Shorter Pettis: Chinese Economy Still Doomed

China's economy has been experiencing very high rates of GDP growth for a long time.

Sooner or later what goes up must come down and produce a huge economic downtown of a magnitude rivaling the Great Depression in intensity. I'm on record predicting that this will happen sometime from January 1, 2014 through December 31, 2023, and more likely than not, at the early end of that time frame.

The situation is actually more dire than it seems using official statistics.

Chinese banks have lots of bad debt outstanding that hasn't been written off, artificially inflating GDP by a big amount.  But, since the real economic cost of the debt service exceeds the value of the investments that were produced with the money borrowed, there is a real economic loss.  Somebody in the Chinese economy, probably Chinese households, is going to bear the real economic effect of these losses that already exist sooner or later.  Probably sooner.

I'm still hopeful that my prediction that this downturn will not commence for at least another three months will hold.  But, I continue to be convinced that China is on the brink of an economic crisis which will have a profound global impact (although mostly less severe abroad than it is domestically for the Chinese).