In a series of interviews over the last week, bankers and senior executives from provinces all over China, in a range of light and heavy industries, cited a broad deterioration in business conditions. Two of them said that some tax agencies in smaller cities had been telling companies to inflate their sales and profits to make local economic growth look less weak than it really was, while reassuring the companies that their actual tax bills would be left unchanged.
There is plenty of fudging going on with Australia’s economic budgeting but this is taking it to a new level!
We’ve been expecting a dramatic slowdown in China’s rate of fixed asset investment and the latest data is consistent with that hypothesis. I don’t know if the Chinese authorities can or will stop the economy from unraveling, but I know the adjustment is an adjustment that needs to happen, either now or some time soon.
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