Duncan: China Slamming Into a Brick Wall

Thu, May 12, 2016 - 9:27am

The largest economic boom in the history of the world is now hitting a brick wall, says Richard Duncan, well-known author, market strategist, and publisher of the widely-watched video newsletter Macro Watch.

Over the last 25 years, China's economy has been completely transformed. It's probably been the greatest economic boom in the history of the world and they've achieved that by pursuing a strategy based on export- and investment-driven growth. But now that strategy seems to have come to an end.”

At this point, the global economy is simply not growing fast enough to continue absorbing large amounts of Chinese exports, said Duncan. In order to prevent its economy and jobs market from slowing, China has met this problem head on by stimulating its industrial base to maintain current rates of production, which will only exacerbate the problem in the long run.

“It’s unsustainable,” Duncan warned, and “it seems to me that there are really two insurmountable constraints that China is not going to be able to overcome, enabling it to keep this bubble growing forever.”

Here’s some of what he had to say on Wednesday’s podcast:

"It does seem at long last that China's economic growth model is really slamming into a brick wall... the global economy is simply not large enough and it's certainly not growing quick enough now to continue absorbing more Chinese exports.

At the same time, on the investment side, China has such excess capacity across every industry that product prices are plunging...and so the companies are not profitable.

Non-performing loans are skyrocketing...and China has hit the point where the more money they invest, the more money they are going to lose. So they're really facing quite a serious crisis...”

Scroll down to read more of his comments, or click to hear a preview of his interview below. Subscribers can access the full audio by clicking here or via podcast on their mobile device.

“It's just mind-boggling how rapidly they've expanded the capacity across almost every industry. A lot of people have now heard the fact that Chinese cement production in just three years—from 2011 to 2013—was as great as all the cement produced in the United States during the entire 20th Century. So, that's just cement. It may not be as extreme for every other industry but every industry has increased its capacity by 10 times in the last 5-10 years at least. And they've just reached the point now where they have so much excess capacity, it's simply pointless and loss-making...and it’s eroding the capital of their banking system to continue to invest more.

Last year they really did try to slow down the investment. In fact, cement production fell a bit and steel production fell a little bit, and look what that did to the world. Chinese goods imports...fell by 17% and global commodity prices crashed and that sent Brazil into the worst depression in 100 years and wreaked havoc really all around the world.

May 11, 2016

The IMF has just recently downgraded its global GDP forecast yet again to something like 3.2%, which is pretty close to a global recession even by their definition, and so in the first quarter of this year things were becoming so alarming I suppose for the Chinese and Chinese policymakers that they abandoned their efforts to slow down their investment-driven growth and they allowed the banking system and the shadow banking system to increase credit in the first 3 months of the year by a trillion dollars!

All the credit in the United States last year grew by just under $2 trillion and the US economy is still 70-80% larger than China's economy. So, just in the first three months of the year, China's credit grew by a $1 trillion and that certainly gave China's economy a big sugar rush. And that will spill over into the global economy and it's already helped push up commodity prices, but this can't last for a number of reasons..."

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