The China Model is falling apart

Every province in China is Greece?

By Dinocrat

Epoch Times:

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy. In his memorable formulation: every province in China is Greece. The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube…

Lang’s assessment that the regime is bankrupt was based on five conjectures. Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.
Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang. Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010). Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said…

Professor Frank Xie at the University of South Carolina, Aiken, said that the idea of China going bankrupt isn’t far fetched.Major construction projects have helped inflate the GDP, he says. “On the surface, it is a big number, but inflation is even higher. So in reality, China’s economy is in recession.” Further, Xie said that official figures shouldn’t be relied on.

Oh those empty cities. Also in the piece above: “former aide to ousted Party leader Zhao Ziyang, said that high praise of the ‘China model’ is often made on the basis of the high-visibility construction projects.” We recall some of that praise from a few years ago.