For China, the light at the end of the tunnel is an onrushing train

For China, Light At the End of the Tunnel Looks Fainter

The Ponzi stalks China, yet China sleeps.

​More below.

"But recent events are calling into question whether the tunnel is in fact leading back aboveground. China’s state-owned banks lent nearly twice in May as much as in April according to The Wall Street Journal, but the money went almost exclusively to other state-owned companies rather than to the private sector:

'Economists said credit data released Wednesday by the central bank reflected the state of the world’s second-largest economy: Lending was robust for mortgages and infrastructure projects the government is backing, but companies refrained from borrowing for future investment, uncertain about the outlook.'

The private sector’s refusal to bite indicates that fears have increased so much, easy money no longer has the stimulative effects it once did. With policymakers running out of effective tools, we’re now witnessing an unprecedented collapse of China’s corporate bond market."

The Chinese miracle ran aground some five years ago, and has been pumped up since by ever more debt. That appears to have run its course now. 

"The reversal in fortunes for corporate bonds comes days after warnings from the IMF that China’s corporate debt pile, especially that of state-owned enterprises, could become a systemic risk and lead to lower growth and even a financial crisis. More lending doesn’t seem like the wisest move in light of this analysis."

China is an elaborate Ponzi scheme, and the debt no longer offers returns. 

​A nice article on the perils of planning and the distortion of capitalism

I have written on the China Ponzi for quite some time now.

Category: China Ponzi

"The problem is that Beijing doesn’t seem to have an alternative strategy for addressing what are clearly fundamental economic weaknesses. Instead of acknowledging the wake-up calls and sticking to the prearranged schedule, Beijing keeps popping policy ambient and hitting the snooze button."

China must now convert its from one which only copied others to become successful, to an economy which in innovative, creating new products, which address real human needs. While it is possible to follow another economy and do reasonably well, an economy as large as China's will need innovation if it is to be something more than a second tier manufacturing economy, producing the innovations of others. There is no evidence that China has this capacity. 

Jack Ma Says Fakes “Better Quality and Better Price Than the Real Names”

Sorry Jack, but this will never cut it. No one here will believe this because we have all bought Chinese copies, and they are uniformly crap. 

Japan went through this back in the 1960s when it imported tiny little Honda autos. The US market thought they were cute, but too big for paper weights and too small for passenger vehicles, and the quality was lacking. Honda responded continually improving its autos and became a favorite brand among Americans.

Perhaps Jack Ma is correct, but until I see it I will continue to assume that China is a low quality manufacturer of low priced knockoff garbage. The Chinese economy will not recover until it solves these very real problems, and addresses the myriad Ponzi created issues like excessive debt, zombie corporations, zombie banks, zombie cities . . . 

Good luck China.