands of owners and managers of less coddled enterprises which are already struggling with chronic over?capacity, elevated costs, and, consequently, vanishing returns.


Source: Diapason Commodities

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ObungaBoy's picture

I have heard a lot of BS about how bad is Chinese economy

I would like to underline just one fact – China has orbital station in the space and they regularly send people there – U.S. has to buy Russian ticket if we want to send someone in the space

U.S. belongs to the history now thanks to the stupidity and the greed of the richest

runlevel's picture

 Planned launching date is "around 2020" ..........................................

vxpatel's picture

i think you meant to say planned LAUGHING date...

The They's picture

The next century will be China's century.  The Chinese communist party, however, will not live to see this happen.  If today's party has any continuity with the party of Mao, it lies in their economic policy: Since Mao the party has been dedicated (down to its very structure) to supressing consumption in order to build production.  Now this trend must reverse -a reversal that the communist party is structurally incapable of handling.  China will see its century... but not until the communist government falls.

reader2010's picture

did you ever study the history of the Party?  did you ever learn who helped to start the Party and ultimately bankrolled it before they it to power in 1949? Hint: David Rockfeller was with Nixon on Nixon's first official trip to Peking. 

Haager's picture

Hey, there is already an enourmous space-station out there sending some ALFs to the president and other world leaders telling them what to do.

Draghi must have had the space-injection lately, but usually you wouldn't recognize that they need to obey some alien life forms. It's for our best wil...


CheapBastard's picture

Australia miners and house prices (two of their biggest sectors) already reflect the slowdown with home prices sinking fast and miners cancelling some major projects like RIO suspended their multi-billion dollar Olympic Dam project.

q99x2's picture

I had many jobs in the Aerospace industry. Then I had to change occupation to IT. The NWO takeover uses Nations and democracies against their citizens so until we arrest them and put them into prisons Nations and democracies everywhere are history. It is about money and the human error in supporting a monetary system that is founded in corruption and greed. It will destroy itself if history is to be believed. Accordingly it must end in war and massive human death.

But not today because Spain will be bailed out. And, Greece will get more loans. And, the Bernank will ease. But, eventually the bombs will fly.

dirtbagger's picture

What does the space program have to do with the point the author is making about a slowing China economy?  China's economy is slowing - end of story.  Part of their problems is rooted in the compounding of large numbers.  10% growth year after year is a mathematical impossibility.  The other part of the problem is mal-investment and over-investment in certain sectors or the economy such as unaffordable housing, steel production, and public works.  

Who exactly is going to purchase all of the things that Chinese factories are over-supplying to the market?  Not Europe or the US.   There is not going to be a large Chinese middle class for many years.  The vast majority of Chinese live in poverty.  I can't count how many Chinese have told me that the relative affluence of the costal region is a stark contrast to the grinding poverty of the interior.   Even the more affluent are not going to have the same purchasing patterns as the West.  I mean how much stuff can you put in a 40 sq meter home and still have a place to sleep?

Jason T's picture

China has 23% of global auto production now.. from just 3.5% in 2001  .. they are done growing as they are now world leaders in a number of industries by far.  They can coast from here on out.

OpenThePodBayDoorHAL's picture

This is the best comment. I just got back from Guangzhou (3rd largest city) and my impression this time was it's pretty brave to bet against the sheer numbers of these people; and their value system. They work like maniacs. They save like maniacs (yes, because they have to, no social/health net etc). They invest like maniacs. They take cost out of everything. They could care less about the pile of US T-Notes they amassed, they got what they really wanted: 40 years of progress compressed into about 10 years. Bridges, factories, airports, highways, ports, stolen know-how. Market share. Piles of resource deals. Chuck Schumer might think it's about the yuan exchange rate. OK, Chinese textile workers make $110 per month. Do you think US textile workers would agree to $220 per month? (if the yuan DOUBLED from here)? No friggin way.

From what I hear, the debate right now at the top is that they don't want to follow the Western example of crushing unpayable debt loads. Like this poster said, however, they can coast for a long while from where they sit.

Shorts beware. Try Japan or social media or something else IMO.

miker's picture

In the end, values always matter.  For China, sure, incredible capitalist zeal; but at great cost to their environment, safety and the "little people".

In the US, our values are too far the other direction; incredibly entrenched entitlement system for poor and rich.

Still,  there are alot of smart/good people in both countries that will likely step forward and help bring the values back to the middle.  It won't be painless but I have hope.

MarsInScorpio's picture

Dear OpenThePodBay . . . May I respectfully throw a monkey wrench into your theory?




So once the peasants figure out that the ChiComs running the show sold out Chairman Mao, and the "exploiting capitalist pigs" (their phrase, not mine, from the Cultural Revolution) are living big while they are barely living at all, what do you think will happen?


Maybe the riots that get through the Bamboo Curtain are instructive.


Maybe you missed them. And you missed the out and out slavery occurring throughout the countryside. And the harvesting of organs, with the money going to party apparatchiks. You think that maybe the family of the deceased might harbor some resentment about that?


How about their daughters being taken into the cities and turned into whores? Do you think the peasants turned soldiers might figure out that the way the ChiComs are living sure is a long way from the way their family back home lives - and that maybe these "capitalist dogs" are in stark contrast to the propaganda they learned about the glories of a "no classes" society?


The Chinese peasants are going to do what every peasant demo does when the people at the top get so far away from them economically that they can no longer rationalize the wealth differential, and the peasants come to realize the game is fixed, and they can't win. (It will happen in the USA, trust me on this.)


They will revolt again. They will resurrect Mao's philosophy and kill off the ChiComs as enemies of the state, just as they did to those deemed not orthodox enough during the Cultural Revolution.


In short, you aren't going to have a People's Army, a People's Bank, a People's this, a People's that, and continue on this economic wedge that China is developing. There is already massive resentment, and it's only going to grow exponentially. What do you think the Democracy Movement is *really* all about?


As I said, look at the riots. They aren't becoming less frequent - they are becoming more frequent. And the ChiComs are the target of the masses' anger.


Don't kid yourself . . . China is far from being a "done deal" economically.


MarsInScorpio's picture

Jason, I say this crudely, but respectfully: That's a really dumb statement. Nobody can "coast from here on out."


It's about time the world woke up to the lies China tells about its economy. It is using the economic lies to enhance its world image, and thus its power. The China-freaks suck it all up, and frankly, use their so-called power-user knowledge of China to bring increased attention to themselves, and the information services and advice they sell.


Have you bothered to consider the wasted money on cities where no one lives? Exacftly what is the ROI on decaying buildings with no cash flow whatsoever? (Would any of you even think for a second of letting some bank carry that on their balance sheet as a legitimate asset?)


How much of that spending was reflected in so-calling "growing" GDP? If the West built ghost-cities like the Reds, all Hell would break loose. But the ChiCom apologists gloss right over it, acting as if empty housing, stores, and factory spaces somehow have real GDP inferences.


And does anyone really think that the so-called "princlings" (I love it, actually!! They just can't get away from their imperial heritage - they're as bad as the Brits.) are the princlings going to turn out honest reports of economic activity when their future depends on sending Beijing the numbers the ChiCom aristocracy wants to see? A godless culture without a future accounting to a Higher Power is not likely to have a conscience; if you are living only for today, you lie your fanny off to tell those above you anything they want to hear. (Thus explaining in one sentence the correlation of God Denialists in the West, and the West's continuing decline into decadence.)


It all adds up all right - it all adds up to economic lies that aren't worth the bandwidth they consume.


Yeah, you can trust the ChiComs , , , you can turst them to be ChiComs - and lie about anything and everything to amass power and wealth for themselves.


What a bunch of chumps the ChiCom apologists really are . . .


LongSoupLine's picture



"Baffle them with Bullshit" - Sun Tsu (loose interpetation)

LawsofPhysics's picture

Pointless.  The Chinese State has complete control of their eCONomy, the numbers will be precisely whatever the state wants them to be.  The U.S. elite are seeking the same docile and servant worker class in the U.S.  Always have been.

potlatch's picture

nah, the US just wants to control the flows of American society, and suffer depressions easily, since we always have the Sex Bomb.


Wait a sec, what's that?  You never heard of The Sex Bomb?


oh, lordy.


See, the Sex Bomb is what we detonate whenever we need some action.  Entire Revolutionary War was just a big Sex Bomb.  Civil War?  Come on, Black men set free?  That's a Sex Bomb.  Henry Ford?  Originally just called the Model T "Sex Bomb."  Les Paul?  Sex Bomb. 


See, we just being all prissy with the Sex Bomb. 


But I'm sure they set one off soon enough.  They always do.

Ratscam's picture

Hugh Hendry must be happy with his Japanese steel puts bought back in mid 2011

schatzi's picture

Reminds me of the 16 y.o. Chinese female swimmer having a sprint finish in the medley on par with Lochte. All legit. Honest.

Dr. Engali's picture

I will worry about long term China growth when the citizens become fat, complacent, and dependent on the government instead of hungry and wanting to achieve more.

Byte Me's picture


disabledvet's picture

I saw no mention of the size of their Soveriegn wealth fund here. What is it now? 2 TRILLION?

asteroids's picture

What if China thought the best way to stimulate it's economy was with a war? (It worked for the West in the 1930's, why wouldn't it work for us now?)

RPollack's picture

As long as you're first along with the banksters and their spawn to go to the frontlines, everything's cool.

RSloane's picture

The Chinese practice mercantilism in a highly effective manner. Considering how other state entities enter into global trade, I don't think they have a lot to worry about.

Vet4RonPaul's picture

The Chinese economy is worse than the US Treasury and Fed sham; complete wealth destruction with no real ability for the sheeple to challenge it.  They're so fucked.  Their 'one child only' policy that has been in effect for a generation now has resulted in a society of no siblings, no cousins, no aunts or uncles and so the State has completely annihilated the extended family structure and they are all popping blue pills daily now.  No way they can allow 1.4 billion people a little freedom now. soooo fucked.

earleflorida's picture

and here in america we do it without any persuasion,... 

potlatch's picture

I always check to make sure people have basic intelligence by seeing if they register the "B"illion part of this deal.  A big part of understanding economics is understanding population numbers.  So true.  And on that front alone, they are already most likely fucked.  Add into that an attempt to "manage" the growth of a consumer society, which is the invariable result of a manufacturing society?  Lol.  Good luck.


Wait till we drop the Sex Bomb on em.  Oh yeah.  The Sex Bomb.

Manthong's picture

When the reality of the bank induced decline in global consumption sinks in there, the situation will be something like when  a wounded giant black and white raccoon with explosive diarrhea and on bath salts runs amok in a china shop.  It won’t be pretty.

potlatch's picture

During a holiday weekend, with lots of grandmas.

bankruptcylawyer's picture

eventually trade war will result in real war. there can be no question about this. 

after all the battle of nations is really just the history of trade.

OhOh's picture

Dont tust Cinese figures eh, but when the news is bad it's go to be true?

Zarba's picture

Unfortunately, when the "Offical" figures are bad, the reality is usually much worse.

emersonreturn's picture

the chinese population appears to be as wary of revolution as the german populace are of inflation, nonetheless, as jobs diminish, income slows and costs rise dissent will grow.  the chinese people understand the separation of the population from TPTB, in the not so distant past TPTB fudged the figures of metal forged and the number of deaths due to corruption, failure of the great leap forward and the resulting famine.  the people understand hunger in ways most of cannot imagine and while they will cling to hope not unlike all POW survivors  ultimately the discontent will surface.  it seems globally we all have the great good fortune of interesting times.

RPollack's picture

The Chinese got factories; we have Wall St, the MIC and a parasitic, vampire bureaucracy called gooberment. Just like during the industrialization of the US before the banksters cut out our industrial heart, they will progress with a few hiccups while we fester in tyranny and, finally, bloodshed.

marco1324's picture

Chinese manufactures looking elswhere.

A whole bunch of chinese textile workers woke up recently to find the factory closed and the jobs shifted cant remember the province sorry but it does seem like stormy waters ahead.

From CCFGroup - 'After whole-year decreases in 2011, cotton textile market continued the downtrend in H1, 2012, partially determined by supply/demand relationship and partially making up for the irrational surge in 2010. So will cotton textile industrial chain continue the downtrend in Q3? What has happened to domestic and foreign markets' - We are sick of cheap tat and we have no money left.

Strife in Asia spreading and slowing down to.

Spoke with a pal after he recently returned from China about the slowdown there. During our chat he mentioned a conversasion he had with some chinese counterparts, bright young entre's aparently, about future changes both political and economically in China. His opinion was big changes in 5-10 years, his counterparts reckoned major changes a lot lot sooner than that.

Go Tribe's picture

All I know if this: China can change for the better. The U.S. can only change for the worse. I'll keep my China/Asian investments, thank you.

potlatch's picture

All you naysayers will quail with bad feeling in pit of stomach when glorious number one aircraft carrier is soon launched!

billsykes's picture

It doesn't matter if China up/down they don't care. They don't care if they have to sacrifice a generation or two at slave labor prices to get what they want.

They support more countries build more schools and give out more infrastructure projects and in 10 yrs, mandarin will be spoken in every African country, just like french and English was.

Yes china has shitloads of debt that was never written off and have cities that are empty and have high speed railways that are unsafe but they are in better shape than the USA. While the usa concentrates all spending on military, domestic population control and stupid wars, China is at least buying outside their country and creating good will. 

America was never about good will, the only good will they know is just park a fucking destroyer off your coast and watch your fucking mouth style of diplomacy. 

If china started doing that, the  J town overlords would be screaming bloody murder at the UN.

Watch china beat the fucking pants off the world in cars, tech, aerospace, and everything else. The baton has passed. yellow is the color of the day.






Weyland_Yutani's picture

I flew via Beijing Airport a couple of weeks ago and holy shit, it's a huge airport. But it's basically empty. One would think that the airport of China's capital would be busy but it was totally deserted. Gate after gate after gate were empty as far as the eyes could see.

I've read articles about new trainstations and other airports that are big as hell but empty.

People should know that most of China's "extraordinary" growth numbers are in fact enormous malinvestments in infrastructure that were made only for local politicians to show their communist leaders that they are creating growth.