We interrupt this European crisis to bring you the Chinese Recession
- Joshua M Brown
- May 31st, 2012
China is in awful shape right now. Which kind of sucks when you consider that China was supposed to be the growth engine that would pull the world out of this morass. Oh well.
But how did we get here?
In 2008, with global markets in free-fall and the Beijing Olympics looming, the Chinese Ministry of Doing Whatever The Fuck It Wants pulled a stimulus package out of its ass so large that it represented almost 20% of the country's GDP. We're talking General Tso's Shock and Awe.
And it did the trick - a little too well. Chinese real estate and infrastructure spending went banoodles, getting to the point where they were building ghost cities just to keep the machinery cranking and home prices greatly exceeded what anyone could actually afford to pay. The central government decided enough was enough and began to use policy to tamp down on the bubble. And things haven't been the same ever since.
I turn your attention to Matt O'Brien's piece at The Atlantic in which he lays out five reasons why China might already be in recession. Reason numero uno:
Bank lending has fallen off a cliff recently. Rather incredibly, government officials conceded that banks may miss their lending target for 2012. Remember: China still has a state capitalist model. The government sets targets for loans, and the banks have -- until now -- hit them. What's the problem today? A simple lack of demand for loans. After raising interest rates and reserve requirements to rein in the bubblicious housing sector, housing prices have begun falling. That's left developers underwater, unable to roll over what they owe, and not too keen to take out more debt despite monetary easing. Combine that Europe's continuing flirtation with financial Armageddon -- not exactly what China's exporters want to see in their biggest market -- and it's not looking like an especially good time to borrow more.
Head over for the rest. Then look at steel, coal and oil stocks year-to-date. It's all happening.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.