Signals of China’s looming crash are justified

Signals of China’s looming crash are justified
Chinese shadow $10 trillion banking economy is starting to clam up bringing severe effects, so there can definitely be further slowdown in China’s growth, James Corbett, an independent journalist and editor of the Corbett Report, told RT.

China has reported 7.5 percent growth rate, meaning it is heading for a 23-year low after phenomenal growth over the past three decades.

RT:Some economists see China’s slowdown as a signal of a looming crash. Do you think that those fears are justified?

James Corbett: I think they certainly are and we have already seen indications of that. Last month in the next stage of the credit crunch which hit in an interesting way and actually led to a cash crunch crisis in some of the China’s peripheral banks. We have to see what happens now in the context of the credit crisis that has been developing for years now. As much of the Chinese economic growth since at least 2009 has been the direct result of Bank of China liquidity injections into the Chinese economy. Now that we have the Xi Jinping administration coming along and trying to supposedly rebalance the Chinese economy away from fixed investment and more towards household consumption, they are basically threatening to close that spigot of liquidity into the markets. We see the Chinese shadow banking economy that’s supposedly worth $10 trillion at this point is starting to clam up and this is having some severe effects, and I think we could definitely see even a further slowdown in growth in the Chinese economy.

Qingdao port, east China's Shandong province (AFP Photo)

RT:One prediction is that China could be following the fate of Japan. Both of them are relying on exports and credit fueled investments for growth. Japan has been in the doldrums for almost 20 years now. Do think that China could follow?

JC: In a certain sense yes, although there are different examples based on different things. The Japanese example was really based on the under appreciation after the 1985 Plaza Accord that led to release of liquidity that built up the stock and the real estate market in Japan. As a result of that had been the 20 year deflationary recession. What Japan's administration is trying to do is kind of the opposite of what China is trying to do, which is to actually open the spigots to get inflation kicked off. Whereas China is trying to close or at least indicate that they are closing that spigot. I think they are going in different monitory directions, but I think the result could be very similar, so far it threatens to derail the export based economy which really is the real engine of both these economies.

RT:China certainly has major economic issues that it needs to address in order to move forward, but at the same time the growth of 7.5% isn’t necessary all that bad. If you compare China’s growth to the economies in Europe. What is your reaction in that sense?

JC: I think we have to take the Chinese GDP growth numbers with a hefty grain of salt because back in 2010 there were leaks of diplomatic cables from 2007 which came out indicating  that the Chinese Premier Li Keqiang had said behind closed doors that the Chinese GFP numbers were “man-made” and “unreliable”. This is coming from a man who is right now the Premier of China and is the one who is spearheading these attempts to get the Chinese economy back on track. We have to definitely cock and eyebrow up at that idea that there is a 7.5 % GDP growth right now. I think that it’s an artificially constricted number certainly, China has performed better in recent years than a lot of other economies, but that is coming to an end. We could see this spiral out of control if the Bank of China isn’t very careful about what it’s doing. If they send out the wrong signals or they tighten up the liquidity too much too quickly, it could have some devastating effects that will spill around the world. This is an economic loaded gun that is pointed at the head of the Chinese economy and they are staring at the barrel of that gun right now.