Much of the economic data that may show that the Chinese slowdown is heading towards a stall and crash situation, raises justifiable concerns. There is excessive corporate debt in China, and credit keeps on growing in a global environment of cheap money. The expansion of credit might be unsustainable, and could trigger a downturn similar to the 2008-09 crisis in the US – which eventually spread around the world.
But the most worrying data is precisely the data that no one has access to, because it is either being hidden or tampered with. The Chinese government is well known for muddling its numbers, and unlike the 2008-09 meltdown, in which the data was accessible, this time around fewer people will be able to keep a pulse on what is really happening. This triggers even more uncertainty and suspicions about the state of the Chinese economy.
The situation is dire enough for billionaire George Soros to issue a warning about what he sees as an impending crisis. Chinese authorities have so far also failed to dispel fears about an impending economic collapse. Furthermore, if the fears were completely unfounded, then Chinese officials will be more than willing to disclose credible economic data that could turn that sentiment around. But it seems that they have opted to engage in a war of words through the media instead.
In the meantime, investors must adjust their strategies and take these stark warnings into consideration. The global economic environment is fragile and China seems to be headed for a hard landing in the best of cases. Cheap money is only making the situation worse by encouraging riskier behavior. If the Chinese economy falters, the ensuing crisis could well reach 2009 levels.
