China Nearly Bankrupt, “Every Province In China Is Greece”, Says Chinese Economist

17 Nov

China is “on the brink of bankruptcy”.

Your humble blogger has been warning of this reality ever since beginning this blog in early 2010.

And along with those warnings, has bashed the many “experts” like RBA Governor Glenn Stevens and former Treasury secretary Ken Henry who couldn’t see it … just as none of them could see the GFC coming either.

Here’s a mere handful of examples –

Feb 2010:

Rogoff Warns of China Crisis
Henry Sees Cyclical Angel Descending
Soros: ‘Very Cautious’ On China
Henry: GFC is ‘Over’

March 2010:

Overheating China Can’t Be Cooled
Stevens: ‘Risk Of Serious Contraction’ Passed
Official: China Bubble ‘Indisputable’
Premier Wen: ‘Latent Risk’ In China’s Banks
China: ‘Large Financial Crisis’ By 2012

China’s Banks In Trouble
China Warns Of Double Dip Recession
China Biggest Worry For Markets
China ‘Greatest Bubble In History’
Ten Ways To Spot A Bubble In China
Global Turmoil Looms: Keating
Australia’s ‘Goldilocks’ Economy

April 2010:

China Crisis ‘A Lot Worse Than People Expect’
China’s Debt Bubble: When Will The Ponzi Unravel?
China Losing Control Of Economy
China On ‘Treadmill To Hell’ Amid Bubble
Bubble Proof: Chinese Maids Buying Houses

May 2010:

Don’t Bet The House On China
China Brakes, Australia Breaks

August 2010:

Is China Bankrupt?

April 2011:

Costello: Wayne’s World A Parallel Reality

May 2011:

Bloomberg: ‘Downunder Hypocrites Bet All On China’s Boom’
Swan Hides Budget Risk
Barnaby: “God Help You When The Prices Go Down”

June 2011:

China’s Economy At Risk Of “Hard Landing”, 60% Chance of Banking Crisis By Mid-2013
McCrann: America Is Now Turning Darker, China Can Crash The Whole Economy
China Lending Tumbles, Signals Slowing Economy
Swan: Not Drowning, Waving

July 2011:

Here Comes Swan’s Black Swans: Chinese Bad Debt “Bigger Than Stated”
One Chart Debunks Treasury’s Growth Forecasts
Still Pointing To The IMF’s Opinion Now, Wayne?

August 2011:

How China Will Crash, Explained In 700 Words
Swan Tells Parliament 5 Lies In 2 Short Sentences

October 2011:

Australian Media 4 Months Late On China Bust Warning

November 2011:

Gillard Offers Borrowed Money To Bail Out Europe
Wayne’s Budget Is Already Shot To Hell

Now, confirmation of the truth about China’s Ponzi-finance bubble economy slips out from behind the regime’s Red Curtain.

All thanks to a lecture where the lecturer did not realise he was being recorded.

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong. (Wu Lianyou/The Epoch Times)

From the Epoch Times (reproduced here in full):

China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.

The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.

In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.

Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”

He said that the regime doesn’t listen to experts, and that Party officials are insufferably arrogant. “If you don’t agree with him, he thinks you are against him,” he said.

Lang’s assessment that the regime is bankrupt was based on five conjectures.

Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.

Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).

Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.

Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said.

Several commentators have expressed broad agreement with Lang’s analysis.

Professor Frank Xie at the University of South Carolina, Aiken, said that the idea of China going bankrupt isn’t far fetched. Major construction projects have helped inflate the GDP, he says. “On the surface, it is a big number, but inflation is even higher. So in reality, China’s economy is in recession.”

Further, Xie said that official figures shouldn’t be relied on. The regime’s vice premier, Li Keqiang for example, admitted to a U.S. diplomat that he doesn’t believe the statistics produced by lower-level officials, and when he was the governor of Liaoning Province “had to personally see the hard data.”

Cheng Xiaonong, an economist and former aide to ousted Party leader Zhao Ziyang, said that high praise of the “China model” is often made on the basis of the high-visibility construction projects, a big GDP, and much money in foreign reserves. “They pay little attention to things such as whether people’s basic rights are guaranteed, or their living standard has improved or not,” he said.

Behind the fiat control of the economy, which can have the appearance of being efficient, there is enormous waste and corruption, Cheng said. It means that little spending is done on education, welfare, the health system, etc.

Cheng says that for the last decade the Chinese regime has accumulated its wealth primarily by promoting real estate development, buying urban and suburban residential properties at low prices (or simply taking them), and selling them to developers at high prices.

According to Cheng, the goals of regime officials (to enrich themselves and increase their power) are in direct conflict with those of the people–so social injustice expands, and economic propaganda meant to portray the situation as otherwise prevails.

Few scholars inside the country dare to speak as Lang has, Cheng said. And that’s probably because he has a professorship in Hong Kong.

For those with ears to hear – especially regular readers who know that the same topics have been covered here with regard to our own government, and their constantly fiddled economic figures – the bolded words above will ring with a profound sense of deja vu.

Now Wayne … about our economy and sovereign balance sheet. The ones that you keep telling us are “the envy of the world”.

And about those “truly extraordinary” growth forecasts, based on former Treasury secretary Ken Henry’s much-touted belief in 40 years of China-fuelled “prosperity”.

And about that promised budget surplus of $3.5 billion (for one year only) in 2012-13.




[ … crickets … ]

9 Responses to “China Nearly Bankrupt, “Every Province In China Is Greece”, Says Chinese Economist”

  1. Andy November 17, 2011 at 12:32 am #

    Great post, Col.
    Actually its a scary post.

  2. Oliver K. Manuel November 17, 2011 at 3:17 am #

    I certainly hope that you and Dr. Larry Lang are wrong.

    But something is seriously wrong with the scientific, economic and social order worldwide.

    There are many indications that citizens have lost control of their political leaders

    Problems in the integrity of government science seems to have started with Dr. Henry Kissinger’s secret visit to China in 1971 and an apparent agreement to end the Apollo space program [1] unite nations against an imaginary common enemy: Global Climate Change [2].

    1. “No More Dreams, Mr. President”

    2. “Deep Roots of the global Climate Scandal (1971-2011)”

    Click to access 20110722_Climategate_Roots.pdf

    Oliver K. Manuel
    former NASA Principal
    Investigator for Apollo

  3. Twodogs November 17, 2011 at 9:42 am #

    The question is – how bad can it get? Role think any slowdown In China would be a speed bump. Sounds more like a mountain to me.

    At least any such drama would wipe that stupid smug smile off Swan’s face. They know how important confidence is, but they wrongly assume that that charade can be kept up forever.

    Anyone notice how no credit was given to Abbott for accurately predicting that Gillard would break her “no Carbon Tax” promise? We can look forward to Goose claiming that a bursting China bubble “could not be foreseen” despite being foreseen by all and sundry. Speak loud, speak often, TBI.

    • Twodogs November 17, 2011 at 9:44 am #

      Damned iPhone spellchecker! That would be “people”, not “Role”. Sorry…

    • The Blissful Ignoramus November 17, 2011 at 10:11 am #

      “We can look forward to Goose claiming that a bursting China bubble “could not be foreseen””

      Exactly right, Twodogs. It will be an avalanche of historical revisionism.

      • Oliver K. Manuel November 17, 2011 at 2:49 pm #

        Does China own a large portion of US government bonds, or is that but another exaggeration?

        • The Blissful Ignoramus November 17, 2011 at 3:24 pm #

          As I understand it, “yes”, they do, Oliver.

          Or “did” … last I read on this (and depending on who you believe), China was either (a) dumping US Treasuries, or (b) had ceased buying any more.

          Reader and guest contributor JMD stays more up-to-date with the latest rumours on sovereign bond issuances than I – perhaps he may be able to enlighten.

  4. Jon November 17, 2011 at 8:12 pm #

    From what I understand is the debt in the provinces is owned by the central government, so the problem is not as bad as seemed. If that debt is a problem all the central government needs to do, is forgive the debt, or am I seeing things to simply? The other matters are an easy fix in a central controlled economy, as long as you do not have any regard for your people, which the Chinese government certainly does not.

    • The Blissful Ignoramus November 17, 2011 at 8:35 pm #

      Unfortunately there is a lot more to it than just the simple debt issue. As just one example, there is the reality of the malinvestment of those trillions in borrowed funds. As is always the case historically, the result is big imbalances in the economy (eg, over-construction beyond actual need / ability to purchase, hence, empty cities like Ordos). When these imbalances reach crisis point (triggered say, by a banking crisis), the inevitable rebalancing means economic catastrophe. Short and painful if handled wisely (almost never). Or lengthy and painful if not – ie, a depression.

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