Broken China in the News Again

China is not the doll it once was

Photo by Aimee Vogelsang on Unsplash

Chinese authorities stepped up extreme measures to save China’s stock market from breaking any further today. The government’s sovereign wealth fund stepped up promises to prop up China’s shattering stock market by purchasing more ETFs. This brought some reprieve to beleaguered Chinese investors, but we’ve seen these Chinese glue-it-back-together missions before in many forms, and all of them have failed to hold. There is little reason to think this rescue won’t fall apart again, too.

The China Securities Regulatory Commission said … it will continue to guide other long-term funds to enter the market with greater intensity, while supporting listed companies to increase repurchases.

Great. Then they will soon have socialized all their corporations, taking them under government ownership, following Plan Japan.

The securities watchdog also vowed this week to punish those behind "malicious short selling" and to stop illegal behavior that hinders stable stock market operations and hurts investors. Authorities are also seeking to address risks stemming from margin calls and share pledges.

A sure sign of a badly crashing market that is still going to go down further is a market where the government has to leap in with new rules to force prices to stay up by forcing some people to stay out.

A more proactive stance from regulators is drawing comparisons with the steps taken during the 2015 rout, when they curbed speculative trading, targeted market manipulation and guided some investors to avoid stock sales.

And sometimes, with generally ill effect, shut off the market’s circuit breakers to end trading short in the day. Some investors buoyantly think this time China has it solved by nixing the bubble trouble causers:

Zhou Nan, investment director at Long Hui Fund Management. "There's very limited room for further slide but the market may continue to fluctuate before the bottom can be solidified."

I doubt it. Every other plan has failed.

Buying by state-backed funds had been keenly watched by investors as the selloff deepened this year. The total amount of inflows into a handful of ETFs tracking key gauges rose to a record in January and was more than five times the aggregate amount seen in July 2015, when the so-called "national team" jumped in to stem a rout.

Like I say, if keep it up, eventually the Chinese government will own it all.

The great Chinese takeover takedown

China, the economy whose money (the yuan or renminbi) was supposed to overtake the US in a few short years, is circling the drain as its stocks get flushed, its real-estate towers to nowhere topple, and its currency devalues until one wonders how long it will be before Xi gets xinged. China, many thought, as people did with Japan in the eighties, was also going to hoard US real-estate. In China’s case, the fear has been that the Chinese were buying up most Ag. land to take our food away from us while they makee sure they will always have enough to eat. Perhaps they were to some degree to secure their own food supplies, and I don’t want to understate these risks to the US as well as many others from China, but others overstate them. I’ve said before that the Chinese takeover of America is going to go the same way as the Japanese takeover in the eighties went, and now we see it playing out.

China has too many deep problems of its own to dominate the US. That doesn’t mean it won’t trouble the US in all kinds of covert ways and sometimes out-compete us and maybe damage us, but their centrally planned economy is as ready to fail as the US centrally planned economy. We see that again in today’s news, which tells us that even the International Monetary Fund, where the yuan competes against the dollar, gets it: China is not going to overtake the US. (It may trouble us, but it won't overtake us.)

I wouldn’t bet on this first part, though:

The U.S. looks to maintain its strong growth while China confronts a slowdown, leaving the world's two largest economies on opposite trajectories as they try to shape the global order.

They’re a little overconfident about the strength of the US economy. There may be a big blindspot here to our own troubles based on how much weight we put on broken measures:

While most major economies are struggling, the U.S. is consolidating its position as the driving force of the global economy. The U.S. labor market is very flexible and strong. The government's fiscal policy and financial system have enabled small and midsize businesses to weather very difficult times [such as the pandemic and high inflation].

I’ll point out one blindspot to our troubles that leaves us overconfident in the next section; however, regardless of blindspots about the fracture zones in the US economy, China is not doing any better:

Chinese government moves to restore private-sector confidence and boost the economy still lack a broad reform framework….

China faces a variety of fragilities, including undesirable demographics [for example, a low birthrate and an aging population] a collapsing real estate market, deteriorating investor sentiment at home and abroad and the lack of clarity over a new growth model. Even a 4%-5% growth rate will be difficult to sustain over the next few years. The likelihood of the prediction that China's GDP will one day overtake that of the U.S. is declining.

While China’s GDP growth has in recent years run around 5-6%, which is way higher than the US GDP growth rate, it is far easier to increase a count of a hundred eggs by 1%, needing only to find a single extra egg to do it than a count of a million eggs. China has a smaller economy, so larger percentage gains are more easily attainable.

US blind to its own fractures

That said, US GDP is rigged, as one of the other stories in today’s news describes, and as I keep saying, which makes it hard to make any meaningful comparisons because undoubtedly China’s is, too. I think every business in China runs double books—one set for the government and one for the business partners. I see no reason to think the Chinese government doesn’t operate the same way with its statistics—one print for its citizens and the rest of the world to tell us all how great the government is doing, and one for government authorities to know what is really happening.

Anywhere, here are some tidbits Jeffrey Tucker about the US GDP scam, which I’ve also been writing about from other angles:

The Great Growth Hoax

For several days, ever since the supposedly amazing GDP report from quarter four 2023, we’ve been blasted by the media about how great the economy is doing.

It’s exasperating because these claims do not fit with human experience. Last we heard from the Census Bureau, real income is down, and no one doubts it. Everyone, or at least most average people, has felt strong downgrades in living standards over these last four years.

He may be referring to personal income, but he could just as well be referring to GDI (Gross Domestic Income), which I’ve noted several times has been in recession, running the opposite direction of GDP growth and which is almost always the measure that is right whenever the two measures disagree.

And yet, no recession has been declared. This is for technical reasons. A recession is supposed to show up in the technical reading of the GDP plus unemployment.

Exactly. But the unemployment gauge is broken, and GDP is full of fakery while “real GDP” doesn’t subtract out real inflation. So, Tucker says the same thing I’ve been saying but brings in different details:

We’ve known for years that the unemployment data is broken. It does not account for labor dropouts or adjust for multiple job holders or otherwise reveal anything about labor participation or remuneration.

Unemployment is technically low, but so what?

Exactly on that, too. As I’ve restated regularly, it is a badly broken gauge, while CPI is now a badly rigged gauge.

As for GDP, it is not a measure of the standard of living or even economic growth. It is a measure of output — stuff going on as measured in dollar terms, whether necessary, productive, society serving, efficient or not at all.

It’s supposed to be that, but therein lies the problem: GDP includes measurement of a lot of government spending (not all of it by any means), but it counts a lot of things I do not even think should be counted as “domestic product.” Yes, if the government spends money to help Intel build a factory in Iowa or a highway to the factory, that is real production measured by how much the government paid for those projects. However, if the government spends money auditing itself, that isn’t product. That’s just more money spent on trying to find the government waste in all the programs being scrutinized. It’s a necessity because of inefficiency and corruption, but it doesn’t produce anything. The money it spends accounting for its expenses isn’t production (in my view). And, if it spends it on a study that gets cancelled before any conclusions are reached, that is not product at all. It’s just money thrown away. The point is that spending money on things doesn’t always produce either a product or a service. Sometimes it is just waste, and many of us suspect there is a fair amount of that in government spending. (Maybe that is what puts the “gross” in “domestic product.”)

The aggregate was concocted at a time when economists believed that spending was itself productive, whether it flowed from a sustainable capital base or government itself. Anything moving and churning was regarded as good.

But clearly some of it (and many would say a lot of it in the government’s case) is just churning.

So, China isn’t all that’s broke. It may be in no shape to replace this former doll of a nation, but our faces are looking fractured, too.

(For the rest of the details on how GDP gets baked, I recommend you read the article on GDP set in boldface at the top of the article list below.)