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Ryan Cole, The Investment U Research Team
Get out of China, now. The entire economy is about to implode.
Let me explain.
The accepted story is that China is going to lead the world out of this recession. It’s successfully decoupled from the U.S., and GDP is going to grow about 8% this year, even as virtually every other country is shrinking or treading water.
The only problem is, the claim is entirely bogus.
This isn’t the first time China has lied about its economic numbers. Most people forget, but last year, everyone thought China’s GDP was approaching $10 trillion.
That was until economists took a closer look at the country… and revised the number down to around $4 trillion.
That’s a pretty big gap.
Lies
And still today, the lies continue. China counts everything made in the country as part of its GDP. That’s right, just made – it doesn’t need to be sold. It’s treated as sold immediately. It can be a loaf of bread growing moldy in a warehouse – that worthless loaf won’t count as a loss, but as a profit, just as if someone bought it.
That worked well enough when everyone was buying everything.
The only problem is, no one’s buying anymore. In fact, exports have fallen 23% compared with a year ago – and China’s economy is over 25% exports. Good thing China doesn’t count that in GDP. Instead, they only see a 10.8% gain in industrial production – who cares if the things being made aren’t bought?
More Lies
But it gets worse. Production appears to actually be falling. How can we tell? Electrical consumption is way down in China – falling 3.63% in the April year-on-year numbers. Industrial production was even farther off – down 8.29%. China’s claiming this is due to ‘upgrading’ – but we smell a rat.
During booms – like an economy growing 8% – electrical production goes up. It falls in recessions. Which do you think is more likely in China?
The truth is, factories are shutting down. The Great Migration to the urban centers of production is reversing, as workers go to live cheaply at home, in the countryside. Those left behind are rioting – with worker riots hitting at least one Chinese city nearly every day, though the government tries to keep that out of the public eye.
In short, while China may be claiming strong growth… don’t believe it. This country is hurting as much as any other, even if the government refuses to admit it.
And Market Statistics
The big problem? Thanks to all these big lies, investors have been flooding China with cash. In fact, the Shanghai Index was up almost 90% on the year, as late as July 28.
But the fall has started, with the Index down 5% to start the week. And, once everyone realizes this emperor has no clothes, further falls will be swift, and violent. China’s stock markets have been very volatile the last few years already – and this could be a downside as dramatic as any other.
What should you do? Buy the ProShares Ultrashort FTSE/Xinhua China 25 Fund (NYSE:FXP). It moves at twice the inverse of the FTSE/Xinhua China 25 Index, the rough Chinese equivalent of the Dow. As China’s lies – and rotten economic news – catches up, you’ll be cashing in, ahead of the curve.
P.S. If you’d like to find out more on uncovering some of the best foreign investments around the world, take a look at the Oxford Club’s New Frontier Trader Service.
- Is China Following America Into a Real Estate Bubble?
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- Jim Chanos Is Wrong About Investing in China
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10 Responses to “The China Lie”
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August 20th, 2009 at 8:35 pm
Yes, we sheep in Australia get sucked in EVERY time. I remember the ‘Asian Tiger’ bubble,the South Korea bubble, the Japan bubble and now we are supposed to believe this load of Chinese economic crapola!
‘Aussies’ always need to believe in some economic miracle overseas. Why can’t we just produce are own economic miracle and make things here. (McMansions don’t count)
Reply
August 23rd, 2009 at 10:09 am
The problems of FXP are:
1. It’s not mirror Shang Hai index,
FTSE/Xinhua China 25 Index is the list of
strong companies listed in Hong Kong
2. FXP is a daily ETF, it works very different.
Reply
August 23rd, 2009 at 1:39 pm
Too bad too sad thT EVERY “GOVERNMENT” WORLD-WIDE KS OTHERWIS KNOWN AS “liar and theif” as they confisacate private money for distibution to indigrnts and the Elite of governments. rather a sad commentary on the integritybof our fellow men.
…If you agree say “TEA PARTY !!”. – AND LET US ELIMINATE “GOVERNMENTS”. – Anarchy will surely be better as how could it possibly be worse ??? .. DD
Reply
August 23rd, 2009 at 3:18 pm
Concerning China:
I would really like to know, if there is a single
country that does not lie, who decides which lies
should be told and why are the lies always
believed by so many “intelligent people”?
Reply
August 23rd, 2009 at 7:46 pm
You suggestion to act on your commentary is to purchase the Proshares Ultrashort FTSE/Xinhua China 25 Fund. Presumably, this will be a proxy to China’s market and will rise in value as China markets fall. I read from another newsletter the other day there isn’t really a way to short Chinese market. The Proshares recommmended (FXP) actually tracks 25 H and Red Chip shares listed in HK and the move of the index doesn’t correlate well with movement in the local China Mainland index e.g. Shanghai Composite.
What’s your comment on this?
Reply
Grace Reply:
September 4th, 2009 at 5:10 pm
The best way to “short” the Chinese market is to simply NOT BUY Communist Chinese stocks. There are BETTER stocks,i.e. Indian, Chilean, Peruvian, Brazilian stocks. Sure China is growing. But so is America. Support America, lest we all become wards of a Communist regime. Don’t be scared off by the claim that the dollar will become worthless and will be replaced by a global currency. Support the dollar by bringing your dollars home and support American companies. This is economic war – and Americans can win it!
Reply
Sam Reply:
September 17th, 2009 at 3:53 pm
This has to be among the most idiotic posts that I’ve seen for years. it is a shame to see this kind of post in a supposedly profit-driven professional investment website. You failed to comprehend the nature of capitalism. Chinese stocks outperformed the US by 900% since 2000. good luck supporting American companies!!
by the way, you call this “the China Lie” a research piece from a research team? where is the fact and where is the logic? There is nothing wrong for being bearish for anything, but being provactive for the sake of it does not deserve credibility.
Reply
Grace Reply:
September 28th, 2009 at 1:12 pm
Hey Sam: America is THE ultimate example of capitalism. Why do you support the economy of a Communist country – China – that is being built by slaves being paid slave wages? Where are your values? America is THE greatest country in this entire world, despite the policies and actions of incompetent and greedy people in high places who are responsible for the present financial crisis. China has a very long way to go to catch up to American standards. Take a trip there and travel the countryside. I urge you to support America. We’re in an economic war with that Communist country. I want America to win that war. I would hope you do, too.
August 24th, 2009 at 3:30 pm
Your article just covered nearly 30% of the reality for your points that you want to shout about, but about 70% fact that you don’t know and your foolish is.
Reply
August 25th, 2009 at 6:24 am
What are you talking about? Who thought China’s GDP was $10 trillion last year? Who is everyone? Even by PPP calculations China’s GDP is $7-8 trillion. Where are you getting your information? What you say is complete BS. Fine take gov numbers with a pinch of salt; but what are you talking about with the $10 BS?
Reply