China's Coming "Magnificent Bubble"?

I think this presumes that one doesn't exist already. James Saft of Reuters makes the case as follows:

If and when China makes its currency convertible and opens its financial system the stage will be set for a bubble that should make the dotcom and housing booms look tame [...] “In the medium term we face the mother of all asset bubbles in China. The fundamental story is a good one; there are just lots and lots of people to sell to,” Grice said.

“If you drop a ton of liquidity on people it is possible that they will do rational things with it, but more likely they will do something pretty stupid.”

I think there are a few problems with this argument including that if I recall, the Japanese banking sector wasn't hiding a large number of underperforming loans. That came after - after the real estate collapse. There's already a sense from within China, at least amongst the people I speak with, that China's growth is unsustainable. Bringing down the restrictions on the RMB could also result in a great deal of capital fleeing China. I'm rather bad at guessing when bubbles will pop or trying to figure out irrational people, but I think it's useful to have your bets hedged in this case.