Courtesy of Mish.
Economic Forecasts
Economist Steve Keen pinged me in response to my post Regional Manufacturing Expectations From Mars.
In that post, I compared Richmond Fed manufacturing survey expectations (six month look ahead projections made in February for August), to what actually happened in August.
In response, Steve Keen Tweeted
@MishGEA gets it wrong! Says “Regional Manufacturing Expectations From Mars” when they’re really from Uranus.
I duly stand corrected. I am now planetarily aligned with Keen on the distinction between Mars and Uranus.
China Implosion
On a more serious note, please consider the Financial Times article Why China’s stock market implosion might not be very meaningful, by Izabella Kaminska.
Kaminska quotes Steve Keen as follows …
One key peculiarity about China’s economy—and there are many—is that much of its growth has come from the expansion of industries established by local governments (“State Owned Enterprises” or SOEs). Those factories have been funded partly by local governments selling property to developers (who then on-sold it to property speculators for a profit while house prices were rising), and partly by SOE borrowing. The income from those factories in turn underwrote the capacity of those speculators to finance their “investments”, and it contributed to China’s recent illusory 7% real growth rate.
With property price appreciation now over, those over-levered property developers aren’t buying local government land any more, and one of the two sources of finance for SOEs is now gone. Borrowing is still there of course, and the Central Government will probably require local councils to continue borrowing to try to keep the growth figures up. But the SOEs are already losing money, and this will just add to the Ponzi scheme. The collapse of China’s asset bubbles will therefore hit Chinese GDP growth much more directly than the crashes in the more fully capitalist nations of Japan and the USA.
Heart of the Matter
Keen indeed gets to the heart of the matter about SOEs, borrowing, and illusory growth rates….
