May 18, 2011

China facing recession?

Filed under: China, Economics — Tags: , — Nicholas @ 12:03

At risk of setting my hobby horse to full gallop, reports like this one are starting to sound a few mild alarms about the real state of China’s economy. But accepting official Chinese government statistics like this isn’t going to help:

The Chinese central bank has responded to overheating in its economy by raising interest rates four times since October 2010. Inflation has subsequently cooled, slowing to 5.3 percent in April, but the economy is still roaring with a 9.7 percent increase in gross domestic product for the first quarter.

The rate moves have raised questions about whether the government is going too far to slow things down, and whether the country can accomplish its desired transition from an export-driven economy to growth based more on internal consumption.

As I’ve said several times before, you can’t trust these kinds of numbers because they’re not independently generated from reliable data. They’re numbers that range from kinda-sorta in the same ballpark as reality all the way out to the lower stratosphere. The people providing the numbers are subject to rather more risk than just losing their jobs if they displease the government. Honesty is not a virtue when your life may depend on providing the “right” answer.

As Monty puts it:

I’ll keep hammering this point as long as I’m able: The Chinese “economic miracle” is mostly a sham. The Chinese are awash in cheap Western money, essentially, and when that money dries up (which it is doing right now), the Chinese don’t have much of a domestic market to fall back on. Plus, in case anyone forgot, they’re still run by Communists who don’t really believe in that whole “capitalism” thing.

I’ve ridden this hobby horse many times before. I don’t doubt that I’ll be riding it many times again in the future.

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