China recently has reported that its annual gross domestic product came in at 7.6 percent in the second quarter. However, experts, McDonald, once vice-president of Lehman Brother, doubted its validity, and and made a stark comparison to LIBOR.
A fake Libor rate, the scandal involving global benchmark interest rates that has raised the level of distrust in major banks and markets, is nothing compared to the damage that could be done if China’s true economic growth figures were revealed, according to Larry McDonald’s newsletter.
“Is Chinese GDP the new Libor?” asked McDonald, author of “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers,” in a much talked about note to clients last week. “More and more investors are starting to question the Chinese math on GDP.”
Annual gross domestic product came in at 7.6 percent in the second quarter, according to China’s government on July 13th. The report was better than investors expected, easing concern of a dramatic slowdown for the world’s second-biggest economy and sparking a bid in risk assets like stocks that has lasted for two weeks.
But slowing imports and industrial production, as well as harder-to-fudge electricity usage data, points to much slower growth, according to McDonald and other investors. Barclays believes the number should have been more like 7.15 percent.