Via Business Inside respected China analyst Charlene Chu points out something interesting. In China the growth in secondary industry is less than interest owed on loans outstanding:
“We expect China’s GDP growth to continue to slow in 2016 driven by further deterioration of secondary industry, which comprises 43% of economic output and whose growth plummeted to a record low of 1.2% yoy in 3Q15,” Chu wrote in the note.
China’s secondary industry is drowning in debt. Old China’s companies are not growing fast enough to keep up with interest payments on their debt.
What China bulls will tell you is that other parts of the economy are coming in to save the day. Chu writes that that is simply not the case.
“Consumption and services remain bright spots. However, we doubt these areas can accelerate enough to offset a further slowdown – and likely contraction – of secondary industry in 2016, particularly as it increasingly weighs on household income growth, the principal driver of consumption and services expansion,” she wrote.
Let me decompress that a bit for you. “Secondary industry” is consumer industry—industry other than mining, agriculture, and other primary industries. When interest is greater than the growth in secondary industry it’s going to be darn hard for the secondary to grow. And Keynesian pump-priming can’t work in the absence of inadequate excess aggregate product and shortfall in aggregate demand.
That’s more evidence for the hard landing that those other than the “China bulls” are suggesting is likely at this point. That’s unfortunate for China but it’s a direct consequence of poor policy.
