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China’s economic strength as touted by Beijing propaganda does not square with the observations of the international financial community.
Beijing congratulates itself on its economic viability in the face of the worldwide economic crisis, promoting a “Noah’s Ark” allegory: “Made in China” will redeem the world’s economy, and China will be the “engine” to pull the world’s economy out of the quagmire.
International economists, on the other hand, are troubled over China's real-estate super-bubble and believe the bogus prosperity—engineered by the Chinese regime through the use of asset bubbles—will inevitably result in a real depression.
As China’s real estate bubble has been exhaustively debated, I would like to discuss the Chinese economy from a broader perspective.
Since the global financial crisis triggered by the U.S. sub-prime mortgage crisis occurred, a number of leading economists have focused on five factors that could hinder world economic recovery: bad bank assets such as bad debts and high-risk loans, poor bank supervision, mass unemployment, structural imbalances in the world economy, and unpredictable variables such as H1N1.
Without a doubt, all five factors exist simultaneously in China today. Moreover, the Chinese economy itself is the primary reason for the structural imbalance of the global economy.
Financial Risks of Asset Bubbles
China's bad bank assets have captured concern from the international financial community from the beginning. US$900 billion of China’s bad debts generated before 2007 have finally been worked through. This was accomplished by packaging the bad debt as state-owned Bank shares and attracting large numbers of international banking giants as three-year "strategic investors" and after that making the state-owned banks government controlled listing companies in China and Hong Kong stock market. This raised the capital adequacy ratio (CAR) during a three-year period, in spite of the fact that afterwards these "strategic investors" started to leave the game.
Since 2008, China has implemented a loose monetary policy in order to combat the economic crisis. At the same time, China's banking crisis again became the subject of much consternation by its overseas counterparts. Data frequently found through mainland media sources confirms the following:
First, the improved CAR from the absorption of previous bad debt has declined, resulting in a deterioration of the quality of bank assets. In late November of 2009, the China Banking Regulatory Commission (CBRC) required major Chinese banks to raise their CAR. According to BNP Paribas, it was estimated that 11 major Chinese banks needed to raise 300 billion yuan (US$44 billion) in capital in order to meet the tighter standards.
Second, China has presently invested too much in real estate. China's real estate industry accounted for 6.6 percent of its total GDP, as well as a quarter of its fixed-asset investments. The amount of real estate loans issued by Chinese financial institutions (including loans to developers, land marketing, and personal housing mortgages) has reached several trillion. The real estate bubble is leading to bank loan risk.
Third, the projects under the name of the four billion RMB stimulus package provided by the Chinese Communist Party’s (CCP’s) central government have become a means to extract bank loans rather than a means to really facilitate economic recovery. For instance, the CCP Central Inspection Group found problems in 2,151 out of 2,472 projects.
In fact, the CBRC is under the control of the central government, while the Central Bank of China functions as the government’s purse. It is obvious that the banking supervision system in China is extremely weak and loose, and the CBRC cannot supervise the actions of the Chinese government through the Central Bank.
Victor Shih, a China expert at Northwestern University, said China’s economy is actually "a Ponzi scheme whose head is the central bank which can print money" in large quantities. (From Forbes magazine: featured cover article titled “China’s Bubble.”)
High Unemployment Confounds Domestic Demand
Unemployment in China is a very serious, long-standing problem—as well as a conundrum. Prior to the Beijing Olympic Games of August 2008, Tian Chengping, the former Labor and Social Security Minister, told the media that the number of unemployed was presumed to be 250 million, including 200 million migrant workers from rural areas and 50 million actual residents.
