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Economy

Chinese economy nearly bankrupt?

Ideas have consequences  – argued American thinker Richard Weaver, author of the book under this title.  Because ideas are inspiration for the action. And the actions have consequences. It simply would be a truism to state that this syllogism applies to China. Its economy, called sometimes Chinese capitalism, is in fact socialism. It is communist party political bureau that have been dictating to the local party representatives its economic plan for many years. In the XXI-st century the economic plan with multiple target numbers for farming, industrial production or any other economic activity was reduced to GDP numbers. The philosophy of central planned economy remained the same. Chinese economy heavily relies on the management of natural resources. Its construction projects are economically inefficient. The whole economy is driven by the artificially created demand. This situation is reminding of the final years of the Soviet Union.

Now this imagined colossus supported with legs of clay is shaking before our eyes. Its squeaking can be heard from Europe to the United States and from Siberia to New Zealand.

Until recently only Chinese dissidents and some economists criticized the Politburo policy, which can be compared to printing money: building cities for no one and the sale of land. This time, as the Epoch Times reports, Chinese professor of finance, the television host Larry Lang confirmed that Chinese economy is almost bankrupt:

  • the real public debt is US $ 5.68 trillion
  • the real inflation rate is 16 percent
  • from July 2011 the PMI Index has been plunging to 50.7 (and private consumption is 30 percent of economic activity)
  • GDP of 9 percent is also fabricated, according to Lang Chinese GDP has decreased 10 percent
  • the tax rate is too high (individual tax rate is 81.6 percent  and business – about 70 percent)

Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said.

Lang assessment corresponds with Jim Chanos predictions: “everything is about the number”.

GDP drives economic activity in China not vice versa.  But in most of the economies GDP is residual of the marker driven  forces that occur in the market economy. In China you have still the vestiges of central planned economy (for instance many companies are state owned). GDP is seen as the end goal from stability and political reasons for the county. So it can be often find that GDP numbers  are given from top to down as a target for the local municipalities and local party officials that scramble to meet this targets.

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