International Monetary Fund (IMF) has dinged China. It says that the Chinese economy is very vulnerable right now. Why?
Rampant lending since the 2008 financial crisis has left many companies and local governments in China with huge debts, while a recent slowdown in economic growth and falling property prices have fuelled fears of an explosion in defaults.
I have maintained that the Chinese economy is a giant Ponzi scheme. If Maddoff could run his scam for 30 years, so can China. And that is precisely what it is doing.
Before IMF came out with this evaluation, a recent survey talked about contracting manufacturing sector.
A survey of Chinese purchasing managers, just completed by HSBC and Markit Economics, shows a third consecutive month of contraction in the manufacturing sector. The release of the survey results Thursday contributed to a global slide in stock markets that day.
Instead of labor shortages earlier, the factories are seeing labor surpluses. Is the unemployment going to grow? It seems like.
And instead of the labor shortages that plagued many manufacturers last year as workers sought better jobs elsewhere, more people now seem willing to accept assembly-line tedium. Short term, that could help exporters. But it could be an early sign of looming unemployment problems.
Even the soaring real estate is headed from a more conservative scenario.
A government survey released Sunday showed that prices had fallen in August compared to July in 16 cities, notably Chongqing in western China. And prices stayed flat in 30 cities, including Beijing and Shanghai, although they did continue rising in 24 other cities.
In themselves, all these things may not seem to be able to break the back of Chinese economy, but together they could spell a lot of trouble.