Monday, April 28, 2014

Colossal Credit Bubble in China is Being Deflated

While Faber generally seems to be a long-term bull on China, he had some disquieting things to say about the extent of malinvestment in China due to the recent round of government stimulus and infrastructure-oriented investment.

Faber told Trish Regan and Matt Miller “I think that we had a colossal credit bubble in China and that this credit bubble is now being gradually deflated….if I look at export figures from China, and they are very closely correlated to overall economic growth, then there is a huge discrepancy between what China reports and what China’s trading partners are reporting.”

He said, “There’s lots of funny things that are happening in China. And when the whole thing unwinds it will be a disaster.”

His view is that the trade figures out of China do not correspond with the aggregated trade figures coming out of China’s trade partners. He believes the economy has slowed markedly and that GDP growth is more in the 4% region than the 7.5% region.

- Source, Credit Writedowns: