My post on China at the weekend attracted a bit of interest, so here’s more to ponder …

A visual from Zerohedge:

By now everyone knows that the Chinese credit bubble has hit unprecedented proportions. If they don’t, we remind them with the following chart of total bank “assets” (read debt) added since the collapse of Lehman: China literally puts the US to shame …

And of course the US economy at around $16 trillion is around double China’s.  That’s some credit expansion …

And these snippets from the Wall Street Journal:

… weaker economic growth, slower home sales and rising volumes of unsold houses have convinced developers in a number of cities to cut prices to raise cash quickly.

Groups of angry homeowners put up banners and demanded their money back after Hong Kong-listed property developer Wharf Ltd. cut prices.

According to property agency Soufun Holdings, Wharf cut prices of 20 apartments in [the project] to 8,200 yuan ($1,317) per square meter, down from the average 11,000 yuan per square meter it recorded in recent months.

“We aren’t speculators. We just want an explanation from the developer,” said one 35-year-old home buyer, who said he had bought an apartment and gave his surname as Wu. “This is very unfair.”

Mr. Wu said he bought a 120-square-meter apartment in December, for 730,000 yuan. Prices are now 610,000 yuan for a similar apartment in the same tower.

Ooops … 16% loss in 3 months isn’t pleasant …

And then yesterday, well regarded senior business journalist Ian Verrender followed some themes similar to those I pondered on Sunday …

After describing the extraordinary performance of the Chinese economy over the last decade and more, Verrender comments that everything has looked marvelous …

… Until now. While the wheels haven’t exactly fallen off the great China growth saga, what once was deemed the miracle economy has begun to fray around the edges, to endure the kind of pain regularly experienced in the west.

The true test of the resilience of quasi central planning is nearly upon us. Just how China responds to the myriad economic crises now besieging the country will have huge ramifications for the rest of the globe. And nowhere will that be greater felt than here. [meaning Australia].

Verrender comments on the credit expansion and the effect on the mammoth steel industry (remember China produces about half of all steel produced in the world).

Its heavily regulated and controlled banking system has spawned the growth of a shadow banking system where massive but largely unreported debt levels reside. Local governments and state controlled corporations have borrowed to the hilt, investing in largely unproductive assets that have spurred on further investment in steel production.

China’s steel industry now is in a funk …

Hmmm … and he goes on:

No matter how you read it, the outlook for raw materials demand, and hence Australia’s future, appears far less optimistic than this time last year.

No kidding!!

But then he finishes on a sunnier note.  (Is this the optimism bias in play):

Rather than a doomsday scenario – a sharp downturn in the [Chinese] economy as it grapples with the legacy of years of uneconomic investment – the more likely probability is that authorities will refuse to allow any kind of harsh adjustment that could provoke political instability.

But can a few central planners control an $8 billion economy? I don’t think so, and maybe he doesn’t either. So to hedge his bets, Verrender suggests:

The alternative could be a rerun of exactly what has happened in Japan; a slow economic decline stretching over decades.

… which isn’t a great outcome either.  So, as he says: “China’s leaders are at a cross road” … and so, consequently, are we.

Do you think many of our fearless leaders in Canberra have noticed?

http://www.abc.net.au/news/2014-03-24/verrender-capitalism-suddenly-not-looking-so-bad/5339914