China’s Services PMI for August veered upwards, but that’s not the news. Noting that China’s massive but fracturing bubble in unused luxury apartments (upwards of 70 million are empty) is a serious headwind,analysts for HSBC were quick to plead for more stimulus:
The economy still faces downside risks to growth in the second half of the year from the property sector slowdown. We think policy makers should use further easing measures to help support the recovery.â€
Stunning. Even the comrades in Beijing know that China’s credit tsunami has unleashed a dangerous speculative mania throughout the land that has no parallel in human history. For crying out loud, total credit outstanding (which Beijing’s red capitalists are pleased to call “social financingâ€) has exploded from $1 trillion at the turn of the century to $25 trillion today.
It goes without saying that there is nothing in the financial world more dangerous than easy credit. But when it multiples by 25X in just 14 years in an economy where there is essentially zero market discipline (because all debts are bailed-out and rolled-over when push comes to shove), you are dealing with a monumental catastrophe in the making. So China’s leaders now hop from one foot to the other, endeavoring to slow down the credit monster one week, while taking steps to goose the macro economy the next.
Beijing’s schizophrenia is at least understandable. If it allows the bubble to splatter, the historical anomaly of a collectivist one-party regime presiding over a wild-west casino would surely suffer a brutal demise at the hands of hundreds of millions of busted gamblers. So it continues to temporize and equivocate, hoping that China’s monstrously inflating bubble will keep on……well, inflating.
But why in the world would presumably financially literate analysts at one of the world’s premier banks egg them on? Why do they not, instead, warn investors to get out of harm’s way while its still possible?
