China Economic Paradigm Nearing End Game. Skeptics of China’s economic model have looked like hopeless gloomsters for years. Even though they are correct when they point out negatives, such as the fact that no large economy has ever had 50% of GDP coming from investments and exports for a sustained basis or has managed the transition from being export driven to consumption driven gracefully (the US’s and Japan’s deflations are prime examples) seemed irrelevant as China was able to maintain attractive growth rates in the wake of the financial crisis by providing massive stimulus (aka more investment). GMO, in a compelling analysis (hat tip MacroBusiness), not only confirms the skeptics’ case but provides reasons why the Chinese growth model faces an end game.
While it may not be nigh, it seems to be closer than most people think. And if that didn’t get your attention, this chart might: Read the report. EC_FeedingtheDragon (1).pdf by Belinda Winkelman. Is China’s growth model reaching its limits? On the growing divergence between appearance and reality in China’s banking system | observingrealities. From NakedCapitalism : “Skeptics of China’s economic model have looked like hopeless gloomsters for years. Even though they are correct when they point out negatives, such as the fact that no large economy has ever had 50% of GDP coming from investments and exports for a sustained basis or has managed the transition from being export driven to consumption driven gracefully (the US’s and Japan’s deflations are prime examples) seemed irrelevant as China was able to maintain attractive growth rates in the wake of the financial crisis by providing massive stimulus (aka more investment).
It would seem the gloomsters have history on their side, as per a recent paper from GMO… Fragility in China’s banking system… “There is a famous CIA paper, dating from the 1970s, entitled “The Art of China-Watching.” For a selection of articles debating the sustainability of Chinese economic growth, click the image below …. Like this: Like Loading... China the Mother of All Grey Swans / Japan Past the Point of No Return - October 2010 - By Vitaliy Katsenelson. THE CHINESE “PERFECT STORM” Interesting comments from Carson Block of Muddy Waters Research. Block covers Chinese equities and has nailed some pretty big fraud stories in the region in recent years. He discussed China’s “perfect storm” with Bloomberg yesterday: Block on whether fraud is as rampant as ever in China:“We definitely have had a correction in the RTO universe.
A lot of these companies that have been committing fraud, they’re still hanging around. But nobody’s really paying attention to them. So in a way, that’s somewhat self-correcting. I suspect that a lot of those companies will just stop reporting. Watch the full interview at Bloomberg TV. The Coming Collapse of China: 2012 Edition- By Gordon G. Chang. In the middle of 2001, I predicted in my book, The Coming Collapse of China, that the Communist Party would fall from power in a decade, in large measure because of the changes that accession to the World Trade Organization (WTO) would cause.
A decade has passed; the Communist Party is still in power. But don't think I'm taking my prediction back. Why has China as we know it survived? First and foremost, the Chinese central government has managed to avoid adhering to many of its obligations made when it joined the WTO in 2001 to open its economy and play by the rules, and the international community maintained a generally tolerant attitude toward this noncompliant behavior.
As a result, Beijing has been able to protect much of its home market from foreign competitors while ramping up exports. Don't believe any of this. Yet China's "sweet spot" is over because, in recent years, the conditions that created it either disappeared or will soon. Today, social change in China is accelerating.