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China will face excess capacity as there is little demand for the output produced, said Jim Walker, founder and CEO of Asianomics.
"The stock piles are just piling up in China because there is certainly not enough internal demand to be soaking this production up, and there's no external demand," Walker said on CNBC's Asia Squawk Box.
China's manufacturing sector grew at its fastest rate in 18 months in October, according to a survey by the government-backed China Federation of Logistics and Purchasing. Its purchasing managers index (PMI), rose almost a point higher to 55.2. Results above 50 indicate an expansion in manufacturing activity.
"The higher these PMIs go, the worse I feel for China because I don't know who they are selling this stuff to. They are certainly producing plenty of it," Walker said.
The Chinese leadership has said that China needs to cut down steel production and has added that there would not be any new capacity expansion in the steel, cement and aluminum industries. This tells you they are producing too much, noted Walker.
The excess capacity comes from manufacturers producing goods based on stimulus spending they had received from the government, so they don't need to make profits on them, he explained.
"You really have a very difficult position here for China. As one of my contacts in Beijing said to me as early as March, the worst possible outcome for China this year will be if we achieve 8% growth and that's exactly right. They have got lots and lots of output growth but there's very little indications that they are selling it to anybody."
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