According to one group, China's economy is now larger than that of the USA. But is that true? Just this morning, I read an article in which an expert estimates that the Chinese have issued so many phony economic reports that the size of the economy is at a minimum inflated by at least 50%. That would make the Chinese economy just two thirds the size of the American economy.
More important than the size of the Chinese GDP, however, is whether or not it is still growing. The expansion of China's economy has been slowing; everyone agrees on that. Are we witnessing the beginning stages of an implosion of that economy? Will all the bad debt, empty buildings, needless infrastructure and the like suddenly cause a collapse in which the economy contracts by ten percent or more? At any time, predicting such a disaster for any economy is difficult. One of the basic truths of economic predictions is that they can be fairly accurate so long as an economy moves in one direction. When it comes to predicting changes in direction, however, no one has a very good track record. In a country like China which withholds key data and releases false statistics, however, the idea that one can reliably predict a change in direction for the economy is nonsensical.
There are certain things that we do know about China. The country is importing less iron ore and coal. This is not the result of vast new deposits discovered inside China; there are none. The cause is a large decrease in the production of steel which is used in the Chinese economy. Domestic sales of large Chinese companies are also falling or at least holding steady with no growth. Both of these statistics demonstrate that the Chinese claim of growth over 7% is phony, but is the economy shrinking? We don't know.
The importance of what is happening in China cannot be overemphasized. At the moment, Japan is in recession; Europe is stagnant; the USA is growing slowly and the oil producing nations are being hurt by the decline in oil prices. Countries like Australia and Canada which are not big enough to move the world economy are being hurt by the decline in commodity prices as a result of much lower demand from China. That means that only China was an area of supposedly faster growth that was driving the world economy forward. If China starts to decline, the rest of the world will fall with it.
More important than the size of the Chinese GDP, however, is whether or not it is still growing. The expansion of China's economy has been slowing; everyone agrees on that. Are we witnessing the beginning stages of an implosion of that economy? Will all the bad debt, empty buildings, needless infrastructure and the like suddenly cause a collapse in which the economy contracts by ten percent or more? At any time, predicting such a disaster for any economy is difficult. One of the basic truths of economic predictions is that they can be fairly accurate so long as an economy moves in one direction. When it comes to predicting changes in direction, however, no one has a very good track record. In a country like China which withholds key data and releases false statistics, however, the idea that one can reliably predict a change in direction for the economy is nonsensical.
There are certain things that we do know about China. The country is importing less iron ore and coal. This is not the result of vast new deposits discovered inside China; there are none. The cause is a large decrease in the production of steel which is used in the Chinese economy. Domestic sales of large Chinese companies are also falling or at least holding steady with no growth. Both of these statistics demonstrate that the Chinese claim of growth over 7% is phony, but is the economy shrinking? We don't know.
The importance of what is happening in China cannot be overemphasized. At the moment, Japan is in recession; Europe is stagnant; the USA is growing slowly and the oil producing nations are being hurt by the decline in oil prices. Countries like Australia and Canada which are not big enough to move the world economy are being hurt by the decline in commodity prices as a result of much lower demand from China. That means that only China was an area of supposedly faster growth that was driving the world economy forward. If China starts to decline, the rest of the world will fall with it.
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