---
title: "China Industrialization Meme"
url: https://independentstockanalysis.com/china-industrialization-meme/
description: "The Barron’s Falling Star piece (google the title to read the whole thing) generated excited commentary from mainstream bloggers including Josh Brown and…"
published: 2012-07-02
updated: 2012-07-02
---

# China Industrialization Meme

Published 2012-07-02

Posted on

by

J.J. Butler

The Barron’s [Falling Star](http://online.barrons.com/article/SB50001424053111903857104577467200405790354.html?mod=BOL_twm_ls#articleTabs_article%3D1) piece (google the title to read the whole thing) generated excited commentary from mainstream bloggers including [Josh Brown](http://www.thereformedbroker.com/2012/07/01/lolchina-or-why-the-worlds-second-biggest-economy-is-completely-fed/) and [FT Alphaville](http://ftalphaville.ft.com/blog/2012/07/02/1067021/the-china-omg-moment/).

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](http://www.chinadaily.com.cn/business/2012-07/02/content_15543258.htm). 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 Understated: [Business Insider](http://www.businessinsider.com/deutsche-bank-actually-chinese-economic-data-is-being-understated-2012-6).

Rio Tinto sees 2012 Chinese growth above 8%: [Mining Weekly](http://www.miningweekly.com/article/rio-tinto-sees-2012-chinese-growth-above-8-2012-06-29)

World GDP at the [Economist](http://www.economist.com/blogs/graphicdetail/2012/06/focus-3).

We at *ISA* are not interested in steel makers. We do, however, like to sell them met coal. A primer by Peter [Epstein](http://seekingalpha.com/article/692921-all-coking-coals-are-equal-but-some-are-more-equal-than-others?source=yahoo).