Here are more predictions of bust or even doom for China. I doubt any of this is founded on adequate information or analysis, so these are just WAGs. But interesting.
- “The Coming Collapse of The Chinese Economy“, Professor Ching-hsi Chang, The Epoch Times, 25 August 2005
- “China has become a giant ponzi scheme“, Andy Xie, posted at an unknown Chinese website, 3 August 2009
- “The Return of Thomas Mun“, Martin Hutchinson, posted at The Prudent Bear 27 July 2009 (well worth reading!)
- “The Coming China Meltdown“, Martin Hutchinson, posted at The Prudent Bear, 4 August 2009
- The Coming Collapse of China, Gordon G. Chang (2001) – Also: an interview at RealClearWorld.
About Martin Hutchinson
Martin Hutchinson is the author of “Great Conservatives” (Academica Press, 2005). Details can be found on the Web site Great Conservatives. He was formerly Business and Economics Editor at United Press International.
About Andy Xie
Formerly an economist with Morgan Stanley Analyst. He became famous for his bold email, for which MS fired him. See this Asia Sentinel article for the text. See his Wikipedia entry for more about his background.
For more information from the FM site
Posts about China:
- Power shifts from West to East: the end of the post-WWII regime in the news, 20 December 2007
- What you probably do not know about China’s food crisis, 21 April 2008
- China becomes a super-power (geopolitical analysis need not be war-mongering), 9 July 2008
- Words to fear in the 21st century: Lǎo hǔ, lǎo hǔ, Lǎo hǔ, 14 July 2008
- A different perspective on the US and China, seen by an American living in Russia, 23 March 2009
- China – the mysterious other pole of the world economy, 22 July 2009
- Another big step for China on its road to becoming a great power, 27 July 2009
Originally published at Fabius Maximus and reproduced here with the author’s permission.
66 Responses to “Will China Collapse?”
The ‘collapsing China’ meme needs to be put into a larger frame. The country is, from an economic standpoint, mismanaged. However, it’s unlikely that the market socialist system will be undone by a failure to wisely direct capital or to optimize investment flow.There’s an obvious fact of life in a ‘socialist’ state that needs to be considered as a counter to the ‘collapsing China’ meme: specifically, it’s still a command economy with respect to capital allocation, new business entry into the market, and wages. In effect, the country is a giant firm where market forces and market notions like profit, loss, and return on investment have an additional and overriding constraint: regime stability.What are the implications? The regime will pursue goals like social stability and provide the capital inputs and capital constraints that help it attain its objectives. If that requires reckless lending that jeopardizes the financial system, so be it. If there’s a crash a few officials at the top can be scapegoated, the accounting mess is hushed up, the rigged currency is re rigged to restore equilibrium, wages and taxes are rejiggered. The regime knows what is has to do to maintain itself. It is not popular but there is no alternative.Sure it’s possible that growth rates go negative for a while and even large swaths of real activity go belly up. That’s more of a concern for the western banks that are trying to get a piece of the action than it is for the regime or the people themselves.
I’m always late to find these things, but happy to find this here because there have been many things I would have liked to ask you and was unsure of the consequences. So first, yes “collapsing China” has to be put in context. I see that there can be economic problems. We have those too. It’s harder to see how that would lead to more serious political problems in China than in the US. Given that China has done much better in the very recent past than the US. (This view from the cities I’ve seen. Don’t know that as well as you and haven’t been outside of just a few cities.)I have been told that it is easier to open a business in China than the US. It appears to me that the Chinese are exploiting every opportunity. I tell people it’s the most competitive place I’ve ever been. (Which is why I had so much trouble selling there.)On the other hand it’s difficult too for me to understand where “State Owned” starts & stops. How far can they go against those forces without being told to back off? How is it possible that according to a report last week a steel industry executive who had promised lay-offs, or who was assumed to be ready to do so was pursued by 30,000 people and killed? How do Chinese coal miners tolerate 4,000 job related deaths/year?Having too much steel capacity is one of those “economic” problems we in the west might be able to forgive or overlook. But the callousness of the safety problem which is almost completely preventable… I’ve known a few coal miners in my time. Safety violations is not something of which they are terribly fond. And even if they aren’t exactly violations. Miners know what’s safe and what isn’t.The question becomes, how vulnerable is the political status quo? I would think they are completely secure, but they seem to be as paranoid as ours are insulated. Why paranoid? From here it seems so simple. It wouldn’t take much to make those people happy and they can afford it!I hope you also followMichael Pettis who has what I think is the best commentary on the China market online. I have commented there also under a different, less inflammatory pseudonym.
I think Federal reserve should consider the policy to tackle the speculative bubble in asset pricing because the boom and bust in asset price create the financial crisis. Fed kept the interest rate too low for too long in 2003 and created the bubble in real estate. Now the Taylor’s rule suggest 2% interest rate for the latest economic figures. I think at least FED should cancel all QE program that is the major catalyst to push up the long term bond rate and mortgage rate and push up oil price to double in six months. If FED still use the loosening policy like this, we could expect the oil will be double in the next six months and the inflation will go to two digit at the end of this year. The higher oil price will kill economy by reducing ability of consumer to spend. Now the real personal consumption move lower because of the higher oil price and the higher long term interest rate.Therefore, FED should stop QE program that create the inflationary expectation and should initiate the policy to tackle speculative bubble in risky asset to stop the financial crisis. Now all risk appetite indicators show euphoria level of investors and that means people are confident in economy but the high confidence will create the unexpected loss if bubble occurs. The higher cost of funding or policy like China to control lending or investment in the speculative risky assets. If we have monetary tool to control bubble and the support the bust in asset price, we will have more stability in economic growth and price.Government should consider transaction tax for the risky asset. Now if you invest in real estate, you have to pay a lot of tax but we have no tax on risky investment and there is the way for tax evasion.FDIC should consider the fee system to tackle the speculative asset bubble. If the banks increase or have the exposure in risky asset, FDIC should increase FDIC fee to discourage the banks to invest or lend in the risky business or assets.
The Thomas Mun reading is interesting. It tracks what I have been observing – that the Chinese play seems to be getting their hands on resources. But Andy Xie’s point was more interesting – that, at the curent pace, China will reach a level of property development that accomodates its huge population and therefore will put the brakes on property appreciation and therefore its whole economy. I think the two themes intersect – that the rate of development in China (and India) move the advent of the resource crisis forward.It all points to more facets of the supercrisis we will all face before the decade is out. China seems to be positioning itself to prosper now while the prospering is good, and hunker down for the inevitable resource wars of the future. Meanwhile, the West runs up its debt, bails out its rich, sacrifices its poor, and yearns for a status quo that never will return, all the while bickering about change that must happen but is hampered by the shortsightedness of its leaders on all sides of the political spectrum.Which way looks better now? Interesting question.
The Chinese play is interesting because we in the west would think that the investment they are making by vertically integrating their industry to get their hands on resources is unnecessary and possibly naive. Those resources will be sold at market and we will have equal access to them. You are dead on about moving the resource crisis forward. Who in their right mind would think they could build an industrial economy for 1300 million people on the basis of a 1960’s Japanese model – which in the end didn’t work out so wonderfully even for Japan – cheap energy, and the back of an already saturated US consumer market. And now they are working as hard as they can to diversify their dollar assets into dollar investments in their raw material suppliers so as to produce even more dollar assets in future? Right.I might respond that it is the US who seems to be positioning itself to prosper now while the prospering is good without thinking about the consequences to the future. This feel good market bounce/recovery is due to nothing more than increased liquidity. Read money printing. And that’s happening in China too. Everybody is doing it and it’s going into markets – a new bubble and it doesn’t even have as much intrinsic value as real estate. Pure Ponzi.See also: Money versus credit – from FT/Lex
There is a danger in the Fed’s monetary myopia. In spite of much discussion about the Fed’s exit strategy, the really tricky part of extricating oneself from extraordinary policies is not the how but the when. Focusing on indicators that are proving slow to respond to its economic massaging increases the chances that the Fed will continue the treatment for too long. Healthy growth in broad money can quickly feed through to credit expansion as deleveraging runs its course. Then mo’ money really could create mo’ problems.
And this monetarist view which I share. Inflation is not just CPI!Excess liquidity thesis gains traction as financial markets soar – By Ian Campbell
Sebastian Becker, an economist with Deutsche Bank in Frankfurt, defines excess liquidity as money supply that is surplus to the needs of real economic activity, and therefore free to be invested in financial assets. Becker combines monetary growth figures for the US, Japan, the eurozone, the UK and Canada and finds excess liquidity – measured as a rising stock of money to GDP – in these economies is now being created more rapidly than in the late 1990s stock-market bubble, or during the subsequent house price boom.”
I don’t know what will be the trigger that breaks that bubble. I missed the fact that overbuilt US housing markets could be responsible for bringing down the world economy with it. Assuming that cool heads prevail and we manage to avoid an outright trade war – not an assured assumption – the end result is the same and also inevitable. Greater imbalances. A failure of markets. A fragmentation of global trade. Global unemployment. Inflation like we’ve never seen in our lifetimes. Shortages of the most basic of materials. Buying up those resource companies today will not insulate China either. We’re all in this. How do we get out? I want to side-step this bull.
My mother died of a side effect from chemotherapy for lung cancer – a medical condition called TTP/HUS. The bottom line of this condition is that the her blood platelets basically clotted at a micro level, causing all of the capillaries in her system to stop letting blood through. Her blood supply to her vital tissues literally stopped flowing. The doctors response – to add more platelets because they could figure out why her platelet count had dropped. I figured it out for them with some web detective work. So they did a plasma exchange, but too late. Once the blood started flowing again, her weakened organs gave out, and she died.Why is this relevant? Because it is what is happening to our financial system. Though the liquidity is being poured in, the velocity of money, especially to the real economy, is drastically. And the real economy is weakening and dying. And, as you observe, when the logjam breaks, and the liquidity dam is broken, look out. This is why I, like you, dread the bull.
Why don’t don’t some of you pundits actually read a good Chinese source, such as Cai-Jing.Don’t any of you get it??? China IS very close to major civil disorder, that is why the PRC government is very nervous, very sensitive right now. The situation is NOT the same as in the US. c ie The government of a large provincial capital has detained over 20,000 People for gang activity. That is ONE CITY!!![read Cai-Jing]I guess Americans are incapable of seeing anything ver7 clearly nowdays. I would recommend that you people invest heavily in Chinese equities before you lose your chance at the great profits which will keep coming!!gch
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