According to Anne Stevenson-Yang, the Chinese economy is clearly wobbling, and is very likely heading for some degree of a “hard landing” sometime in the next few quarters. Stevenson-Yang is a well-known China analyst, and is currently the research director of J Capital, a firm involved in fundamental research on Chinese companies and that tracks macroeconomic developments.
Stevenson-Yang recently sat down with Barron’s for an interview to explain her perspective on the likelihood of a China hard landing.
China hard landing possible, economy in big trouble
There’s big trouble throughout the Chinese economy if you believe Stevenson-Yang. “China, for all its talk about economic reform, is in big trouble. The old model of relying on export growth and heavy investment to power the economy isn’t working anymore.”
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She notes that China has been highly successful over the last two or three decades with dramatic improvements in literacy, quality of life, basic health care, shelter and relatively safe cities. However, China sought to counteract the global recession back in 2008 with gargantuan ill-advised investments in unnecessary industrial capacity and “vanity infrastructure projects that are not generating any income. According to Stevenson-Yang, “The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt.”
In summing up her perspective, Stevenson-Yang notes: “…most likely, China is sinking into a deflationary recession that’s increasing in speed and may take some time to run its course.”
Economic numbers are smoke and mirrors
Don’t even start to believe Chinese government economic statistics, Stevenson-Yang says. “People are crazy if they believe any government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior.”
She noted that a few years ago analysts started looking at primary data such as electric-power production and freight traffic to try and confirm actual economic growth because virtually no one really believed the government’s gross-domestic-product figures. Within just weeks those figures started to become consistently higher, clear evidence the government had started doctoring those numbers as well.
In summarizing her point of view, Stevenson-Yang says she puts “…stock in estimates by various economists, including some at the Conference Board, that actual Chinese GDP is probably a third lower than is officially reported. I’d be shocked if China is currently growing at a rate above, say, 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy.”