More reasons to be pessimistic about the Chinese economy
Martin Hutchinson points to the risks that the Chinese economy faces in the Asia Times (via AsiaBizBlog)- one that is beginning to scream "bubble":
China is thus much more like pre-1941 Japan than post-1950 Japan and its economic inefficiencies are correspondingly greater. Because of those economic inefficiencies, the chances remain high of a meltdown far before China has achieved Western living standards. [...]To add to the delightful news, Paul Cavey in the WSJ echoes some of these points but also raises the issue of debt financed growth: "But don’t be fooled: China’s impressive headline GDP rate masks an important fundamental shift. Its growth is now fuelled by cheap debt rather than corporate profits and retained earnings, and this shift in the medium term threatens to undermine China’s economic decoupling from the global slump."
The amount of foreign capital tied up one way or another in the Chinese economy is now so great that a Chinese market collapse would have global repercussions in an already weakened financial system. Furthermore, it is by no means certain that China would quickly resume its role of global growth engine; Japan didn't, after all.
China could be different - it always has been. But at some stage, the mysterious Chinese economy and its thoroughly opaque banking system must respond to the same constraints that affect the rest of us. Chinese economic policy has been more stimulative than ever before, its bank lending more reckless. If China's run of apparently miraculous immunity from normal economic forces is finally about to end, the result will not be pretty for any of us.
ChinaStakes notes complaints that state owned enterprises (SOEs) are supplanting private firms who have to deal with the taxes, difficulty in finding financing and insider markets that SOEs do not. Finally, ChinaStakes also points to the growing influence of the underground economy that is supplanting the influence of even some state owned enterprises in some cases.
No comments:
Post a Comment