Video: Marc Faber: A lot of funny deals in China’s colossal bubble

Gloom Bloom & Doom publisher Dr. Marc Faber shares some very interesting insights on China and on Russia’s Putin in the following video interview with Bloomberg.

With regards to China’s deflating colossal bubble and statistical inconsistencies (transcript from Zero hedge) [bold mine]

...we had a colossal credit bubble in China and that this credit bubble is now being gradually deflated and will bring about problems in the real estate market and among some major players in the commodity markets as well. So overall, if I look at export figures from China, and they are very closely correlated to overall economic growth, then there is a huge discrepancy between what China reports and what China’s trading partners are reporting.

So if you look at the figures of China, exports are still growing. If you look at the trade figures China exports to Taiwan, so China records exports of so and so much. The Taiwan report imports from China at a much lower level. So which figures are more reliable? I think the figures of the trading partners of China are more reliable. And they would suggest that growth has slown down considerably.

Well deflating bubble and a slowing economy has not been surprising to us. 

More on the reliability of statistical data....

Governments will always publish the statistics that they wish to show irrespective whether that is in China or in other countries. Governments control basically the statistical offices, so they can show whatever they want. As Stalin said, it’s not important who votes but who counts the votes. And the government counts the statistics.

Now the kicker: A lot of funny deals in China’s trade financing…

...the fact is simply that Chinese stocks have been just about the worst performing stocks since 2006. Now analysts will dismiss that and say everything is perfect in China, but the stock market does not seem to believe everything that the government is saying about the economy. And clearly there are strength signs in the Chinese economy. In particular, as I said, we have this huge explosion of debt. Debt as a percent of GDP has increased in the last five years by more than 50 percent. Total debt is now over 215 percent of GDP, and a lot of it is trade finance that is being rolled over.

In addition to that, there are lots of funny deals. A friend of mine who analyzes China very carefully, Simon Hunt (ph), he pointed out that trade finance between one state-owned enterprise and a private company has amounted to over $5 trillion by continuing to roll over the same collateral several times. There’s lots of funny things that are happening in China. And when the whole thing unwinds it will be a disaster.

This looks like "Rehypothecation" which Investopedia.com defines as “The practice by banks and brokers of using, for their own purposes, assets that have been posted as collateral by their clients.” In other words, perhaps a lot of the trading finance debt has very little or even no collateral supporting them. 

On Putin’s action at Crimea

Mr. Putin did the right thing from his perspective. We have to look – put ourselves into his shoes. He did absolutely the right thing at the right time.

...By that I mean that there was interference by foreign powers in Ukrainian politics that were unfavorably from the perspective of Russia.

...The Crimea is strategically most important for Russia. It has practically no meaning strategically to the United States or to Europe. But for Russia it’s very important. I don’t think that Russia will move further into Ukraine unless there is serious provocation. But I doubt it will happen. But I think the wider implication is that we have now border lines. In other words, the US would intervene if a foreign power would establish bases in Haiti and in Cuba and so forth and so on, and the Chinese will react if foreign powers threaten Chinese access to resources.

Possible implications…

This is very important because the occupation or say the referendum (ph) in Crimea and Crimea moving to Russia gives essentially a signal to China that one day they can also move and seize some territory that they perceive that belongs to them.

This could also extrapolate to greater risks of real military conflicts surrounding territorial disputes. 

Have a nice day.