1,200$ per capita GDP leaves China among poorest nations

21. January. 2010
by: Peter Cooper

How about that for an alternative introduction to the latest soaring GDP figures from China?

OK so GDP is up 10.7 per cent in Q4 compared with a year ago, but what does that actually mean in one of the world’s poorest nations? It means a per capital GDP of $1,200 or that everybody in China now has a little more than $100 a year extra to spend.

Global saviors
And this is supposed to be the rush of GDP growth to save the world. Have we lost our minds? Of course, population numbers do count but they do not make high-end consumers. Most of these poor folk struggle to eat a decent meal each day.

It is true that the Chinese currency is undervalued by perhaps 50 per cent, so $1,200 actually buys $2,400 worth of goods and services in China. So there was a big rush to by fridges for the first time thanks to the $586 billion stimulus package last year.

And more cars were sold in China than in the USA, obviously on credit at perilous salary multiples. Apartments are now selling for multiples of annual salary that defy any logic.

Sixty-two per cent of investors and analysts in a Bloomberg survey said that China is already a bubble with unsustainable stock market and housing prices. This is very typical of emerging market economies.

Market forces
The United States showed similar manic booms and busts in the 19th century, with the last really big crash in 1929. China will find that what has gone spectacularly up will also go down, and judging from the jitters in financial markets this may not take long to happen now.

In all bubble periods reality becomes somehow totally lost in an illusion that investors wish to be true. We saw it in Dubai in the recent real estate boom. Nobody can pump up an economy with 30 per cent money supply inflation without a crash, and that is what happened in China last year.

So instead of seeing the Q4 GDP data as some kind of virility symbol this should be taken as a big red flag, appropriately enough for the People’s Republic of China. The shorts have it right!