Keeping world in dark

People’s Republic of Failures

The trade balance in exports between Russia and China decreased last year by 19 percent said Chinese government sources. This time the rest of the world should listen carefully because it looks like Beijing decided to be open with Moscow unlike with West.

Last year volume of Chinese exports to Russia dropped by 34.4 percent – to 32.9 billion dollars according Russian news agency TASS citing China’s customs department. The spokesman of the department admitted this is sober news but advised not to hope for better future.

“Last year was relatively challenging and difficult for international trade”  – said Huang Songping. “We think this year is going to be the same in some ways” – he added.

It is astonishing statement by the government official, who only communicates carefully crafted directives by vast Chinese bureaucracy of Communist propaganda. It indicates the Communist Party’s decision to come out with elements of truth about the real situation of Chinese economy.

The West was not that lucky and it heard yesterday the ten years old slogans about “corrections”, “reforming”, “readjustment” and “rebalancing”.

According to the sort of Communist truth produced for Western investors trade data for December 2015 is nothing but brilliant. Exports rose 2.3 percent compared to December of 2014, and imports only dropped 4 percent.

Even small print on these statement did not say: the biggest contributor to the 3.5 percent increase in exports from November was Hong Kong, constituting 40 percent.

But although Mainland registered increase in exports the still free city on the border with China did not registered imports. It is almost certain that Chinese statisticians simply artificially pumped up numbers.

Along with exports the flow of money out of China indicates that anti-corruption campaign is in fact war between fractions in the Communist Party and has nothing to do with improvement of the system. The instrument to funnel money out of China into accounts at foreign banks (from those profits of international banks are coming?) are exports. The mechanism is simple: a Chinese company is invoicing for double or triple prices for goods  that cost 1000 dollars. The remainder is being transferred to overseas bank accounts.

Exports are not the only concern of honest observers of Chinese economy. The internal debt is equally worrying if not more than trade numbers. As economist are reminding the domestic debt is very hard to come by because it is buried under the other numbers in giant Chinese statistics. Technically those debts should not exist if one would believe in Chinese official statements. It was too difficult to hide thought for Communists that the provinces through third parties and real estate operations were borrowing heavily. The debts were short-term and at high interest rates. The consolidation process of these debts and attempts to lengthen maturities must be a real headache for Party’s economists. This hidden debt is much more than internal problem, explained Harvard economist Carmen Reinhardt, that bears similarities with the situation of Japan and Taiwan. She suggested also that Chinese Communists will be forced to follow path of Ireland and begin write-offs of the debt.

The other problem of Chinese economy is this is country of ageing population and shrinking base of workers that require medical help and retirement system that is non-existent in China. Even once hyper-optimist China experts in Australia are becoming more cautious in their forecasts.  “China’s people are demanding increased access to education. And of course China faces prodigious environmental challenges, starting with the poisonous smog that confronts Beijing’s leaders every time they look out the window.” – Salvatore Babones, Australian sociologist observed.

Shrinking financial reserves are also issue that must be element of every discussion about China economy. China’s 3.4 trillion dollars of foreign reserves is going to melt quickly when Communists stand up to its promises and commitments around the world. For instance tooted New Silk Road, the Asian Infrastructure Investment Bank, the New Development Bank (BRICS bank) or bilateral aid to African countries. China has far-reaching plans for its military which will require even more resources.

The often omitted detail is announcement (“expectations”} of Chinese government about increase of its budget deficit to “3 percent or higher”. No-one knows the size of Chinese budget so it is anyone’s guess but the whole picture coincides with statement of Chinese official to Russians about future of their mutual trade.