The Great Fall of China
First the good news.
For years now, commentators have been singing the praises of the communist country’s ability to rise to power on the world economic stage. Last year, a slowing global economy meant China’s GDP growth rate was only 7.8%. Compared to the US at 2.2%, it still looks pretty good. 2012 was the first year in over five years that China’s GDP growth fell below 9.2%. Could China’s growth be to good to be true?
The growth must be legit. After all, they have the most coveted resource of any industry; cheap labor. The average annual income for a Chinese family is about 13,000 RMB, or around $2,100 USD. That is less than some US families receive in government benefits in one month. Despite the ultra low wages, China’s savings rate is among the worlds highest at 50%. These facts are based on averages, and do not tell the entire story. The income disparity in China is colossal, but that is beyond the scope of this post.
The fact remains, that the Chinese people know how to sacrifice today for a better tomorrow.
Another sign of strength is China’s purchases of gold. China bought 800 tonnes of gold in 2012 and are on track to purchase more than 800 tonnes in 2013.This is in addition to the gold that is being mined in China and retained in the country. Unlike America, where our Central banks says “gold is not money”, China encourages its citizens to purchase gold and silver as stores of value.
Now the bad news.
So what is not to love? Charlene Chu of Fitch Ratings says there is a mountain of systemic problems under the surface. Chu is considered a rockstar in the credit analyst community, and she is the “go to” expert on all things Chinese financials for the Federal Reserve and huge Wall Street firms like Goldman Sachs.
Chu reports that a vast sea of unreported debt is looming in China. Estimates suggest that private sector debt is around 214% of GDP. After a Q and A session with Chu, Goldman Sachs sent out a warning to client about their concerns over China’s credit risk.
While Chu says it is impossible to know where all of the money is being borrowed from and being lent to, we can certainly make an educated guess. 60 Minutes Australia did an expose’ on China’s Ghost cities. They have built over 15 entire cities that are completely empty. When they say cities, they are not talking about Hazard, Kentucky; they are talking about cities the size of Manhattan. Cities with all of the infrastructure in place, malls, office buildings, condominiums, police stations and fire departments.
Watch this short excerpt from the 60 Minutes Australia report. It is about 12 minutes long.
So if we had a housing bubble in America that sent shock waves around the world, what happens when a city bubble pops? Could this be the black swan event that triggers a global meltdown? Prior to the 2008 housing bubble crisis, we had no shortage of people like Charlene Chu warning of the imminent crisis. Peter Schiff, Nouriel Roubini and even Ron Paul warned of impending financial chaos in the housing market. Of course they all said 2008 was just the opening act, they expect much darker days ahead.
The failure of Lehman Brothers was the first domino to fall in the 2008 credit bubble crisis. Will China’s massive $23 trillion dollar credit bubble be the first domino to trigger the global economic collapse?
Keep your eyes open and keep on prepping. If you have been putting off prepping or are just now ready to get serious about it, read our 7 Step Survival Plan . Also, don’t miss another episode of the Prepper Recon Podcast. Subscribe to us on YouTube, Stitcher or iTunes.
Happy Prepping!
MDG
