The Bubble Cometh
November 11th, 2009
When your acupuncturist tells you the housing market is wildly inflated, it’s best to listen (lest you be stuck in painful and inappropriate places). Still, a recent Financial Times article all but signaled China’s economy is officially out of the doldrums as a combination of fiscal stimulus, export sector revivification and consumer activity spurs the statistics onward and upward. My favorite bear Andy Xie wrote in the FT just a couple weeks before the report:
The day of reckoning will come when the high economic growth rate finally falters. This could happen either when the favourable demographic trend worsens or urbanisation ends. When either or both occurs, liquidity or savings do not grow any more. At that point, the stock market cannot be subsidised any more.
China’s final day of reckoning is probably 10 years away.
In other words, sometime in the following decade it won’t take more than an acupuncturist’s needle to prick that bubble.
November 13th, 2009 at 10:09 am
Honestly I’ve been hearing about China’s “imminent” collapse, both economic and political for a very long time now. Is this going to go by like all the other doomsayer prophecies or is it going to be a case of the boy who cried wolf too manytimes?
November 16th, 2009 at 7:13 am
Hi, Outcast;
No, I don’t see Xie’s (nor my) prognostications as dire – the world as we know it will not end; however, there is a strong indication that if government policy and self-interests do not take corrective action on substantive structural issues over the next two years, China may find itself suffering the same sort of malaise as go-go Japan had during the 90s and early 2000s.
November 18th, 2009 at 4:14 pm
I really don’t see it having the sort of malaise Japan did. For all it’s structural problems, it doesn’t have anywhere near the trouble Japan does. Here’s a short list:
1.) Japan’s economy is very very very protected from outside competition
2.) Japan’s economy is far more regulated
3.) Japan’s biggest problem has been it’s absolute refusal to make any sort of meaningful change when change is desperately needed.
4.) Japan’s economy is far far less flexible. Economic policy in Japan has always been geared heavily towards stifling entrepreneurship in many areas, especially tech related and instead focus on maintaining massive behemoths such as Sony, while the domestic side of the economy is seen as a way to absorb surplus workers that the prized mastodons don’t pick up. If I wanted to start my own IC design house in Japan, based on what a friend of mine who got her PhD in Hokkaido studying economics told me, it would be utterly impossible because of said regulations. The same is not the case in China where such activities are actively encouraged. In the end it is this dynamicism that Japan doesn’t have that makes it unlikely China will pull a Japan Manuever.
Katz had a good book about it, businessweek has that first chapter posted online for free which gives a pretty good run down of what happened to cause Japan to falter so badly, as well as elaborating on point number 3. Here’s the link if you are interested: http://www.businessweek.com/chapter/katz.htm, I welcome your comments about it.
November 23rd, 2009 at 1:34 pm
Hi, Outcast;
1. China’s is increasingly less and less open to meaningful FDI;
2. China’s economic regulation is convoluted, allowing massive, regional interpretation when it suits local powers-that-be;
3. Note the last Japanese elections – terribly upsetting to the LDP;
4. I love my PS3, a truly innovative, wonderfully engineered and user-friendly piece of kit. Chinese entrepreneurs – all of whom are starving for financing from banks – and the SOEs, cannot even conceive of developing one-off hits of this global magnitude; leave alone consistently quality, innovative applications that take at least two years to filter out of the Japanese market first to HK, then to Asia, and finally to Western shores.
Yeah, the LDP lost its chance to do some serious re-structuring, but through the democratic process, there is hope of deep revitalization. China has only one captain at the tiller, and he ain’t willing to listen to anyone, leave alone give up the wheel – even after he’s hit the iceberg.