Could China's Recovery Be Stalled?

Reader Jason notified me of this story from Bloomberg.... I am posting it simply for entertainment purposes as it is completely legitimate that an economy based on exports, relying on multiple first world economies in historic recessions has within months transformed itself to a consumer led economy via the power of following the Alan Greenspan/Ben Bernanke model of flooding the economy with currency & loans galore. Just repeat "decoupling" to yourself 3 times, tap your ruby slippers and repeat "there is no place like China, there is no place like China, there is no place like China". Ignore the fact decoupling was discredited a mere 12 months ago (we have short memories) and insist this time it's for real. Then take this red pill and forget you ever read this .....shall I call it .....heresy.

• China’s economic recovery began to stall in the second half of April and is slowing further this month, raising concern that the rebound won’t be as “strong as many recently have hoped,” Credit Suisse Group AG said.
• Retail industries including electronics and department stores have weakened, adding to a slump in power consumption, Dong Tao, a Hong Kong-based economist said in a report.
• “The pace has slowed, even reversed in some sectors,” Tao said. “The trend has become more visible in May.”

Apparently not only Credit

Suisse

has this view

• Credit Suisse, Switzerland’s biggest bank by market value, joins the World Bank and Oppenheimer & Co. this week in raising concern about the strength of the world’s third-biggest economy. The World Bank said today enthusiasm about a recovery may be “premature.” Katherine Lu, Oppenheimer’s China equities director, said the economy is “struggling” and may fall short of the government’s 8 percent growth forecast.
• “Renewed concern about China’s growth momentum could trigger a market correction,” Credit Suisse said.
• David Dollar, the World Bank’s country director for China, said today it was “hard to get too excited about the future” for the economy because private investment is lagging government spending. Private investment, the main driver of growth, was “way down” in the first quarter, Dollar said at a forum in Beijing, without citing a figure.
• China’s economy expanded 6.1 percent in the first quarter, the slowest pace in almost a decade. Overseas shipments declined 22.6 percent in April from a year earlier, the customs bureau said last week.
• Manufacturing may falter in coming months after expanding in March and April, Tao said. The Purchasing Manager’s Index, or PMI, rose to 53.5 in April from 52.4 in March. A reading above 50 indicates an expansion. “The PMI runs a risk of slipping below 50 over the next few months,” Tao wrote.

Since almost every single green shoot in the world is dependent on the 3rd largest world economy carrying the 1st, 2

nd

, 4

th

, 5

th

, 6

th

, 7

th

(you get the point) on it's back through a $500 Billion economic stimulus, let us not imagine the possibilities if at some point the steam runs out. Also, let us not think about how many bad loans are being made day by day as money is shot out in all directions via loans to "stimulate" growth in any fashion possible. Because if there is one thing we've learned, it's that easy money and credit granted to almost any comer is indeed a formula for prosperity.

Again, all things being equal, China is in far better shape than us, and has reacted far better than we have in many ways. But they also started from a far better place. Over the coming years they will evolve from an export-heavy economy to one driven by internal consumption in its growing middle class. But to expect cultural habits (high savings rates) and a complete transformation in an economy in a mere matter of months is the stuff of.... green shoots. This process will take many years.

Comments

[Sober Realist:]

I see China's economic recovery as illusory. China's command economy can make the government-owned banks lend at a furious pace and the government-owned corporate entities borrow and spend just as fast, but this will all just lead to malinvestment. This kind of setup where the government controls a large part of the money-creation and money-spending apparatus is anathema to Austrian economics. With no developed safety net for their tens of millions of out-of-work migrant workers, artificial stimulation is all they have. Their real economy(export) is dead. Another growth-stopping problem they are dealing with right now is water scarcity. Demographically, China also has a 4-2-1 problem.

May 21 01:19 PM

[HardwoodFlo...:]

Countries that are primarily exporters don't lead a recovery they follow a recovery....

May 21 01:31 PM

[whidbey:]

The difference is that China has the financial capacity to do the necessary "ground work" of laying in commodities and capital to forge a lasting recovery some day before too long.

The stall may be real, but China political economic structure to make its recovery work. Compare that to the Obama programs.

May 21 04:24 PM

[kuali:]

china lead the western world out of recession? why? they have their own problems. putting some recent scars aside for moment, the people still generally cooperate with each other, like in the middle ages, don't you think? Maybe you missed the olympics, but I can assure you, bush and putin were there with the iranians.

Long fxp and staying that way.

May 21 09:30 PM

[AlphaZedder:]

Tradermark... the quotes are poignant enough... so yes there has always been the question of whether or notChinese stats wrt economic figures were reliable or not. And certainly we can wonder about whether or not China will provide the stimulus the rest of the world requires to move through the current millieu.

However simple lending and the risk of loans gone bad are well understood e.g. I'm sure the Chinese understand they may see some bad debt as they try to sponsor growth (the old fashioned way)...

The effect of the financial instruments conceived and peddled in the Western world that, going bad, have brought us to our current state are novel and still not understood.

May 22 01:31 AM

[Sober Realist:]

Like its supposed "recovery," China's "middle class" is also an illusion. Only about 8% of China's population have enough purchasing power to be considered "middle class,"otherwise known as the "consuming China." The other 92% of the population falls under the moniker of the "surviving China."
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"In a 2007 article for BusinessWeek, Arthur Kroeber, editor of China Economic Quarterly, stated blankly that, "China doesn't have a middle class.". He blamed deceptive figures released by the Chinese government for our misperception of the situation, and estimated that total purchasing power in China to be half of what was being reported at the time.
Such views were recently echoed by David Goodman, professor at the University of Technology in Sydney. Goodman argues that the "middle class" that we see in China's urban centers are an exclusive elite forging ever-closer links with the ruling Communist party. "They are neither independent of nor excluded from the political establishment, which on the contrary seeks actively to incorporate them," he states. He attributes this development to former party leader Jiang Zemin, who "opened the doors for capitalists to join the party."
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As I've stated before, many investors take pride in the fact that China is home to a vast pool of people willing to work for peanuts. Just like western investors, the Chinese ruling elite feel the same way and have been more than willing to exploit that "resource."
nextbigfuture.com/2008...
www.time.com/time/busi...
www.thedailybanter.com...

May 22 01:37 AM

[TERN:]

Hi Sober Realist,

yes, there will be malinvestment as a result of a credit bulge.
There will be corruption, and maybe a show-trial or two.

But most of the SOE's will be directed to spend the loans on enabling a faster buildout of China's infrastructure, including education.

This will pay the same dividend for China as it did for the US, 100 years ago.
The accelleration on the way to become a first world country is China's benefit from the western crisis.
It has been a timely wake-up call to spend malinvested or "malparked" (in USG Tbonds and Agency debt) reserves there where they are sure to pay off long-term.
Think of a sustainable fast railroad-based transportation and distribution system that will, one day, be the envy of the other superpowers.

May 24 10:59 PM