More Warning Signs From China

China Pledges More ‘Fine-Tuning’ in Support for Growth

China’s leaders pledged to intensify“fine-tuning” of policies in the second government statement in four days signaling a commitment to growth as domestic demand slows and Europe’s debt crisis escalates.
“We must proactively take policies and measures to expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” the government said on its website yesterday, summarizing a meeting of the State Council, or Cabinet.
The statement builds on Premier Wen Jiabao’s comments published May 20 showing a bigger focus on bolstering growth, which spurred speculation the government will step up efforts to combat a slowdown after data showed April trade and industrial production were below forecasts. Authorities this month cut banks’ required reserves for the third time since November.
“The State Council meeting confirms stimulus will come,”Zhang Zhiwei, Nomura International’s chief economist for China, wrote in a note to clients yesterday.
 The Organization for Economic Cooperation and Development said May 22 that the turmoil in Europe risks spiraling and seriously damaging the world economy. The depth of the blow to China’s economy in the event Greece leaves the euro may depend on the government’s response, economists at banks including China International Capital Corp. said.
CICC, the nation’s biggest investment bank, sees expansion in the world’s No. 2 economy after a Greek exit slowing to 6.4 percent in 2012 without policy stimulus, economists led by Beijing-based Peng Wensheng said in a report yesterday.
“The pressure for counter-cyclical policy easing will increase significantly if a Greek exit from the euro zone greatly impacts China’s aggregate demand, dragging the economy well below its potential growth rate and causing unemployment to increase,” the CICC economists said.
Economic growth of 6.4 percent would be the worst since 1990, one year after the political turbulence related to the 1989 Tiananmen Square protests. Premier Wen Jiabao in March set a target of 7.5 percent for this year’s expansion, the lowest goal since 2004.
 My view:

The slowdown in China is real.

Huge misallocations of capital are widespread, as the empty city of Ordos exemplifies.

Being a manufacturing giant, China will be hit hard by a European recession, and what is likely to be another recession in the US soon.

The 7.5% growth target is ridiculously high, and will only be achieved if more bricks and mortar projects are initiated to misallocate even more capital by the command economy political masters.

The instability globally continues to grow, when it will stop nobody knows. 

When the phony grow finally unwinds, it will be good to be short in the markets.


  1. I totally agree with this. As much as people talk about the Eurozone crisis, another huge back swan event that could happen is a serious slowdown in China.


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