Fabled transition to a service economy? Forget it.
The export and manufacturing powerhouse of the world, the locomotive – along with the US – of the global economy, and an indicator of the global economy itself, disappointed economists once again. The operative word in the media today is “unexpectedly.”
China has been on an glorious debt-and-stimulus binge for the past few months. New corporate borrowing shot up to record levels as the People’s Bank of China opened all valves, and juice rushed through the state-owned megabanks to corporate borrowers and others all around.
In the first quarter, total debt ballooned by 6.2 trillion yuan (nearly $1 trillion), the largest quarterly jump ever, to a record 163 trillion yuan ($25 trillion), or 237% of GDP, up from 148% of GDP in 2007, according to some of the more benign estimates. Others peg total debt as high as 282% of GDP. Corporate debt alone is now estimated at 160% of GDP. But no one knows for sure. With the Chinese economy, everyone is groping in the dark.
It’s not the debt itself that scares observers, but the speed with which this debt has ballooned. It’s impossible to invests this sort of moolah this quickly in productive activities whose proceeds would allow for this debt to be serviced [read… China’s “Lehman Moment” or Decades of Japan-Style Stagnation?].
Economists thought that this stimulus-and-debt binge would actually perk up manufacturing, boost services, and end China’s economic malaise, the extent of which remains unknown because no one, not even the Chinese leadership, trusts the official numbers according to which the economy grew 6.7% in the first quarter. Inflated as that number may be, it’s the slowest growth since 2009.
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