The trouble with China's economy

Story highlights

  • Richard Vague: Chinese economy continues to show signs of weakness
  • China's businesses have been on a borrowing and building binge, he says

Richard Vague is a managing partner with Gabriel Investments and the author of "The Next Economic Disaster." The views expressed are his own.

(CNN)China's markets are tumbling again as its economy continues to show signs of weakness. And while China's government will intervene strenuously to reverse this, the unavoidable truth is that the country's economic growth will continue to decelerate from its current 7% to a significantly lower growth rate -- perhaps near zero. Indeed, it could come to look very much like the kind of near-zero growth that Japan has been experiencing since the 1990s.

With the recent plunge, the Shanghai Index is down more than 38% from its June peak, but it is still up almost 44% from a year ago. With this in mind, some analysts believe China's stocks actually remain at high valuations.
But stock markets are generally a secondary indicator, and the real issues are better reflected in the growing list of concerning reports on China's underlying economic trends. Auto sales actually declined 3% in June. Sales of smartphones are down 4%. Manufacturing surveys show contraction, and producer prices have now fallen for three consecutive years. Though the official GDP growth rate is still 7%, many economists estimate that it is closer to 4%, and one suggests that GDP growth is now negative.
    Richard Vague