For global economic growth, the story in China is very important, according to Marc Faber, the publisher of the Gloom, Boom & Doom Report, who spoke with CNBC Thursday in an in-depth interview regarding Beijing.
Faber explained that China’s economy is growing at half the rate that authorities are reporting, Dr. Doom stated that China is growing at a four percent pace and that government officials pick any higher number to make it look better than it appears. However, four percent is still a very good number, says Faber, especially in an economy with zero percent interest rates and no genuine growth.
In addition, Faber believes China should grow at a slower rate anyway because it’s better to improve the economy without credit bubbles and heightened risks that could hinder any potential economic gains.
“I’m not saying that 4 percent is as good as 8 percent, but it would be better to grown at 4 percent without a credit bubble than at 8 percent with a colossal credit bubble that will lead down the road to even larger problems,” he said. “And I think we have to realize excessive credit growth eventually leads to a crisis; this always happens. And in the case of China we do not have a credit bubble, we have a gigantic credit bubble.”
In order to gather a correct assessment of China’s economy, Faber urged investors to look at its stock market and commodity prices.
“I would like your viewers to consider: why is the China stock market doing so badly if everything is so great? Why is the price of iron ore collapsing and copper prices going down if everything is so great?” he asked. “If you look at the import figures of the trading partners of China, they are all actually showing that exports of China are hardly growing.”
At the end of the day, Faber believes the stock market shouldn’t concern itself with a crash in China because it’s likely the Federal Reserve will simply counter any losses by printing even more money than it is doing now.
“For the world, economic growth in China is very crucial. But not to worry, because the worse the global economy performs, the more geopolitical tensions we have, the more money printing we will have from the Federal Reserve. As it gives the clowns at the Fed another excuse to postpone the tapering,” Faber said.
The Chinese government forecasts that the country will grow by 7.5 percent this year.