China: If the figures are to be believed, the economy’s key problem is a fall in profits

In China, demand for industrial products and exports have slowed significantly and the economy is rapidly transforming into a service economy. Yet: Economic policies are highly expansionary; Household incomes are growing rapidly; Services production is growing rapidly. If one believes the official figures on wages, productivity and prices, China’s main problem is a fall in corporate profitability, which is confirmed by the trend in corporate defaults. Companies’ financial problems may then explain the fall in investment and the ineffectiveness of the credit stimulus policy .