Trust Chinese Economic Numbers at Your Peril

We have referred to China as the ultimate crony capitalist state and Wolf Richter over at Testosterone Pit seems to agree.

He explains that despite what we hear coming out of China officially, even though the government sanctioned numbers solidly and increasingly point to a significant slowdown in that country, reality is probably far worse than what we hear.

He postulates that China may not even know itself how bad things are.

“But in China, the art of data manipulation is such that even the government might not know the true status of the economy. Officials even at the local level are rewarded, promoted, or demoted, based on achieving their economic quotas as measured by tax receipts, business revenues, real estate developments, and so on. Hence, the incentive to fudge the numbers on an individual basis is high. According to the New York Times, “The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.”

As the fudged numbers flow upward and are consolidated, they aggregate into a fudged whole, inflating GDP by 1 to 2 percentage points. But it might be a lot worse, and sometimes it’s just the way it’s counted.”

The system of cronyism and magic math that appeared to work so well for so many years may now be crumbling in China.

If China is crumbling, Europe is crumbling, and we in the US don’t look very good either, who’s going to pick up the slack for the rest of this year and going into the next? Brazil? Not likely.

We are witnessing what has been a slow (to date) unraveling of a world economy which to a large degree is based on lies and obfuscation. What once appeared solid now appears fragile. What once appeared sure, now appears illusive, and what once appeared guaranteed it is now obvious is anything but guaranteed.

What happens when an entire planet builds an economy on dishonesty and the universe says that it has had enough?

We may soon find out.

Click here for Richter’s piece.