2014 March 13 Thursday
China Leader Expecting Big Corporate Bankruptcies

China's Premier is expecting some big Chinese companies to run out of money.

Li Keqiang told lenders to China's private sector factories they should expect debt defaults as the world's second largest economy encounters "serious challenges" in the year ahead.

Supposedly China's economy still grew at an 8.6% rate in the first 2 months of 2014. But the Chinese government is pumping up infrastructure spending as the rate of spending on new private construction projects has declined sharply (down 27.4%).

I think China is moving past the easy growth phase. It can't grow much through increased exports. In fact, exports declined for the first 2 months of 2014. The bubble in the commercial building construction sector is popping. I am skeptical of the Chinese government's claim it can keep the economy growing at 7.5% per year.

In the next global economic downturn China is going to be hard pressed to avoid its own recession. I expect the next recession to be worse than the last one because so many governments are going to already be financially tapped out in the earliest stages of recession. A larger number of European governments will default. Italy, Spain, and Portugal are going to be hard pressed to avoid a default.

The peak in oil company capital expenditures that probably occurred in 2013 suggests the global economy will start to feel some pretty strong downward pressures. Energy costs will rise enough to trigger a recession. If you are working for a company that is already wobbling think about switching to a safer job if you can manage it.

Share |      By Randall Parker at 2014 March 13 09:32 PM 

Mike Street Station said at March 14, 2014 11:46 AM:

China is long overdue for a massive recession. I just wonder if their economy is now of a size that it will pull the rest of the world down with it.

Wolf-Dog said at March 14, 2014 2:43 PM:

In countries where small minorities accumulate wealth fastest, even when the economy is still growing at 3 % per year, this would still feel like a depression to the majority. This means that Russia and China are at severe risk, unless they find a way of redistributing their wealth.

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