The global economy can be seen as an dynamo with two poles, America and China. The future of the American economy is exhaustively debated, but remains mysterious. The range of expert opinion about our prospects for the next few years is wider than anything I have seen in 3 decades.
The consensus of expert opinion about the other pole, China, is much tighter — and almost uniformly optimistic. But perhaps wrong. I lack time to provide an analysis, so that post just points to a collection of datapoints and sparse analysis. It’s a warning, no more.
Summary of the China mystery: an excerpt from “Is China the hidden Achilles heel?”, by Albert Edwards of Societe Generale, 16 June 2009 —
It is amazing how easily group-think takes a vice-like hold in the financial markets. As the BRIC {Brazil, Russia, India, China} economies meet for their debut summit, few dare to speak out against the new, ‘New Paradigm’. We also saw this same investor mania 13 years ago with the Asian Bubble, which the consensus thought was a growth miracle. But to go that far against the consensus invites a deluge of hate mail – link. That is why I keep a copy of a World Bank book entitled Thailand’s Macroeconomic Miracle: Stable Adjustment and Sustained Growth — link. It was published in October 1996, less than a year before Thailand’s (and Asia’s) economic collapse.
China is perhaps, like America, a story of malinvestment spurred by easy credit. In China the worries concern excess investment in manufacturing for export and domestic real estate. The investment boom has produced growth at a rate seldom ever seen in the history of the world. If this investment was unwise, the bust might be equally spectacular. We don’t have the data to know at this time.
Some datapoints
- “Tears, Fears for China’s Property Gamblers“, Caijing Magazine, 20 February 2009
- “China property prices ‘likely to halve’“, Financial Times, 13 April 2009
- “Global Downturn’s impact hits China commercial property market“, Asia Pulse, 4 May 2009
- “China cuts lending amid asset bubble fears“, Financial Times, 11 May 2009
- “China’s Real Estate Riddle“, Patrick Chovanec (associate professor at Tsinghua University’s School of Economics and Management in Beijing), Far Eastern Economic Review, 8 June 2009
- “Fear the Dark Side of China’s Lending Surge“, Andy Xie (economist), Caijing Magazine, 19 June 2009
Afterword
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