Saturday, January 09, 2010

Is China's Growth an Illusion?

"China is Dubai times 1,000 — or worse.” — James Chanos, founder and President of Kynikos Associates

There are quite a few economists and academics who question China's rapid and astounding growth, among them Bob Chapman, Gordon Chang, Richard Duncan, Jim Grant and Jim Chanos, a millionaire hedge fund manager.

After all, China's 8% GDP growth is quite remarkable in these times of worldwide economic contraction.

The problem is that, with a totalitarian government, how can you believe any of their "official" data? You can't even believe U.S.government data, so how can you put any faith in China's?

There is so much contradictory information regarding China.

New data this week show China continuing its ascent into economic superpower status, rising above Germany as the world’s top exporter and overtaking the U.S. in domestic auto sales.

However, the IMF says China is #100 among world nations in per capita income; the CIA says China is #106.

China has considerable problems: One billion of its citizens are still peasants. It has one-fifth of the world's population and it has to feed all those people. Much of it's landscape is an ecological wasteland and an environmental disaster.

With worldwide consumer demand continuing its long decline, China appears at risk of overproducing goods that no one wants.

"Demand in China is over-inflated, that is clear," says Chanos.

And bank lending is estimated to have doubled last year from 2008. That, combined with enormous flows of speculative foreign capital into China, may have created enormous asset bubbles.

If China tanks, we can only hope that the era, and the widely accepted policy, of speculation and debt will finally come to an undignified end.

“Bubbles are best identified by credit excesses, not valuation excesses. And there’s no bigger credit excess than in China,” says Chanos.

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