I just finished reading Bill Helming's latest economics special report to his clients and found some interesting stuff about China's economy, therefore our economy.
Truth about China is always a slippery thing because their entire centrally planned economy is, of course, cloaked in lies. If you follow commodity prices you know China is always the wild card spoiler. It's been that way in cotton for at least a couple decades ... and soybeans. Now corn, maybe rice and wheat.
They tell you what they want you to hear. It has nothing to do with the truth. (Remind anyone of the direction our government seems to be headed?)
Anyway, it seems to me there are two or three things about China that make its economic status important to us and, as I've said before, to the beef industry in its role as producer of the nation's premium-priced line of animal protein.
- First, China is the world's second-largest economy, behind the U.S.
- Second, it has been cited time and again as a success story of growth and an symptom of health for our own nation to help push investment and money policy in this country.
- Third, it has become the manufacturing sector for much of the world's product purchasing, most of which is done by the U.S. and the European Union. Therefore if China is failing it's further evidence
Incidentally, the European Union is the largest economy in the world but it is clearly not a single country so the U.S. retains the top spot and China supposedly claims the number two spot.
Therein lies the rub. China cannot be trusted to rank itself or to tell the truth about its financial numbers. Several people I've heard in recent years have said that countryside is full of "zombie factories," built and standing empty. Does that sound to you like the indicator of an economy growing at 10% per year?
Now Bill Helming says his private sources are telling him there's no doubt China has been lying about its economic growth for a decade.
"According to my private and reliable sources, the truth and reality is that China’s central government has been cooking the books relative to the reported rate of economic GDP growth in China for much of the past 10 years," Helming writes.
He says that in fact China's annual rate of GDP economic growth over the past 18 months has been in the range of 1.5% to 3.0% and not the 6% to 7% range reported by the financial news outlets. Helming says this is further evidence the Chinese economy is headed for a hard landing as he has long predicted.
This makes sense to me, as the EU and U.S. economies are both struggling mightily and are the source of sales for most of China's manufacturing endeavors.
Another thing I picked up from Helming: he writes that the world price of copper has declined more than 20% over the past 12 months because of the substantial slowdown in economic growth and demand for copper in China.
Copper has long been considered a leading indicator for direction of the world economy because it's so important to anything with electrical parts. I checked the activity on copper and indeed its price is lagging and supplies are climbing. In fact, all the industrial metals prices are falling at the same time: nickel, zinc, tin, lead and aluminum.
This does not look like the thriving economy the federal government and lapdog press keep describing.
Considering our government and now Japan's government are pumping as much money as they can into the economies and very little of it is circulating outside the stock markets, and considering all the other problems in the world's top economies, I think it will pay to be frugal and cautious in the years ahead.