They have drawn in the entire
working population to this process and that part of the economy can no longer
grow. They must now transition to rising
productivity and rising consumption. The
fastest way to do that is to allow rising wages to drive consumption. In the meantime it is necessary to
restructure the banking system into a profit making system that supports
consumption.
Certainly it is becoming rather
difficult to sell into the global market which may well be contracting and
certainly could.
JUNE 17, 2011
Data Dictionary - infrastructure investment (Gross fixed capital
formation) has been driving China’s GDP growth over the last decade and they are
trying to engineer a shift to a more consumption driven economy.
The rmb has actually risen by all of 5 percent against the dollar over the last year--doesn’t get the job done, because the dollar’s gone down against other currencies and there’s been virtually no change in the trade-weighted strength of the rmb. The countries we identify as being overvalued include some of those already at that time:
Five charts of China ’s
growth conundrum
Posted on 17 June 2011
When you think about it, the imminent spike in mining related
investment and its impact on Australian GDP is a pretty fair reflection of what
has been going on in China
for some time. Martin Wolf recently opined on the sustainability of China ’s GDP
growth without the government sanctioned infrastructure binge (here). It’s the Jim Chanos view of the world, ease off the
building and things don’t just slow, they go into reverse pretty
quickly. The following charts hint at what’s at stake:
1) The importance of infrastructure investment (Gross fixed capital
formation) in driving China ’s
GDP growth over the last decade is self-evident:
2) And even more simply stated as a proportion of GDP:
3) So it is clear just how difficult is the task is to migrate the
driver of GDP growth from investment to consumption.
4) Still that is why China is forecasting GDP growth closer to 7% for
the next 5 years – it’ll be weaning the economy off the debt financed
infrastructure spend ever so gradually:
5) But the risk is that the problems have already been conceived – China ’s
financial system is pregnant with debt that has financed investments that will
prove uneconomic if the rate of GDP growth (and the attendant asset price
inflation) slows.
Looked at from this perspective, it has remarkable similarities to the
debt overhang that persists in the developed world – and the resulting
underperformance of financial equities from New York
to London and
beyond.
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