A Gary Shilling says that China’s growth will slow. Bloomberg:

China’s $586 billion stimulus program introduced in 2009. Growth in gross domestic product leaped from a 6 percent rate in early 2009 back to double digits. Most of the money was channeled through government-controlled banks, whose lending increased by $1.4 trillion, or 32 percent, over the course of 2009 after being flat since early 2006. The money supply increased by 29 percent.

Those loans financed public and industrial infrastructure and real estate. Property prices in January 2010 were up 9.5 percent from a year earlier, according to government numbers, and much more by private realistic estimates. Employment gained along with economic activity, and in the third quarter of 2009, there were 94 job openings for every 100 applicants…

Chinese export growth, which averaged 21 percent per year in the last decade, is bound to suffer. The country’s seemingly inexhaustible pool of cheap labor is expected to peak in 2014, in part due to its rigid one-child policy…

the Chinese must save prodigiously to provide for their welfare and retirement. This has contributed mightily to China’s high rate of saving and low rate of spending, and its consequent reliance on exports. Chinese households save close to 30 percent of income on average…less saving and more Chinese consumption won’t substitute for weakening exports any time soon…

apartments in Beijing are affordable to only the top 20 percent of earners — they’re selling at about 22 times average income (average U.S. house prices peaked at six times average income). A square meter of property in China costs an estimated 164 times per-capita income, compared with 33 times in high-priced Japan. The 2009 stimulus package also spurred consumer price inflation to a year-over-year acceleration of 5.5 percent in May. Food prices are very sensitive politically because so many Chinese are at subsistence incomes, and they rose 11.7 percent in May from a year earlier…with only blunt-force economic tools available, it’s not clear that they’ll be capable of managing a controlled slowdown without significant pain.

You can’t increase bank lending by a third in a single year and not generate dislocations. Lately we’ve been seeing more of them. One of these days, someone will correctly call the timing of China’s first recession in 30 years. We all know it’s coming, but when?

This entry was posted on Wednesday, June 29th, 2011 at 6:13 am and is filed under business, China, Democrats, General, Republicans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.