These Charts Confirm China Is A Bubble Waiting To Burst

After the Fed tried to cause some more confusion with its decision to hike the interest rates by saying that a rate hike in June still is a possibility, we wanted to have a closer look at China which once again posted weaker than expected numbers.

We are very interested in all developments in China, as the country remains one of the largest net buyers of our favorite metal, gold. Even though its economy is definitely growing at a (much) slower rate, the gold purchases haven’t been impacted, but the main question is whether these purchases are indeed to prepare the country for a total collapse of the financial system, or just to show the outside world the balance sheet of the central bank has some robust back-up assets that would allow it to print more money to try to support the economy.

Indeed, the Chinese export growth fell in April to a -1.8% YoY basis after seeing a sharp increase of in excess of 11% in March. Granted, the March boost was very likely caused by the Chinese new year which resulted in a temporary export ‘stop’ during the New Year, after inventories were cleared out. So, okay, the lower export number didn’t really bother us that much, but what caught our attention was the fact the imports into China have been falling for 18 (!) consecutive months now which definitely is an indication of a crumbling domestic market.

That’s an important conclusion, and a first step in our central thesis in this article. Despite a declining export rate and a continuous freefall in the total amount of goods imported into China, the central government is sticking with its growth plan and wants to see the economy grow by 6.5-7% this year.

And that’s where everything is about to go completely wrong. There clearly isn’t a high demand for foreign products in China, nor is there a huge demand for Chinese products abroad, so the only way the growth numbers in the economy could be propped up is by making another giant flood of credit available. And now, several months (and even more than a year) since we started to warn about the Chinese problem, the data are finally confirming our suspicions.