Hold the Champagne on China’s Economy (the 2nd act of Chimerica disaster)

AEI ^ | 10/22/09 | Michael Auslin

[TigerLikesRooster]

Hold the Champagne on China’s Economy

By Michael Auslin Thursday, October 22, 2009

Filed under: World Watch, Boardroom, Economic Policy

Those who witnessed Japan's spectacular rise and fall in the 1980s should get a familiar feeling watching China these days.

This month in Hong Kong, a single bottle of wine sold at auction for $93,000 to a Chinese buyer. No matter how good the vintage, that's not something to pop a cork over and celebrate. Those who witnessed Japan's spectacular rise and fall in the 1980s should be getting a familiar feeling watching China these days. In the eyes of the media and much of the world, China's decades of double-digit growth, military modernization, 2008 Olympics hosting, and picture-perfect celebration of the 60th anniversary of the 1949 Communist victory have raised the People's Republic of China to the top rank of global powers.

Yet unsettling questions about the social effects of this stunning climb are also abundant. Of particular concern is an emerging asset bubble, noted by The Economist and Bloomberg, among others. Fueled by an undervalued yuan and disguised by non-transparent accounting practices, its growth highlights the unequal distribution of economic gains in China and raises doubts about the sustainability of current consumption patterns among the newly wealthy. Many observers have ignored some troubling pieces of evidence, and indeed, most have heralded China for being the first major economy to pull out of the current global economic crisis. Yet looking at the underside of growth leads one to consider that China may be headed for a crash similar to Japan's if certain trends continue. That would be devastating not merely for China, but also for a global economy just beginning recovery.

[TigerLikesRooster]

Bad dream repeats itself in different parts of globe in different time. I suppose every decade needs its overhyped El-Dorado, which eventually sours into ugly reality.

"Banks in China undoubtedly have bad loans, shielded by non-transparent accounting practices, and as wealthy individuals and producers over-leverage themselves, the pieces are in place for a very bumpy road ahead."

"Back in the 1980s, Japanese companies were assumed to have discovered the secret to hyper-efficient production and thus endless profits, while the country's bureaucrats were lauded as perfect macro-planners."

[TigerLikesRooster]

Ping!

[ncfool]

I been thinking this for about a year as we have stopped buying in the US do to the economy.

Cargo shipping is off 50% or more and the container ships are sitting floating empty in the ocean.

China needs a health US economy or their factories and jobs are in trouble.

Couldn’t wish a bust on a better debt holder. :-)

[TigerLikesRooster]

Non-stop adulation by business media got to the head of Chicom. Many of them think they are unstoppable even during the economic downturn, even the severe one. They do not realize this kind of mentality is a sign of hubris.

It makes them really vulnerable. Of course, some in China would be cautious, but they cannot turn the tide of mass mob psychology affecting from the top to the bottom of China.

The die is cast and they will also march to a cliff at sea

[WellyP]

In the last few years companies have started to leave China and setting up shop in cheaper countries like Burma, Vietnam, Laos, Cambodia and some in India.

[DownInFlames]

Just wait until they call our debt.

[stumptalker]

As I was reading this I couldn't but think of the comparison to the U.S., not Japan. The gap between
the haves and have nots is political gunpowder to both
of these countries, as well as Japan.

[UCFRoadWarrior]

The economic facts are beginning to undo bad economic theory

- You cannot create a job in the USA by shipping it to Communist China

- Jobs shipped to Communist China amount to wealth redistributed from the USA to Communist China

- Communist Chinese people cannot afford to buy US products....nor by ChiCom made products

- Communist China buying US debt is not sound economic policy

- Communist China....no matter how much people claim “China adopted capitalism”...is still Communist

[seowulf]

China is more fascist/corporatist than communist.

Unfortunately, we are more fascist/corporatist than I would care for as well.

Welcome to Chimerica!

[Pelham]

“Just wait until they call our debt.”

They can’t. It’s the old adage of when someone lends you a million dollars they own you. But when they lend you a billion dollars you own them.

[Pelham]

Good summary.