China's Potemkim economy

On Monday, the Chinese equity market imploded with Shanghai exchange falling 8.5% and other stock markets in Beijing and Hong Kong falling 5% or more.

The China growth story is slowing if you believe the government numbers, which are highly suspect.

The unsustainable economic growth in China is questionable from the standpoint of being both worthy and true.

The government — to spur growth — have many huge make work projects, which lead to no further economic viability.

Projects such as building entire cities — Potemkim-style — which will never be inhabitable, to large earth-moving experiments with no long-lasting economic impact.

So the Chinese financial chiefs have announced that the government will come into the market — twice in the last 30 days — to put a floor into the market.

Beijing has banned short selling and outright selling of equities by the largest player in the market and when that didn’t work, the government came in as a buyer of stocks.

So western markets have sold off when China sold off, but turned around when Beijing stated they would buoy the market. How is that an all-clear signal.

The global recession is upon us and growth will be muted to negative in Europe and here and as far as China goes believe what the market believes and you should do well, because it’s the only narrative that works for US stocks. Chinese growth is not true, but like most fables, it helps sell the story.

On Thursday we get Q2 GDP number from the Commerce Dept., I believe Wall St.’s 3% growth number is highly inflated. I think we’ll see 0.5% growth, putting us at 0.2% growth for first half of 2015. No a roaring economy by any stretch. I’ll have more on that tomorrow.

 

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