Ambrose Evans-Pritchard thinks so.
... the Communist Party has once again let rip with debt-driven stimulus for the housing market and rust-bowl industries already chocking with overcapacity, stoking yet another mini-cycle to put off the day of reckoning.
The likelihood that China will fail to grasp the nettle of reform in time to avert a structural crisis is rising from probable to almost certain. As the well-meaning premier Li Keqiang keeps warning his colleagues in the Standing Committee, the current course leads straight into the middle income trap.
We can put away those charts projecting China's 'sorpasso', the moment when the country overtakes the US to become the world's biggest economy. It is not going to happen in 2020, and will look even less likely in 2030, when China's demographic dividend turns to deficit and the workforce goes into precipitous decline.
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China is basically in a 'debt-deflation' trap. Earnings have been dropping more quickly than nominal interest rates, automatically tightening the noose. "The ability of many Chinese listed firms to service their debt obligations is eroding," it said.
The ratio of gross debt to earnings (EBITDA) has doubled to four since 2010. Debt at risk - where earnings do not cover interest payments - has risen from 4pc to 14pc in five years. It has reached 39pc for steel, 35pc for mining and retail, and 18pc for manufacturing and transport.
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Debt in China is still growing faster than the economy. The government has had its foot on the pedal since last July, rattled by the unexpected recession of early 2015 (which it never admitted). This reached a crescendo with a 23pc rise in lending to a record $650bn in January and February. The Communist Party has been reaching for the bottle again.
The total debt ratio has jumped by 10 percentage points of GDP in the last year to 260pc. Most new credit is rolling over old debt, and the rest is subject to steeply diminishing returns as the economy nears debt exhaustion.
Fitch Ratings says the efficiency of credit - the extra yuan of GDP growth generated by each extra yuan of debt - has collapsed by two-thirds to a ratio of 0.2 since the lending spree began in 2009. The risks are rising exponentially for little gain. Beijing is buying time in a Faustian Pact that grows more dangerous every month.
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It was always wishful thinking to suppose that Xi Jinping could deliver a "free-market with Chinese characteristics" whilst maintaining the tight grip of Leninist party control over politics.
The China Development Research Council - brain trust of the reformers - warned that this was impossible, telling him that the shift up development ladder to high-tech growth requires an open, free-thinking society, and an end to top-down rule. Xi had to choose between the two: he has picked Leninism.
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The IMF warns that [China's] M2 money supply is an eye-watering 200pc of GDP, or $20 trillion. If confidence buckles again, outflows of just a fraction of this money could easily swamp the reserve buffers and force a devaluation of such magnitude that it would break the back of the global trading system.
My fear is that China's latest stop-go cycle will roll over just as inflation rears its ugly head in the US and the Federal Reserve starts to tighten in earnest. That would be frightening. Storm protection for 2017 might be a wise precaution.
There's more at the link.
Looks like the Chinese government is making the same mistake as governments throughout the First World (including the USA and European Union): disregarding basic mathematics in favor of political philosophies. Mathematics is not an art, not a guessing game - it's a science. Sooner or later, the numbers will add up to their inevitable conclusion, despite anything and everything the politicians can do to prevent that. I think the lesson taught by King Canute has been lost on them.