By now, the China narrative should be familiar to most regular readers. Indeed, anyone who pays attention to global macro should by all rights be able to recount the entire story off the top of their head.
Massive credit expansion (from just a little over $7 trillion in 2007 to a staggering $28 trillion and climbing today) allowed the country to sidestep the economic malaise that followed the financial crisis. To whatever degree global demand and trade “recovered”, that recovery was underwritten by the Chinese, whose insatiable demand for raw materials buoyed commodity producers from Australia to Brazil.
Unfortunately for the global economy, China was sowing the seeds for its own (and everyone else’s) economic demise. Beijing built, and built, and built, creating pockets of acute overcapacity throughout the country’s industrial complex and erecting sprawling ghost cities and other monuments to the idea that "if you build it, they will come".
When the debt bonanza finally begin to taper off and China stepped back to assess the monster it had created, it was too late. Commodity producers the world over had come to depend on a perpetual bid from China. When demand began to slump as China set off down the long road towards creating a consumption and services-led economy, the world was caught flat footed. A global deflationary supply glut for commodities was born and the more quickly China’s economy decelerated, the larger it became.
As for China itself, authorities are reluctant to allow the market to purge uneconomic productive capacity for fear of sparking social upheaval. That means perpetually bailing out companies that find themselves in trouble, thus preserving unwanted supply and fueling the disinflationary impulse.
Or, as we put it back in October: “The cherry on top is that China itself is now trapped: it simply can't afford to let anyone default, as one bankruptcy would cascade across the entire bond market and wipe out countless corporations leaving millions of angry Chinese workers unemployed, and is therefore forced to keep bailing out insolvent companies over and over. By doing so, it is adding even more deflationary capacity and even more production into the market, which leads to even lower prices, and even greater bailouts!”
But even as the Politburo struggles to prevent the entire house of cards from collapsing on itself, signs of the country’s deceleration are readily apparent and Beijing’s anti-pollution campaign has only served to put further pressure on the industrial complex. Below, find a series of images which depict forlorn, abandoned brick factories and worker dormitories in Chaomidian on the outskirts of Beijing, shuttered because they belched too much pollution and because, presumably, the country has all the bricks it needs.