In my first of what will hopefully be many, if irregularly published, pieces I’d like to briefly touch on my perspective of the Chinese slowdown and its prospects for 2012.
To bring readers up to speed, the situation has recently taken a turn for the worse. The Chinese debt cancer has continued to metastasize. Loathe to loosen in the face of vast demand from local government clients for stimulus, the center has been forced into action by the potential of a looming global slowdown; the Chinese economy, and especially the property markets, however, had already been showing signs of strain. The domestic outlook has been increasingly poor with even the heavily massaged official domestic data looking worse and worse. However, the Chinese policy elite remain trapped between a very real economic (and increasingly pressing social) need to cool inflation driven by unchecked credit growth and the demands of Ponzi growth targets (to be achieved by the aforementioned credit growth). Absent genuine reform and liberalization, the inherently inflationary tilt of China's managed economy will continue to plague policymakers even as economic activity slows; it is endemic to the model. Unfortunately, such a fundamental change requires an autocratic oligopoly of the ruling elite to voluntarily relinquish their total control of a massive wealth-generating machine.
Increasing cognizance of the fact that the $3+ trn of dollars of spoils from mass economic manipulation and top-to-bottom accounting fraud may already be largely spoken for has begun to percolate in the western media. The scale, opacity, and complexity of China's closely held financial system will limit comprehension of the full extent of the problems for most Western observers before it is already well underway.
