China real data

Posted: March 3, 2016 in Uncategorized

A client asked me…what did change so much from last year to provoke a crisis.

The Fed is no so active, but did not went away and the issues are more or less the same.

In reality the fact the FED is not so active and actually rising interest rates brings to a revaluation of what is the right price (valuation) for the shares.

But this blog is about China.

While the, probably fake, around 7%pa GDP growth is not so bad…there is another figure that makes you understand better.

Nominal expansion (GDP growth in USD, not adjusted for price changes) grew only 4.25% in the fourth quarter 2015 adding to the global economy just $439 billion (Font: Bloomberg).

2 years ago that figure was $1.1 trillion!!


So now think think that all the world production has been adjusted to the China growth (think that it is now one of the main market for all the top car brands in the world such as BMW)….you can see the problem.

The world geared itself for a demand that simply is not there anymore. And overcapacity brings deflation…the scary monster that Japanese are still battling (the Japanese index ws close to 40,000 in 1989 – now struggling around 17,000…after 27 years!).

Then you can add some other figures like Debt to GDP ratio in 2007 166% and now 247% (so debt is increased while growth is decreased…what happened if say….your debt increase and your salary decrease?)

At the same time the great savior was China almighty USD4 trillion reserves at the start of 2015. By January 2016 these reserves were already  USD3.2 trillion.

And the baseline for a working economy that is still based mainly on cash is estimated to be about USD2.1 trillion. Yes they can use (seize) also Hong Kong reserves, but this is just to point that the issue is real – not just a market frenzy.

And by the way, at this rate of expansion the phrase “by 2020 China will overtake the US in economic term” is just a phrase.

As the Americans say…”Houston we have a problem” – that is what the market is telling you. And you better listen.


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