China: The Emperor Has No Clothes

You know my position on China by now. It has over-expanded, urbanized to0 rapidly and, has excess capacity in everything from empty condos to cement factories. It is the epicenter of the greatest and most global bubble in modern history, and it will fall the hardest.

Clueless economic predictions that China will soon overtake the U.S. economy are as stupid as the projections that Japan would do the same in the late 1980s, before that country crashed and burned after over-expanding…

And Japan’s demographic spending trends peaked in 1996, and China’s already in 2011. How could economists miss something so big, important and obvious?

Now there’s finally been a great study at the University of Hong Kong by four economists. Guess what? China’s been systematically overstating its GDP growth… Who would have thought?

These economists studied all the hard data like satellite images, electricity consumption, railway cargo and merchandise exports. They calculate that GDP has been overstated on average by 1.7 percentage points, or cumulatively by about 20% – and the growth has also been far more volatile… duh! You notice how gradual and steady their slide has been with the trade war and slowing global growth? Sure, that could happen.

With the official numbers, China’s 2018 GDP was $13.4T (trillion) vs. the U.S. at $20.5T – 65% as large.

By these new estimates, it’s $11.1T, or 54% as large. Worse, their GDP per capita is officially $9,800 vs. $63,000 for the U.S., only 15.6% as high. But this new research says it’s $8,000, or a mere 12.7%.

China has pockets of near-Asian Tiger income in cities like Beijing, Shanghai, Guangzhou and Shenzhen, but most of the country is still poor. It’s still a middle-of-the-road third world country, damn it!

At current real average growth rates of about 4.7% vs. 2.1% for the U.S., China would not surpass the U.S. in total GDP until around 2036… I think with the bigger setbacks ahead, even later, 2040+.

They calculate it would take until 2076 to surpass in GDP per capita…

Not going to happen by my estimates as urbanization will peak by 2040 – 2050. I see $27,000 – $30,000 more likely at its peak, still less than 50% of the U.S. today and borderline developed country at best.

In my October 2019 issue of The Leading Edge, I showed why India is almost certain to become both larger and higher income than China by 2065 as Asia increasingly dominates the world and before the next global winter season sets in.

I’m even more firm in my conviction of that assessment after this week.

Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.