China Booms… Too Good to be True?

China has once again snatched the leadoff spot in our daily lineup. And once again, they’ve knocked the cover off the ball.

The Chinese economy expanded at a dizzying 7.9%, their government announced yesterday. That far exceeds analyst expectations and China’s still-impressive 6.1% first-quarter growth. Conveniently, the second-quarter jump — plus revised GDP growth expectations of 8% in the third quarter and 9% in the fourth — puts China perfectly on track for the 8% annual growth they promised earlier this year.

Looking through the fine print of today’s data… oy, these are some la-la land numbers:

  • New lending in the first half soared 201% compared to the year before
  • First-half property sales up 53% per annum
  • Chinese home prices are growing at a 10% annualized pace
  • First-half auto sales up 17% per annum
  • Retail sales up 15% in the first half
  • Inflation down 1.1% from a year ago.

Of course, not all is well over there. Exports, the backbone of the Chinese economy, are down 22% so far this year. Construction starts, another staple of Chinese growth, just ended 11 straight months of decline. But still, today’s numbers show nothing short of a V-shaped recovery for China. Too good to be true? Maybe.

But here’s one more amazing Chinese stat for today, one we don’t doubt: China’s official foreign reserves now exceed a record $2.13 trillion. At least $763 billion of this sea of money is pure U.S. debt. In spite of all the global turmoil and market ups and downs, China has remained the world’s steadiest accumulator of sovereign debt — namely American Treasuries… a fact of life that will surely haunt us one day.


By the way, another Chinese debt auction failed this morning. That’s the third time in the last two weeks that the Chinese government was unable to sell as much debt as it planned. In order to continue financing their rabid growth, maybe they’ll have to start selling some assets — like, call us crazy, American IOUs.

The Daily Reckoning