Three brief excerpts for the weekend on why China is becoming a worry for the global economy and why those numbers are hard to believe…

First, an extract from China has now become the biggest risk to the world economy by Ambrose Evans-Pritchard:

…”The inherent problems of the international economic system have not been fully addressed,” said China’s president Hu Jintao. Indeed not. China is still exporting overcapacity to the rest of us on a grand scale, with deflationary consequences.

While some fret about liquidity-driven inflation, Justin Lin, World Bank chief economist, said the greater danger is that record levels of idle plant almost everywhere will feed a downward spiral of job cuts and corporate busts. “I’m more worried about deflation,” he said.

By holding the yuan to 6.83 to the dollar to boost exports, Beijing is dumping its unemployment abroad – “stealing American jobs”, says Nobel laureate Paul Krugman. As long as China does it, other tigers must do it too.

Western capitalists are complicit, of course. They rent cheap workers and cheap plant in Guangdong, then lobby Capitol Hill to prevent Congress doing anything about it. This is labour arbitrage.

At some point, American workers will rebel. US unemployment is already 17.5pc under the broad “U6″ gauge followed by Barack Obama. Realty Track said that 332,000 properties were foreclosed in October alone. More Americans have lost their homes this year than during the entire decade of the Great Depression. A backlog of 7m homes is awaiting likely seizure by lenders. If you are not paying attention to this political time-bomb, perhaps you should.

…much of Beijing’s $600bn stimulus has been spent building yet more plant and infrastructure so that China can ship yet more goods, or has leaked into property and stocks.

Credit has exploded. Allocated by Maoist bosses for political purposes, it has become absurd. China is rolling as much steel as the next eight producers combined. It is churning more cement than the rest of the world. Fixed investment is up 53pc this year. Once you know that Hunan authorities have torn down two miles of modern flyway so that they can soak up stimulus by building it again, or that the newly-built city of Ordos is sitting empty in Inner Mongolia, you know what must come next.

View from Shangri-La, Hong Kong

If this has not sobered you enough, read these excerpts from China’s record debt has economists worried by Bill Powell:

In a world still awash in economic worry, China has stood apart as the one country that has come through the global slump with only the briefest of hiccups.

Last quarter the nation grew at a brisk 8.9% rate, and many economists expect it to expand even faster over the remainder of the year. Profits at large, state-owned companies that have benefited from Beijing’s aggressive stimulus program are up sharply.

…A lot of global CEOs, of course, are on the thank-God-for-China bandwagon, and it might seem a little churlish to question one of the world’s few good-news economic stories. Yet a growing number of observers believe that China is creating its own bubble economy. And they have a case to make.

The U.S. fueled its housing and consumption bubbles by providing easy credit. China seems headed in the same direction, although the victims would be different this time.

In the first nine months of the year, Beijing has shoveled $1.27 trillion in new loans into the economy, up 136% from the same period last year. That money has gone to three main areas: infrastructure, manufacturing, and real estate.

…Moreover, an increasing number of Chinese loans are being funneled into projects unlikely to generate an attractive economic return. From 2000 to 2008 it took just $1.50 in new credit to generate $1 of GDP growth. Now that ratio is 7 to 1. (In the U.S., just before the financial crisis hit, the ratio was only 4 to 1.)

That’s because the loans are creating huge amounts of manufacturing capacity — which is unneeded in the bears’ view. China’s spare capacity in the cement industry, for example, equals the total annual consumption in the U.S., Japan, and India combined.

So where will the growth come from? China’s export markets are tapped out. Its domestic consumption, stalled at around a third of GDP, hasn’t yet started to rise significantly. Additional manufacturing investment would be crazy, leading arguably to a global deflationary bust of epic proportions.

And finally, from How China Stiffed the World in Copenhagen by John Lee:

Indeed, China’s economic numbers and statistics ought to be viewed as the most unreliable of any major economy in the world. For example, every quarter, China’s National Bureau of Statistics (NBS) goes through the same ritual. Statistics come in from all over the country. The provinces take about two weeks to compile them, three times as fast as many smaller, developed economies with much more efficient processes for data collection. The NBS sorts through them, “consults” with senior government officials, applies a mysterious methodology to trim them into shape, and then spits out an annual GDP figure, always in the neighborhood of 8 percent, that is then diplomatically endorsed by organizations such as the World Bank andthe OECD.

Incredibly, provinces rarely fail to hit economic targets set for them by Beijing each quarter despite few changes in policy. Inaccuracy is also perpetuated by the fact that local officials are praised and promoted according to their capacity to meet centrally issued targets, while central officials themselves have limited means with which to verify local figures. Beijing is completely aware that these numbers are wildly inaccurate despite aggressively defending them after release. For the sake of its image and reputation, Beijing still wants to assure outsiders that it remains in charge even though in important respects it is not. It would not want a team of independent experts seeing for themselves the deception, dysfunction, and lawlessness that takes place throughout China under the watch of unaccountable local officials.

Try and not be too worried…

Have a restful weekend..

Somewhat related posts from my other blog:

What might stall the “Great Chinese Growth Engine”?

Of Googlies*, Cricket, India and China

China, India and the “3D Advantage”