U.S. and China on Collision Course

Friday, December 23, 2016
By Paul Martin

By Jim Rickards
DailyCoin.org
December 23, 2016

China’s capital and currency markets are on a collision course with the U.S., and by extension, the entire world. Economists are fond of saying if something can’t go on forever, it won’t. That truism applies to China.

Huge profits will be made by those who see this China train wreck coming and act in time.

The idea of economic stress in China sounds strange to most ears. China has come from the chaos of the Cultural Revolution to the world’s largest economy measured on a purchasing power parity basis in just 35 years. Even using nominal GDP, my preferred metric, it is the world’s second largest economy.

China’s economy grew over 12% per year in 2006-2008, and again in 2010. Even at the depths of the global financial crisis in 2009, annual Chinese growth was still over 6%. Chinese growth ran between 8% and 6.7% from 2011 to 2016. These growth rates are extraordinary compared to the 0% to 2% annual growth achieved by the major developed economies since 2007.

But, beneath that glossy surface all is not well. Much of China’s growth was completely artificial. It would not be counted if China were subject to more rigorous accounting standards.

China’s growth consisted of about 45% investment. That compares with about 30% investment in developed economies. Investment is fine if the investments have positive expected returns and are not financed with excessive debt. But, China fails both of those tests.

Much Chinese investment is completely wasted on “ghost cities” (major metropolitan complexes that are completely empty). As well as white elephant prestige projects such as the multi-billion dollar Nanjing South train station with 128 mostly unused escalators. Assuming half of Chinese investment is wasted, then GDP should be reduced 22.5%. This turns 6.7% growth into 5.2% growth at best.

The Rest…HERE

Leave a Reply

Join the revolution in 2018. Revolution Radio is 100% volunteer ran. Any contributions are greatly appreciated. God bless!

Follow us on Twitter