We’ve been saying for over a year that Chinese growth figures are misleading and a debt-related market crash is just a matter of time. Now the data have confirmed this view, and even the Chinese government can’t cover up the decline any longer.
China is between a rock and a hard place. If the government tries to sustain economic growth through debt, they just build a bigger debt crisis down the road. But if they try to rein in credit growth, they slow the economy and risk popular discontent through higher unemployment, inflation and debt defaults.
This article describes the recent history and likely future of China’s slowdown and their failed efforts to hide it. A partial effort to reduce debt creation in 2017 has now come home to roost in the form of much slower growth.
China’s problems are worse than that, because debt is so high that even more debt does not produce the expected growth. China is trying to thread the needle with infrastructure investment, but even that doesn’t work because the infrastructure is unproductive (white elephants and ghost cities), while the debt is all too real.
What happens in China won’t stay in China; a slowdown there will produce a global slowdown as China reduces input purchases and the trade wars slow down Chinese exports. The Chinese Communist government fears popular unrest more than slow growth. In 2019, they may get both.
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