Donnerstag, 9. Juli 2009

China's Economy

I've been trying to make sense of what is happening in China, but it's all rather confusing. Let's see:

- Loan growth is off the charts, with close-to limitless money being handed out to every (state-linked) company that asks for it.

- Car sales are still very strong, far higher than last year

- Domestic air traffic is up sharply (+11 % in first five months)

- Even electricity consumption has now (finally!) started increasing year-on-year

Can this be a sustainable mini-boom?

Intuitively, I'm tempted to say "no way!". There's the export drop that hasn't even started easing. There's the overwhelming temptation of allocating all the easy money in all the wrong ways. There's a collapse in foreign direct investment (and probably a sharp slowdown in local private investment as well).

But China has a habit of surprising. My guess is they will keep firing away for a while, and if they're lucky, they (eventually) get to find reasonable uses for much of the excess investment they are putting in place (not immediately, but China might "grow into it" after a while). If they are not so lucky, they will be saddled with huge amounts of new non-performing loans and near-bankrupt SoEs, but that's at least two years in the future.

But even in the adverse scenario, it won't destroy the Chinese economy. Sure, it will drag down the living standards of consumers, because somebody has to pay for the misallocated investment in the end (what's invested cannot be consumed; and if investment doesn't produce useful stuff in the future, it doesn't help future consumption either). But GDP doesn't measure standard of living. It measures the amount of stuff produced, useful or not, well allocated or not.


  1. Dieser Kommentar wurde vom Autor entfernt.

  2. So,your bet is 1.5 year.
    I think it is a litle bit optimistic,but we will see.
    But I think that a 30% drop in the GDP and 20%+ jobless rate could be quite destructiv.

  3. China's GDP dropping by 30 %? Somehow, I don't think that's a very likely scenario.

    But as you say: We will see.

  4. Yes,that could be an extreme case.
    But one year ago I was in the same illusion about the current situation.

  5. I think the current commodity fall is the first signal of the Chinese deterioration.
    They will experience the same thing like the US at the end of 2008,just on a bigger magnitude.