Monday, April 27, 2009

China: "Another Nation with Structural Problems"

An interesting counterintuitive take on China's recent numbers that have been touted as better than expectations at BusinessInsider. An excerpt:

The Chinese have learned the value of bogus statistics from the masters of deception in the U.S. government, which routinely misprepresents inflation, unemployment and other key statistics as a matter of policy, lest the "bad news" spark some demands for change in the status quo. As a consequence, we should view all "official" statistics issued by China with the same skepticism that we view bogus U.S. government statistics.

But unlike the U.S. government, China's central government directly controls all the important levers of economic and financial activity. Copper being stockpiled? Only the government knows. Interest rates mandated lower? The government ordered the banks to do so, end of story.
It's a point that can be understated how opacity in information can complicate business - in my primary business we're seeing Aluminum ingots trading significantly (40-50%) higher than international markets (which is bizarre in and of itself - given that this has been the case since the beginning of the year). The significant issue that I have with the article is the push towards a gold standard - to which China is already seemingly championing given its concern over the US dollar (CommodityOnline).

With the recent massive increases in lending, Victor Shih, a professor at Northwestern echoes some of these concerns that the good news is temporary:
What does this mean? The central government cannot stop or even significantly slow this pace of lending until export picks up in a significant way, else the bubble will burst. This is a race against time. At some point, this pace of lending will lead to a serious NPL problem or inflation, or both. If by that point, export and domestic household consumption remain anemic, I am not sure what options the central government will have.

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