China’s credit-fueled bubble economy is falling to pieces before our very eyes.
Between 2008 and 2013, China’s credit market increased from $9 trillion to an incredible $23 trillion.
To give this number some perspective, China’s GDP is a little over $7 trillion. So China today has a credit market well north of 300% of its GDP.
There is simply no other way to view this than as a bubble. Indeed, we see all of the clear signs of a bubble in the real estate markets today with countless ghost cities, massive empty malls, and other excess capacity.
What’s truly stunning to witness however, is the fact that in spite of all of this expansion in credit, China’s GDP growth continues to fall.
Indeed, GDP is now trending downwards for the first time in a decade. China’s Government has realized that this is a major problem for the country and so has announced that “GDP is no longer a measure of success.”
This is an incredible admission from the Chinese Government as everyone on the planet knows China’s GDP measure has been a work of fiction for decades. The fact that GDP growth is slowing in spite of all the manipulation of the metric is a major sign that things are sharply turning for the worse in the People’s Republic.
Indeed, we get additional indications that China’s economic data is dramatically overstated from other less massaged metrics.
China recently announced that it would be implementing a crackdown on fraudulent trade invoicing. It is not coincidence that right after this, China posted a truly horrible steel export results for the month of May: a mere 1% increase from the year before (hardly the stuff of which 8% GDP growth is made of).
Another metric is electricity usage, which increased by a mere 2.9% in the first quarter of 2013.
So, steel exports are increasing by 1% year over year. Electrical usage increased by just 2.9% in the first quarter of this year, and the Chinese Government has announced that the world should stop looking at its GDP numbers because they are not truly indicative of the economy there.
The Government is right in saying this, though not in the way it means. China’s GDP is not indicative of its true GDP growth… it’s sharply overstating it.
More evidence shows up in the China ETF (FXI) which has been in a massive wedge pattern for five yeas now. AS soon as we take out that bottom line, it’s GAME OVER.
Investors take note, China, the growth engine for the global economy is sputtering. The implications will be serious for markets globally.
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