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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
  • China's "Growth" a Result of Channel Stuffing 0 comments
    Jun 14, 2009 1:54 PM

    Here's an interesting idea; China's reported growth is largely the result of channel stuffing. After all, it "worked" (for a short period of time) for "Chainsaw Al" Dunlop, in his fictitious "turnaround" of Sunbeam, Inc. U.S. consumer goods companies, who sell through intermediaries, rather than to end-users, often do the same thing (.e.g. drug companies to drugstores, especially for "OTC" products. It's any "accepted way of "borrowing" sales when they are most needed. But the other rule is, "more today, less tomorrow."

    Here's the thing: China records sales (and hence GDP), when goods are shipped. This may or may not be connected to an order placed by an actual end-user. Moreover, the country has a number of "warehouses" at convenient locations where goods may be "parked." In other words, if things are as depressed as they really are in the world, why wouldn't China borrow growth today to make a reported 6% number, from tomorrow, when there might be "too much" growth rather than too little.

    The disturbing thing is that very little of China's growth seems to be reaching end users. That is reflected in the lack of growth of both power usage, and employment absorption. What growth there is appears to be reflected in the buidling of new capacity. Not a bad thing, at other times. A terrible thing at times like these when global demand is falling.

    There is a kind of growth called "immiserizing growth:" that makes (develpeing) countries worse off by exacerbating the imbalances between production and consumption, thereby worsening the "terms of trade." To the extent that China is enjyoing growth, it appears to be of the "immiserizing" kind, both for itself and others.



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