So, WTI oil has slid below$49 per barrel; gold has gone below $1100, although it jumped today. The US stock markets have been down in recent days for no obvious reasons, and some others are not looking so hot either. Is there a common thread? The big Greece crisis is over, although that could yet blow up, although I think most markets already know about that.
There have been lots of rumbling that problems in China might have something to do with all that. There is no way to know this for sure, especially given China's long record of manipulating data. Furthermore, serious observers are dismissing all this as a bunch of bad hype, most notably Dean Baker recently, accurately dumping on an incompetent story out of the NYTimes (who seem to be pretending that they were secretly bought by Rupert Murdoch lately). The Times had a story about the decline of the Chinese stock market, making a big deal about it. Dean accurately noted that it is still above where it was in February, so the NYT looks pretty silly making such a big deal about it, especially since the Chinese stock market seems to have stabilized, as have the housing markets in Shanghai and Beijing, even if it is still falling in a lot of lower tier cities.
I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from investing.com, but it did not work. So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics. One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported. He snarkily noted that China had just reported that the most recent quarterly growth report was at 7%, just what the government had forecast, but...
So, what he noted is that while these aggregate number can say one thing, looking at more micro data can tell very different stories. Here are some numbers, each taken from a different source:
1. In March, electrical power production (from all sources) was down 2% from a year before.
2. In May, oil imports were down 11% from a year before.
3. Truck sales have fallen by nearly a half between last year and now.
4. Capital flight numbers are accelerating, possibly more dramatically than the quadrupling figure reported by Wargent.
So, maybe these are consistent with an aggregate 7% growth rate, but does not look like it. Many outside observers are arguing that the Chinese GDP growth rate is more like 4%, with some saying that in the first quarter it hit zero or even lower, although picking up more recently.
A final point regards the stock market bubble story. While Dean Baker sneered at the story from the NYTimes, an aspect not reported by them or him, but in Wargent reports and some other sources says that the methods used by the Chinese government in its efforts to halt the stock market slide (so far successful) were very extreme, including simply forbidding many stocks from being sold, and also forcibly confining stock dealers in rooms until they engaged in purchasing some stocks, with portions of the market still shut down with no transactions allowed. So, the stock market is not at all really stabilized. We are seeing the ugly side of the old Chinese system, trying to keep a lot of problems under control that they have not had to deal with.
Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out. But, I think there is reason to be concerned.