On China Financial Markets, Michael Pettis discusses some of the worrying data that could illustrate that the over-investment cycle is about to end: Click here for the post:

Total vehicle sales growth in China moderated sharply in July to 4% yoy. According to the China Association of Automobile Manufacturers, sales of commercial vehicles contracted 3% yoy in July (to 177,600 units), the first contraction since January 2006. Passenger vehicles sales managed to maintain 7% yoy growth (to 488,200 units), but this was the first single digit growth since August 2006. The data reflect weakened domestic demand in China.

“China’s stockpile of unsold new vehicles rose about 50 percent in the six months ended June, hitting a four-year high, as automakers expanded production and sales growth slowed.” In the article some commentators brushed off the rise in inventory saying that they were expecting a surge in car buying later in the year. If it doesn’t happen, I suppose we will necessarily see rapidly rising car inventories. Rising inventories is one of the main warning signals we have to watch for as evidence that the over-investment cycle is finally about to end.

This is the sort of data we need to be focusing on. I’m always amazed at the simplistic analysis of Western pundits, who often tell us not to worry because even if China’s growth is slowing, it’s still much faster than the West. Their logic is flawed for one major reason. China’s GDP numbers don’t add up. Speak to any credible economist on the numbers that come out of China and they will tell you the same thing. The official numbers make no sense. So don’t obsess about the actual figures. Focus on other clues.

If you don’t believe me, then explain this: