China’s Dodgy Numbers and Crumbling Economy
Yesterday, I explained that gold is going higher.
Even with gold sitting at US$1,544 right now, the price is going to move up from here.
Same goes with the Aussie dollar gold price. That’s currently trading at $2,286 per ounce.
How is this so?
Well, the Aussie dollar is falling faster than the US dollar gold price can rise. So you need more Aussie dollars to buy the same ounce of gold.
This trend is going to continue for years to come.
There are many factors that drive the gold price.
However, the most prominent one is China.
There’s much more to the ‘China problem’ than a trade war.
Below, Jim explains how the Chinese economy is slowing…
Until next time,
China’s Dodgy Numbers and Crumbling Economy
Jim Rickards, Strategist
For years, we’ve been hearing about and reading stories on the coming dominance of the Chinese economy.
The storyline is that China is growing faster than the US, has a much larger population and a growing military capability, and that it is just a matter of time before China surpasses the US as the hegemonic power in East Asia and the Western Pacific.
In its most extreme form, this storyline said the 1800s were the ‘British Century’, the 1900s were the ‘American Century’ and the 2000s would turn out to be the ‘Chinese Century’.
This narrative was proposed by the same globalist elites from the universities and think tanks (many of whom are Americans) that proposed open borders, zero tariffs, global supply chains and outsourcing of US jobs.
As usual, the elites are wrong on all counts.
Open borders put downward pressure on US wages.
Zero tariffs meant goods could be made in cheap-labour countries like China and shipped to the US duty-free.
Outsourcing destroyed perfectly viable US operations in steel, autos and electronics, and moved those jobs to sweatshops and prison-labour camps in China.
White House adviser says China’s economy is crumbling
The result was a declining US economy and greater income inequality.
Finally, the US is fighting back.
White House economic adviser Larry Kudlow said on Squawk on the Street that ‘The Chinese economy is crumbling. It’s just not the powerhouse it was 20 years ago.’1 2
Trump’s trade war has no doubt contributed to this.
The tariffs have slowed export-led growth in China and expanded US manufacturing.
More importantly, China’s growth is slowing for internal reasons that are not entirely related to the trade wars.
China has grown with investment, but most of that investment has been wasted on empty ‘ghost cities’ and other white-elephant infrastructure that cannot pay its way.
China is weighed down with trillions of dollars in US dollar debt that it cannot easily repay without depleting its dollar reserves.
China’s banking system is insolvent and much of its real estate investment has been financed with ‘wealth management products’ that cannot be paid back because the financing is little more than a gigantic Ponzi scheme.
With slower growth, declining reserves and massive debt, the stresses in China’s economy are now apparent to all, despite upbeat talk from Beijing.
The collapse in China will accelerate and result in capital controls, asset freezes and political repression of social disorder.
This collapse is just getting started and has far to run.
Chinese auditors caught fudging data
There’s nothing new about official Chinese lies.
China made commitments in order to be admitted to the World Trade Organization in 2001, and then proceeded to break every one with illegal subsidies, disregard of WTO rulings and theft of intellectual property.
China’s GDP is routinely overstated by about 25% because it includes wasted ‘investment’ in ghost cities and other dead-on-arrival projects.
Some analysts conclude that China’s GDP is even more deceptive and is perhaps only at 3% instead of the over 6% it reports.
None of this comes as any surprise because China is led by an atheistic Communist Party with an ‘ends justify the means’ mentality.
In a culture of that type, it’s no surprise that lying and cheating filter down to civil society and professional organisations.
The latest example is shown in an article by China-based news service Yicai Global.
One of the largest auditors in China has been accused of faking client data, with Yicai writing:
‘China’s securities regulator has suspended 43 initial public offerings and refinancing cases being handled by the country’s second-largest accounting firm, including IPOs on the country’s new Nasdaq-style trading venue, as the company is probed for allegedly falsifying information.
‘Ruihua Certified Public Accountants, which audits almost a third of all listed companies in China, is implicated in a scandal involving chemical maker Kangde Xin Composite Material. The struggling firm is accused of inflating profits by CNY11.9 billion (USD1.7 billion) from January 2015 to last December. As the CPA responsible for the company’s auditing all those years, Ruihua is also under scrutiny, the China Securities Regulatory Commission said in a statement on its website on July 26.’3
The implications of this go beyond the auditor itself and extend to its many clients who have been issuing fake financial statements.
This scandal has also led to a halt on client IPOs that were using the fake financials to issue stock to unwitting investors.
There will be more revelations like this.
The entire Chinese financial system is filled with unpayable loans, Ponzi finance and insolvent banks.
There are plenty of investment opportunities around the world. China should not be on anyone’s list.
All the best,