Western market researchers, economists, and investment advisers have for a long time downplayed any economic problems or the possible lack of actual growth in the Chinese market, making it appear that they have became mouthpieces of the Chinese state, coming in just behind the Chinese media.
“What is it with these communists and former communists and the compulsion to tell lies. … We have news from China that the economy grew by 7.6% in the second quarter of 2012. … What is truly painful is that the real [Chinese] economy is, as you well know, growing at nothing like that rate,” said a July article on the ADVFN, a website that provides independent financial commentaries.
It seems that some information has made its way out of China, despite tight information control by the Chinese regime and the threat of being charged with the crime of revealing state secrets. By carefully reading Chinese media and industry association reports and analyzing them carefully, one can glimpse behind the curtain, put two and two together, and come up with a more realistic picture of China’s economy.
The ADVFN article carefully evaluated data from various Chinese sources and found that Chinese steel, shipbuilding, textile, electronics, and other industries are lacking orders, and operations have slowed significantly, an indication of slowing growth in the economy.
“Order books for big ticket items have dried up. Large numbers of these (often heavily geared) enterprises are making losses. That is pain. And that sort of pain does not happen in an economy growing at 7.6%,” said the ADVFN article.
Sifting Through Chinese Economic Data
Actually, anyone can review Chinese publications and come to a similar conclusion as ADVFN; for example, China’s growth is slowing. For one, the decline in exports is a good indicator of a slowing economy.
China’s textile exports during the first half of 2012 rose by 1.6 percent compared to the same period in 2011, with textile exports increasing by 1.3 percent and garments by 1.9 percent, according to China’s National Textile and Apparel Council’s (CTFI) website quoting China Customs figures.
It is important to note that during the full year 2011, Chinese textile exports rose by 22.9 percent and clothes exports by 18.3 percent. Thus, comparing the two years, one can deduce that the 2012 data indicates a significant slowdown in textile industry exports.
Another case in point is China’s shipbuilding industry. In 2012, China’s shipbuilding industry experienced a growth rate of 0.7 percent and during the first five months of 2012, ship orders declined by 47.3 percent year-on-year quoted Xinhuanet from China Association of the National Shipbuilding Industry’s website.
“China’s shipping industry faces a severe test in today’s sluggish global market. … The traditional shipbuilding industry is being hit hardest,” said the Chinese state mouthpiece Xinhuanet.
[I]t appears that there is definitely a downward trend.
The privately owned Zhejiang Jingang Shipbuilding Co., plagued by sluggish demand and the inability to meet its debt payments, filed for bankruptcy in June, according to the Chinese media, including China News Service (CNS), a Chinese news agency, headed by Liao Chenzhi, former vice chairman of the Standing Committee of the National People’s Congress.
It is not just the aforementioned shipbuilder, but others are in bad shape and on the verge of bankruptcy unless new orders start to roll in. The article also suggests that other privately owned shipbuilders in the Fujian, Shandong, and Zhejiang provinces have started bankruptcy proceedings.
“It has finally dawned on some markets that there just might be a little problem with the China growth story. One recent bit of bad news is that the official purchasing managers’ index fell to 50.4, a large drop from the April number of 53.3. Along with other statistics, it appears that there is definitely a downward trend,” said a June article on the Seeking Alpha website.
Another indicator of a slowing economy is China’s Manufacturing Purchasing Managers Index (PMI), published by the National Bureau of Statistics of China. The PMI decreased from a high of 53.3 percent in April to 50.1 percent in July, although it is still higher than the 49 percent from November 2011, the lowest point since July 2011.
“A reading [of the PMI] below 50 signals contraction in the industry. … China is the second largest economy in the world. … However, it is slowing and economists remain split on whether [the] [sic] it will see a soft or hard landing,” according to a statement on the Business Insider.
Questioning Official Chinese State Statistics
“The emerging markets, especially China, are showing signs of a major slowdown. Indeed, recent revelations have made it clear that China’s slowdown is in fact much worse than expected. … Chinese Data Mask Depth of Slowdown, Executives Say,” according to a July article on the Gains Pains & Capital website of Phoenix Capital Research, an investment insight provider.
The coal inventory is growing as electricity output is curtailed, with local and provincial governments keeping a lid on the true numbers being reported to Beijing, according to power sector officials.
“For twenty years Chinese GDP rough[l]y [sic] came in right on the government’s target. This would be an almost magical performance record considering economists in the West can predict absolutely nothing,” said an article on The China Money Report website.
According to an undated article on the Web on a China website owned by Sinomedia, a Chinese news agency, China’s National Bureau of Statistics (NBS) is going after local and provincial officials who falsify growth, production, sales, and other economic data.
NBS has put in place an online data collection system to prevent falsification and manipulation of economic data by local and provincial officials.
“Most recently, the NBS tried to keep local officials from pumping up their numbers and painting rosy pictures of their success by requiring 700,000 companies to report directly to the agency,” according to an article on the Radio Free Asia website.
Comparing China’s Machinations to a Ponzi Scheme
“Similar to a Ponzi scheme, more and more money needs to be pumped out to continue the ever-escalating rise in sales. As customers run out of cash, they start borrowing and leveraging up to higher levels,” said a June article on the Profit Confidential website.
Generally, a Ponzi scheme definition is used for a fraudulent investing scheme, where those that thought to invest in stocks or some other assets receive dividends with moneys from future investor funds, as the investment had not been made.
A case in point is a Chinese construction equipment producer with company assets of $12 billion borrows $22 billion, which it will lend to its customers. The customers then use the equipment as collateral to borrow in the market, because the company does not have the cash to pay for the equipment, and then extends credit to its own customers.
“This is one giant house of cards. Essentially, none of the customers along this chain have the money to buy the goods. Purchases are being conducted solely on credit!” said the Profit Confidential article.
The Ponzi scheme concept is borrowed for this kind of transaction, because the similarities are the same in terms of using others’ assets to manipulate the system. At some point in time, the system becomes so overextended that it collapses.
“It appears everybody is completely overextended; when you have a situation where collateral is being borrowed multiple times on the same assets, this is a huge warning sign for the global economy,” according to the Profit Confidential article.
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