While working for the Canadian Energy Research Institute, in 2007, I started to suspect that China’s growth numbers were dramatically overstated. For one thing it struck me as ridiculous that we would be cheering the fall of communism in the late 80s, and now placing our faith in the central planning abilities of the Chinese Communist party.
What’s more, there is a Dilbert cartoon about a random number generator that produces nine, nine, nine, nine which reminded me too much of the Chinese economic data. Last year, Jim Chanos , head of short fund Kynikos Associates, weighed in and echoed my assessment. It appears that more sceptics are joining the party. There are some who remain convinced that China can kick the can down the road for several more years.
There is some evidence starting to emerge that China has indeed been faking their numbers. From the WSJ: :
“BEIJING—China's sovereign-wealth fund stepped in Monday to buy shares of the country's battered banks, which have been caught in a selloff that analysts say reflects a broader loss of trust in the integrity of corporate earnings and government statistics."
This will be the tip of the iceberg; when so few people, control so many resources and with western investors flocking like lambs to slaughter - this cannot possibly end well. Don’t worry your fund manager will tell you it was unforeseeable and that they had to be there.
Cue the Wall Street strategy analysts to start adjusting and revising their opinions.