Daily Ticker

China collapse scenario "far-fetched," Gross says: "They seem to be powering through"

Aaron Task
Daily Ticker

The most recent data out of China, including PMI and industrial profits, were consistent with the broader truth: The world's second-largest economy has clearly downshifted but isn't heading for a 'hard landing' -- at least not anytime soon.

Dan Gross, editor and columnist at The Daily Beast, recently returned from a trip to China and joined me in the accompanying video to explain why hardcore China bears are likely to remain frustrated.

"They have a lot of problems," he says, citing suffocating air pollution, a burgeoning credit bubble and "bubblicious activity" in cities like Wuhan, where Gross describes seeing "row upon row of apartment buildings and office buildings you could see through."

But "the idea of collapse is far-fetched," he continues, citing several macro trends.

While China's "ghost-town" phenomenon has been well documented, less discussed is the future of those cities. "In four or five years they'll be filled with people," Gross says, noting China continues to move millions from the countryside to these urban areas. China's "underlying growth is driven by tens of millions of people each year plugging into the grid - getting a phone, starting to buy stuff," he explains. "That's sustainable as long as those people have jobs."

Furthermore, "for every rickety state-owned enterprise, they have a lot of dynamic private sector companies," he says, citing Internet search giant Biadu as a prime example.

More broadly, Gross observed China's "great belief in its ability to engineer around problems," be it literally (like the Three Gorges Dam) or figuratively (transforming from an export-driven model to an economy driven more by internal consumption). "They seem to be powering through," he says.

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