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Economic Bubble: China’s Economic Growth Model Faces a Serious Challenge.

On September 19, 2013, 21cbh.com, a professional financial news website under the 21st Century Media Group in Guangdong Province, published an article titled, “The Economic Bubble: China’s Economic Growth Model Faces a Serious Challenge.” According to the article, China’s export-oriented economy is going nowhere because China’s strength in its large population of cheap labor, its vast cheap land, and the government controlled depreciated RMB exchange rate no longer exist. China is now experiencing an economic bubble:

  1. In 2012, the ratio of broad money supply (M2) to GDP reached 188 percent in China, while the ratio of M2 and GDP in the U.S. was only 90 percent.
  2. In 2012, the ratio of investment in fixed assets to GDP in China was over 70 percent.
  3. China’s PPI has been declining over the last 18 consecutive months, since March of 2012. Meanwhile, China’s CPI has been increasing sharply. The prolonged divergence between PPI and CPI, which has not happened before in history, indicates a prolonged excess production capacity and lingering inflation, with a huge credit expansion.

Source: 21cbh.com, September 19, 2013
http://finance.21cbh.com/2013/9-19/2OMzcxXzc3NTU2OA.html