Did China Just Start Its Long Term Decline?

You could be forgiven after reading news articles about 4h quarter Chinese GDP that it is all smooth sailing heading into the year of the Snake.  GDP growth was nearly 8% in China in a year which even public officials publicly admitted was challenging.

However, look beneath the surface and the numbers reveal some very disturbing trends.  If you look at GDP components, about 50%  came from fixed asset investment.   Looking at it another way, consumer spending grew at about 6% while investment grew at more than 20%.  That is not sustainable long term.

However, even more disturbingly for the long term prospects of China is that official statistics confirm that the labor force has started to decline.  While some Chinese demographers argue that it actually began in 2010, the labor force decline has now officially started.  China has benefited from a young pool of urbanizing workers.  As has been pointed out, China population is now aging, declining, and largely urbanized.  This demographic shift is going to have enormous implications for long term Chinese growth if they cannot count on the growth dividends from young urbanizing labor.

Think a declining and again population doesn’t matter?  Just ask Japan how much it matters.

What I have Been Doing

From the Wall Street Journal on Chinese state owned enterprise overseas investment:

“Unlike private companies, China’s state-owned enterprises serve two masters: the Communist Party and private shareholders. And the party holds the trump card, because it, not the board, appoints CEOs.  According to the U.S. congressional commission, state-owned companies accounted for 90% of the value of Chinese investments in the U.S. industrial-machinery, aerospace, automobile and logistics industries between 2007 and the third quarter of 2011….Mr. Balding said such talks should try to create rules to limit government subsidies, especially for financing, and to commit state-owned companies to invest for “market principles,” not political concerns.”

From the Business Insider on the Muddy Waters battle with Olam:

“Now back to Carson Block. In his report, he accused Olam of being like Enron in that it was hiding its debt on a different set of books. If Balding’s research is correct, those books could be the government of Singapore’s — the ones that have tons of debt on them….Perhaps not, but that doesn’t mean that the Lees won’t start a war of attrition. Balding conjectured that Block may be able to win, however, if other hedge fund managers take up the short, find other Temasek companies to short, or start attacking the Singapore dollar.”