There are a number of China bears that readily dismiss the numbers put forward by the Chinese government as nothing more than the party line and one expects that those claims will be exaggerated in order to keep 1.3 billion blissfully ignorant and proud of their efforts in moving the economy forward over the last 30 years.
Economy of China not only slow but contracting
Recently, however, there have been a number of economists willing to actually suggest that the Chinese economy has not only slowed but is contracting. Robert Barbera, co-director of Johns Hopkins Center for Financial Economics, argued this on CNBC on Monday.
“If you take the top 10 trading partners with China and you add up their exports to China, you’ve got data that the Chinese government doesn’t get to put their hands on,” he said. “If you look at that data, what you’ve actually got is about minus 4 percent year-over-year.”
China’s official assessment is for an annual growth rate of 7.5 percent in the second quarter, which marked the ninth slowdown in the past 10 quarters and has the Chinese economy flirting with the low-end projection for 2013.
Patrick Wolff on Chinese economy
“China may not even be growing at this point,” said Patrick Wolff, founder and managing partner of Grandmaster Capital, a hedge fund launched in 2011 with seed money from billionaire investor Peter Thiel.
Wolff continued, “The current Chinese premier has been quoted in WikiLeaks as saying he doesn’t believe the GDP numbers [there]. People should forget the [Chinese] GDP numbers entirely. They’re nonsense.”
Wolff then called for a severe recession and financial crisis that could kick off a political movement to rival “Tiananmen Square or worse.” While that may seem farfetched, stranger things have happen.
Despite this negativity, Wolff quickly pointed out that this could, in the long run, benefit China given major structural changes that would be enacted following a financial crises.
“You might have a freer, more open, more capitalistic economy,” he said, adding that he’s not optimistic about that.
One of the reasons China’s overnight interbank offered rate “keeps lurching upward” is because the banks don’t have capital, Wolff said. “They don’t have capital because they’re not getting paid back on their loans. They aren’t getting paid back on loans because the companies aren’t making money. If you actually sit down and look at the finances, a lot of these Chinese companies—what really is striking is they may report accounting profits, but they’re not making money.”