Back in April, when economic ?experts? were expecting further growth in the Chinese economy, we wrote in this article that
Contrarian investors like Marc Faber believes that the Chinese economy will ?slow down regardless? any time from now on. Whether this slowdown will be a nice soft-landing or a gut-wrenching crash is another matter.
Marc Faber was on record for saying that there?s a possibility that China may ?even crash.? How could the pundits missed the signs that something is really wrong with the Chinese growth in 2009? As we wrote back then, there were plenty of signs:
? there are massive excess productive capacities in the Chinese economy. As we wrote in Is China going to dump their excess metal stockpiles?, there are eye-witnesses? reports of ghost cities, vacant office blocks and apartments in China. It had been reported that China?s excess capacity for steel and cement production is around the current capacity of United States, Japan and India combined. All these points to a massive mis-allocation of resources in China, which according to the Austrian School of economic thought, a pre-cursor to a bust (see our free report, What causes economic booms and busts?).
That?s why, as we wrote in Chinese government cornered by inflation, bubbles & rich-poor gap, the Chinese government will have to rein in their runaway economy sooner or later (e.g. through administrative means, revaluation of the yuan). The longer they delay, the bigger the inevitable bust will be.
Today, the financial markets are finally noticing that China is slowing down more than expected. For example,
- Rate of decline for Chinese industrial production is more than expected.
- And if Chinese government statistics can be believed, even the inflation numbers were below expectation.
- Spot iron ore prices have been in free-fall since May.
- Steel production has now fallen to its lowest rate of growth since 2001.
- The Baltic Dry Index has lost more than 50% in one month.
Back in January, when we wrote Chinese government cornered by inflation, bubbles & rich-poor gap, we were wondering when the Chinese government will bite the bullet and rein in the runaway economy. We didn?t have to wait long to see it happening.
The question that the pundits and the financial markets will be wondering is this: will this unexpected rate of slowdown continue for rest of the year? Will it continue on to 2011? If they get it wrong (again), it goes to show that they have underestimated the resolve of the Chinese government to cool down the economy.
The risk is that the Chinese government may accidentally let the slowdown turn into a crash. We shall see.
Tags: China, Marc Faber
