China growth miracle floundering in aftermath of credit bubble

China releases its highly-anticipated economic growth data for the fourth quarter on Monday – numbers that are expected to show 2013 marked the weakest performance for the world’s second biggest economy in 14 years.

Many economists forecast China’s annual gross domestic product (GDP) slowed to 7.6 percent in the final three months of last year, from 7.8 percent in the previous quarter.

That would put the full-year growth rate at 7.7 percent, above the government’s 7.5 percent official target but mark the weakest level since 1999.

David Cui, Head of China Equity Strategy at BofA Merrill Lynch, explains why mainland markets are likely to view next week’s GDP figure in a negative light, no matter what the result is. Here is a direct video link.

See also: China crisis may be unavoidable for some excellent perspective on China’s debt bubble. The greatest global credit bubble in history stole demand from the future and left the burden of debt payments in its place. Much weaker global growth is the price now to be paid for some time. Proving yet again that debt is no free lunch:

It is clear that policymakers in China are focused on engineering a transition to slower but more sustainable growth without causing a sharp cyclical slowdown. From an empirical perspective, however, the number of economies that have historically succeeded in letting the air out of a credit balloon in a gradual fashion, without creating a credit crunch and a short-lived recession, cannot be counted even on one finger.

Whether China will be different, given its unique policy tools and central planning instruments such as quantitative credit controls, is yet to be seen. Nevertheless, policy intervention comes with costs, mostly higher and more convoluted than anticipated.

One thing is certain: The consequences will be profound and long lasting for global economies and investors.

This entry was posted in Main Page. Bookmark the permalink.