Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Simple Math Disproves China's "Staggering" Growth

By

"Miraculous" economic expansion is unsustainable.

PrintPRINT
The Chinese non-export economy grew 23% in June! Before you start frantically Googling that number, let me warn you: You won't find it. I've computed it using fifth-grade math.

Here is what we know: exports constitute about 35% of the Chinese economy and they dropped over 20% in June, while the Chinese economy (Gross Domestic Product) grew 8%. So the "X" is the growth rate of 65% of Chinese non-export economy.

0.35 x (-20%) + 0.65 x (X%) = 8%. If you were to solve for X, you get 23%.

Enough with math, let me put this number in perspective. Chinese non-export economy grew at 3 times the rate of their GDP. I only have 2, very contradictory, explanations for this:

1. The Chinese government is lying through its teeth about its miracle growth. It has the incentive to interrogate economic data until it confesses, and to make it conform to the party-line numbers. This is very plausible: For months, the Chinese government was showing positive GDP growth while its consumption of electricity was declining. Obviously, this doesn't make much sense.

China also isn't famous for the production of intellectual goods (i.e. software, creation of toxic financial products -- that's our specialty), which scale a lot better and don't require proportional electricity consumption to grow GDP. (And just look at the government's recent troubles with Google (GOOG), Yahoo (YHOO), and Microsoft (MSFT)).

China makes stuff, and to make stuff you need a lot of electricity. And even if the growth is completely driven by building high-story buildings (even if they eventually collapse), highways, and schools, these activities still require a lot of electricity.

2. The numbers are real -- the monetary base was up 28.5% in June (again if you can trust that number), and thus the quality of growth is horrible. I've discussed this scenario in great detail.

I hate to leave on open-ended note, but only time will tell what is actually going on in China.

P.S. I wasn't surprised to learn that Jeremy Grantham of GMO – a value investor for whom I have tremendous respect -- is concerned about the future of Chinese economy as well.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE