COMMENTARY Earlier this week China reported its GDP increased by "only" 8.9 percent in the fourth quarter of last year. This is the smallest GDP increase in a decade and the consensus opinion is that it indicates China is heading for a soft landing as its economy slows. That would be a reasonable conclusion if there was any chance this number wasn't a complete fabrication. The actual number is certainly lower, quite possibly by a huge amount.
Now it should come as no surprise that the GDP figures are nonsense. All of China's official statistics are nonsense, churned out to fit the needs of the government. (Kudos to the Wall Street Journal's Bob Davis, who I assume is a Yankees fan, for writing, "Chinese stats are about as reliable as the Boston Red Sox during a pennant run." Ouch.) Beijing's numbers are so well-known to be fictitious that it is an insult to see them reported without a very big asterisk attached.
Last month Bloomberg added up all the debt disclosed by China's 231 local government financing companies through Dec. 10. It found they had borrowed $622 billion. This is more than the European bailout fund and dwarfs the amount reported by the government and Chinese banks. While that is bad, it gets worse: There are 6,576 such entities in China, according to the National Audit Office. That office says the debt put their total debt at $759 billion. This means 231 borrowers - or 3.5 percent of the total number - are responsible for more than three-quarters of the overall debt.
If you believe that, there's a bridge in Brooklyn I'd like to sell you. Actually it's in the city of Tianjin, which is over its head in debt thanks to a development project which is copy of Manhattan, complete with Rockefeller and Lincoln centers and a simulacrum of the Hudson River.
Municipalities borrowed money against massively over-valued real estate. Those values are now plummeting back to Earth. Although the collapse of China's real estate bubble in the past year has received scant attention from the U.S. media, our own disaster pales by comparison. In the past five years, real estate values increased by as much as 60 percent in some Chinese cities. By May of this year, there were widespread and credible reports that prices in some of the hottest markets had already dropped by 20 percent. The situation got so bad even the government couldn't keep it quiet. The government reported that in November new home prices dropped in 49 cities, compared with 33 in October. Remember, these figures are all but guaranteed to be understatements.
Although the plural of anecdote is not data, the sheer number of reports about cities' worth of office space sitting empty and factories gone silent is too large to ignore.
As the Heritage Foundation's Derek Scissors points out:
There are indirect indicators of a much slower economy. Monetary policy has long been extremely loose, featuring negative real interest rates. Yet the central government began loosening further several months ago, a strange reaction to growth still over 9 percent. China still boasts the world's largest foreign trade surplus and net inward investment. Foreign exchange reserves fell in the fourth quarter, suggesting capital flight. That would translate to a sluggish world economy being more attractive than China's own.
Or, to quote Shelley's Ozymandias, "Look upon my mighty works and despair."