About China preferred policy method: credit

Posted: September 16, 2014 in Uncategorized

Chinese data keep on swinging between positive and negative, practically on monthly basis – even with manufactured data.

What causes this. Very hard to tell, naturally. I think that the usual tool of Chinese stimulus – Credit – it start to have diminishing effects. It is a but like a medicine that the more you use the less effective it becomes.

Credit is most influential in housing/infrastructure (47% of GDP. while in 2007 it was 39%) as export are not any more the driver ( 26% of GDP, while in 2007 it was 38%). And the house hold consumption that should be the new driver of the Chinese economy is a mere 34% of the GDP at the same level of 2007 (Asian countries household consumption is about 50-55% and in the West circa 70%).

As I said before changing household consumption pattern is extremely difficult and attainable only in multi generation trend. And China does not have the luxury of time as by 2020 it will have over 700 million pension age.

The direct link between Credit and Housing makes the issue quite problematic. If credit does not work any more as stimulus – we will have an issue.

This does not mean that we are going to have a crisis soon. But it does mean that the chances of a serious crisis between now and 2020 are getting bigger by the day.

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