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What do the numbers say about trouble for China’s economy?

April 12, 2015 at 6:04 PM EDT
As the second-largest economy in the world, China's official growth rate is one of those statistics that people around the world pay attention to. But some say there is evidence that its economy is in greater trouble than can be seen by the numbers. Bloomberg reporter Ken Hoffman joins Hari Sreenivasan with an in-depth look on the state of China's economy.
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HARI SREENIVASAN: China’s official growth rate is one of those statistics that people around the world pay close attention to. After all, it’s the second largest economy in the world.

But some question the numbers.

And Bloomberg reporter Ken Hoffman, who just returned from China, says he has plenty of anecdotal evidence that the economy there is in greater trouble than can be seen by the numbers.

He joins us now.

So, you focus on metals and mining. When you went through the countryside, what did you see?

KEN HOFFMAN, HEAD OF METALS AND MINING, BLOOMBERG INTELLIGENCE: Well what I saw was sort of what the government said it was going to do at their Third Plenum. So, the new government came in about four years ago.

About two years ago, they had a meeting called The Third Plenum, where they really decide the company’s — country’s future over the next 10 years.

And what people were telling me on the outside was, wait, this is a completely different China. They are really going to change everything about what China does.

And this was the first time I witnessed that change, which is, instead of, you know, China consumes about half of the world’s metals and mining, cement. I think, it’s every 12 days, they consume an entire year’s worth of U.S. cement demand.

Now what you are seeing is, the country saying, enough is enough. You have heard the “Under the Dome” documentary about pollution. And they’re really moving towards sort of upgrading the economy with — and it’s going to have big implications to the world.

HARI SREENIVASAN: So, you saw, what, basically that the thrust on manufacturing has slowed?

KEN HOFFMAN: Well, first of all, the thrust on real estate has slowed.

One of the things people have said is, the localities really were pushing this big growth engine. And there’s something that — the localities, if you put all up their plans together, plan to build homes for 3.4 billion people. Well, they only have 1.2 billion people.

So, there was massive overgrowth. And what I saw was a lot of empty buildings, a lot of taxi drivers sort of saying, through our interpreter, hey, you know, my aunt lost money in this or my uncle lost money in that place.

It has all sort of just stopped.

HARI SREENIVASAN: So, given all this, why do you see such a burst of energy in the Chinese stock market?

KEN HOFFMAN: Well, that makes all the sense, because instead of investing in real estate, the Chinese people have turned all their income towards the stock market.

And so you have seen just an incredible amount of money leave the real estate industry and go into the stock market, and the stock market there has doubled over the last year or so.

HARI SREENIVASAN: So, what are the ripple affects if the Chinese economy slows significantly more than what we are predicting or what the world markets are predicting?

KEN HOFFMAN: Well, the Chinese government is really on a tightrope here.

What they are really trying to do is change the economy, upgrade the economy, go higher value added. And the question is, can they do it?

I really have to give credit for the government. They’re being very, very brave. There’s a lot of entrenched interests against that, one that — really going after what’s been really the growth engine of the country for the last 20 years.

They’re changing that now. And whether they can succeed or not will mean a lot for not only China and their people, but the world economy.

HARI SREENIVASAN: All right, Ken Hoffman, thanks so much for joining us.

KEN HOFFMAN: Thank you.

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