China likely to drag the world into global recession, Citigroup says

Actually not totally true.
Actually not totally true.

China is, as we say, The Ultimate Crony Capitalist State. Business and government are an amalgam. Long a crony paradise where a premium was placed on compliance and government favor and not on real pricing.

It looks like reality is finally starting to hit however.

About 6 months ago I was talking to a China energy markets analyst and he explained the complexities of implementing a carbon tax regime in the country to me. One bit I found particularly interesting. He explained that no one knew what the real price of energy coming from a particular plant actually was. A mandate from Beijing had been handed down, that energy would cost X amount, and that was the number used for “business.” Everyone knew the official price was way below the actual market rate but it sounded like no one really knew what the market rate was.

One can’t keep running a country like this. One must have real pricing for long term prosperity. The problem is that real pricing can create problems for the political establishment, anywhere, but particularly in China.

Of course the big banks are panicking right along with the Chinese Communist Party. (How funny is that?) And Citibank at least is calling for massive government interventions to stave off a recession.

The bank knows of course that such actions, even if Chinese leadership was lucky, would only “stave” off a recession for a bit. Perhaps just long enough for Citi to get its China portfolio in order, which is to say lean. But it’s probably too late for that. And that, in the long run, is a good thing.

(From The Sydney Morning Herald)

Some economists and investors have long questioned the accuracy of China’s official growth data. When Li was party secretary of Liaoning province in 2007, he said that figures for gross domestic product were “man-made” and therefore unreliable, according to a diplomatic cable published by WikiLeaks in 2010. The median estimate of 11 economists surveyed by Bloomberg earlier this month put China’s first-half GDP growth rate at 6.3 per cent, compared with the official figure of 7 per cent.

My bet is that Chinese economic numbers are fudged WAY more than that.

Click here for the article.