UBS George Magnus: China: The End Of Extrapolation

From Zero Hedge:

As UBS George Magnus says, "Many people think the downswing has now ended, pointing to slightly feistier data in September and October for industrial production, fixed asset investment, retail sales, and exports, continued high levels of total social financing, and a renewed rise in corporate leverage." The trivial rebound will soon end but a far bigger problem will then reemerge: "the short-term outlook for growth pales into significance against the view that China will continue to grow at 7-8.5% for the foreseeable future."

And herein lies the rub: because while China is currently experiencing a brief dead cat bounce, a far greater question remains open: can China reverse its declining GDP growth rate and continue growing at what most realists now perceive as an unsustainable pace. Says Magnus in attempting to provide an answer: "This [...] rests on three critical but questionable propositions: political will and capacity, the insensitivity of consumption to the investment outlook, and the nature of rebalancing, itself."

Magnus then proceeds to share his vision of whether China can "rise above" the reality of an economy forced to transition from investment driven to one of consumption: a vision which is the topic of his latest paper titled "China: the end of extrapolation."

In short, his answer (which at 11 single-spaced pages is hardly short) is that the party in China has ended.

http://www.zerohedge.com/news/2012-11-22/whither-china-end-extrapolation