Article : WealthWire.com
Earlier this week, China’s Purchasing Managers’ Index (PMI), a gauge of manufacturing activity, was revised downward to hit a nine-month low.
The Asian nation is the world’s second-largest economy. And as the rest of the world been trying to fight its way out of a massive economic slump, China has provided the light with its growing economy.
Now its manufacturing sector has suffered a blow. But this isn’t the only sector that’s suffering – it’s just large enough to be eye-opening.
In fact, it appears that China’s economy as a whole is slowing beginning to decay.
Dis-InfoWars Comment : China is FINE! They just grew at 7.8%! Even if they had a 25% slowdown in economic activity, they would still have a growth rate of 6%! China is fine.
The implications of a Chinese slowdown are unwarranted and unnecessary.
The nation has a GDP growth target of 7.5% for this year. If it falls short, it would be at a twenty-year low. And it looks as though it may do just that.
And even if it does hit the target, it may still be misleading. Jim Chanos, president of Kynikos Associates, told CNN:
“In China’s GDP calculations, they don’t look at final sales, they look at production. So a condo being built but not sold contributes to GDP.”
Exports from China are declining, heading lower than they’ve been since 2008. Meanwhile, inventories of finished goods are rising, as the nation isn’t able to sell what it’s manufacturing.
One sector where this is particularly prevalent is the steel industry. Iron ore prices are low and still falling, putting steel prices at lows as well. Since local governments own the steel mills, and the governments are focused on revenues rather than profits, the mills are producing at record highs, losing money off the production.
From the Financial Times:
Steel traders are also finding themselves in a desperate position. “We have to try every possible means to sell [our steel] even if we lose money. We will lose more if we don’t sell,” says a trader with a large steel trading company in Henan province.
And that’s still not all. According to Pragmatic Capitalism, the price of housing in China is steadily rising, making the central government nervous. While the municipalities are profiting off the price rise, the central government wants to avoid a bursting housing bubble.
In fact, a number of bubbles have formed with the rapid growth over the past few years. Now the government must be careful or risk a massive burst.
From Business Insider:
“If the government uses a superb macro-control technique, lets the air out of the bubbles little by little without triggering an economic crisis or social unrest, and timely cultivates new economic growth and new competitive advantages so that business are restructured and upgraded, this would be considered a ‘soft landing,’ and the bubbles would not burst. However, in 2013 there will be unprecedented pressure, which will warrant a high degree of vigilance and attention.”
Of course, there’s a good chance they won’t be able to slowly let the air out. Chanos certainly doesn’t think so. He told CNN:
“We’re bearish on China’s property sector and the credit sector. This is a country that’s in the middle of an epic property bubble and construction bubble that will end at some point and it won’t be pleasant when it does.”
The nation is also facing the threat of inflation. Inflation fell to 2.2% this year from 6.5% last year, but it may not stay so low. The drought in the U.S. hurt the corn and soybean crops, two things China was depending on to keep its prices down.
As China heads into the end of this year and the beginning of next, it will have to balance all of these factors to keep the economy going. And if it does begin to falter, it will likely affect the rest of Asia and quite possibly global economy.