China Industrialization Meme

The Barron’s Falling Star piece (google the title to read the whole thing) generated excited commentary from mainstream bloggers including Josh Brown and FT Alphaville.

We at ISA are goldbugs and regularly note crazy imbalances.  Where you sit is a function of where you stand.  Some points of interest:

  • Growth going from a three decade trend of 10% to 8% is said to be ‘slowing markedly’, not withstanding 8% is in aggregate larger than 10% growth only two years ago because of the size of the base.
  • As for the whole housing bust idea, unmentioned was the hundreds of millions of Chinese peasants in the countryside who only dream of better housing.  Meanwhile, in China 17% of home purchases are done with cash, and “Buyers who use mortgages have a lot of skin in the game:  the minimum down payment for owner-occupiers is 30% and 60% for investors.”  CLSA  I’m just glad the tired 60 million housing units are empty’ line was not trotted out!  (60 million?  That’s everything stateside on one side of the Mississippi!)
  • China’s $3.2 trillion in foreign reserves is almost equal to the Chinese national debt; that’s the great over-leverage?  Yet as I dug further, Barron’s wrote “U.S. debt-to-GDP ratio of more than 80%.”  Yea, like three years ago!  Today it’s near 105% and rising by like 700 basis points a year (with the explicit purpose of keeping US GDP from  collapsing).  Now we don’t know which numbers Barron’s is making up!
  • This was supposed to sound all fancy:  “First, when one tallies up all the liabilities direct and contingent of the Chinese central government, indebtedness of the state-controlled banking system, various government entities like the Ministry of Railroads, state-owned enterprises, local government loan investment vehicles, and considerable cross-holdings of bond debt by SOEs, China’s government debt-to-GDP triples to about 150% and is rapidly rising.”  Was the intent to compare this to a US debt to GDP of 500-1000% ratio when the social programs are considered?
  • My personal favorite China complaint is the over saving meme.  As if productive investments comes from somewhere else.  But I give myself away as an Austrian economist.

Maybe China really is in trouble.  If so, seems Western problems would be an order of magnitude worse.  The set-up for the Big Print and hyper-inflationary endgame would have arrived.

Headlines like this seem spooky too:  China major ports face coal oversupply at China Daily.  But actually reading the article gives a different flavor:  “China’s coal stocks are estimated at about 300 million tons, equivalent to the entire country’s coal consumption in one month.”  Remember, as China turns to world markets for a particular commodity to be imported the whole industry sees its dynamics change:   “China imported 86.55 million tons of coal in the first four months, up nearly 70 percent year-on-year.”

DEUTSCHE BANK: Actually, Chinese Economic Data Is Being UnderstatedBusiness Insider.

Rio Tinto sees 2012 Chinese growth above 8%Mining Weekly

World GDP at the Economist.

We at ISA are not interested in steel makers.  We do, however, like to sell them met coal.  A primer by Peter Epstein.