[ralfy]

Much of economic growth is essentially based on credit creation, with production and consumption of goods increasing to catch up.

The result of increased credit creation is more financial risks leading to fallout, which is what we are now seeing worldwide. That in turn masks conventional production unable to catch up with rising demand.

[kublikhan]

$this->bbcode_second_pass_quote('Tanada', 'I') think the PRC is deliberately slowing their rate of growth because they do not want the citizens to get into the whole bubble creation cycle the west is so famous for. Even a 2% growth rate would exceed their population needs, after all how much percentage of the Chinese population do they want to own a private car? If you put 500,000,000 cars and SUV's on the road network you will grossly overwhelm the systems in place. The infrastructure and culture needs to catch up to what is practical and possible instead of what Hollywood says they should want.

[ROCKMAN]

Chinese Shadow Bankers - From: http://finance.fortune.cnn.com/2013/06/ ... Stories%29

China's over-leveraged banks may be the least of the nation's economic problems at this point. What has traders from Hong Kong to Wall Street truly worried is the state of the nation's so-called shadow banking system, where the government has little, if any, real control. Unless China is able to rein in the reckless spending and bogus claims in this shady corner of the market, it could soon face the wrath of millions of angry and defrauded investors. Last week, China's central bank, the People's Bank of China, decided to basically shut off the monetary printing press, forcing the nation's banks to fund themselves without fresh government cash. Unfortunately, the government got more than it bargained for -- interbank lending rates shot up to unsustainably high levels, at around 13% or four times the average rate (there have been reports they shot up to 25%). In any case, instead of curbing lending, the PBOC's actions managed to kill it all together. Given that Chinese banks are reliant on interbank lending to support their operations (i.e. to service all those speculative loans) the PBOC had inadvertently put the solvency of the country's banking system at risk.

Fearing a full-on credit crisis, the PBOC quietly relented last Thursday, flooding the system with cash through open market operations in the hopes of restarting the interbank lending market. Almost immediately, interbank lending rates fell back down to 6%, helping to avert a major credit crunch -- at least for now. After rates stabilized, the PBOC sent out a statement on Monday saying it was getting tough on speculation and that it wouldn't be supporting the interbank market as it had done in the past, which, while clearly not true, appears to be the financial equivalent of "saving face." In any case, rumors of yet another PBOC intervention on Tuesday reversed a 5.3% plunge in the Shanghai stock exchange. The PBOC issued a statement later in the day reiterating its commitment to a tight monetary policy.

The government saying one thing and doing another seems strange to Westerners but it is old hat for China watchers. China's markets and the way they operate is a reflection of life in China -- nothing is what it seems. China's banks seem autonomous, but at the end of the day are simply arms of the state. The Chinese aren't going to allow the banks to fail. Ironically, this is why the Chinese government took steps to curb lending in the first place. The newly appointed Chinese government, operating on a fixed 10-year term, is attempting to tame a monster born out of the previous government's inaction -- China's out-of-control shadow banking system. This network of investment vehicles, known simply as "trusts," hoovers up cash from ordinary citizens looking for a "safe" place to park their hard-earned cash.

[Subjectivist]

http://www.bloomberg.com/news/2014-04-3 ... asure.html

$this->bbcode_second_pass_quote('', 'C')hina is poised to overtake the U.S. as the world’s biggest economy earlier than expected, possibly as soon as this year, using calculations that take purchasing power into account.

China’s economy was 87 percent of the size of the U.S. in 2011, based on so-called purchasing power parity, the International Comparison Program said in a statement yesterday in Washington. The program, which involves organizations including the World Bank and United Nations, had put the figure at 43 percent in 2005.

The latest tally adds to the debate on how the world’s top two economic powers are progressing. Projecting growth rates from 2011 onwards suggests China’s size when measured in PPP may surpass the U.S. in 2014, which would be years earlier than many economists had previously estimated, according to Arvind Subramanian of the Peterson Institute for International Economics.

“There’s a symbolic element to this, to China overtaking the U.S., and that seems to be happening,” said Subramanian, a senior fellow at the Washington-based Peterson Institute. The latest data “plays to the idea that China is very big and getting bigger. It’s not to be underestimated.”

[ROCKMAN]

Perhaps we could start another thread: US STUCK WITH SUB-CHINA GROWTH

[Serial_Worrier]

I'll take 0.1% with air I can breath over 8% with air that chokes me.

[PrestonSturges]

Wait until the average Chinese worker finds out that the "middle class dream" was a historical blip fueled by cheap energy. That bus left the station long before China showed up, and the average Chinese worker is going to be very, very pissed off.

[Quinny]

The Chinese credit bubble is a real problem. It's discussed daily in the City.