Ambrose Evans-Pritchard's Predictions for 2012: China's growth model tests its limits

The Telegraph ^ | 12/23/2011 | Ambrose Evans-Pritchard

[bruinbirdman]

China’s Communist Party is gambling that this year’s tap on the brakes has been just enough to curb the housing boom and stop inflation pushing up to danger levels, but not enough to tip the economy into a hard-landing.

The great hope is that Goldilocks growth can be kept on track to ensure an orderly transition of power in October 2012, when a new generation of leaders takes charge of the 1.3bn strong nation for the first time in a decade.

The front-runner for General Secretary appears to be Xi Jinping, China’s "Redder than Red" mystery man.

With public debt at just 15.4pc of GDP (IMF data), China has the fiscal firepower if needed to shore up growth if the downturn proves harder than expected. The central bank can open the monetary spigot, slashing the reserve asset requirement for banks and lifting the restrictions on the property market. That at least is the theory. The question is whether it will be so easy in practice to calibrate a soft-landing after the post-Lehman credit blitz.

The IMF said outstanding loans have increased by almost 100pc of GDP over the last five years, roughly double the intensity of the credit boom in Japan before the Nikkei bubble burst or in the US after the subprime housing bubble burst. The boom has pushed house price-to-income ratios to 19 in Beijing, and 15 in Shanghai and other eastern cities.

This has become a threat to social stability. Poorer Chinese can no longer afford to buy or rent property. The government is rushing through plans to build 36m homes for low-income families at a cost of $850bn, but it is not yet clear where the money will come from.

Professor Victor Shih from Northwestern University said the government implicit’s debt is

[DB]

I don’t know how anyone can believe what Chinese officials claim their economic numbers are.

http://www.youtube.com/watch?v=rPILhiTJv7E

http://www.athensnews.gr/portal/12/51658

http://www.forbes.com/sites/gordonchang/2011/11/27/can-china-rescue-its-economy/

I don’t see how any sane person can think the above will end well.

Central planning never works. And it won’t work in China.