The Discerning Texan
All that is necessary for evil to triumph, is for good men to do nothing.
-- Edmund Burke
-- Edmund Burke
Saturday, April 02, 2005
Is China's bubble about to burst?
Or, more ominously, is China preparing to rely on its military to mitigate a coming economic disaster? I unfortunatly do not think their recent posturing vis-a-vis Taiwan is any accident. And this post over at Dinocrat.com, which quotes Barton Biggs of Morgan Stanley, does not exactly give me warm and fuzzies about the whole China situation in general. Desparate circumstances often lead to desparate measures:
You never can tell just when a speculative bubble will burst, just that it will. From 44,000 in 1990, the Nikkei fell to less than 8000 a few years ago, and it is less than 12,000 today, still off 70% from its highs of fifteen years ago. Here’s what Biggs said in 2003 about China at an economic symposium (we have no idea whether he still agrees with the statements):
As for the massive investment boom (or should I say “bubble") in China, a bust is bound to come. A country that does not have a free markets capital allocation mechanism is uniquely unqualified to mitigate the excesses of an investment boom. After all, if the West with its sophisticated public markets and information dissemination systems was totally incapable of coping with the technology bubble, what hope is there for China? The greater the bubble, the bigger the bust. In China’s case, the resulting unemployment of perhaps even several hundred million young men and women could destabilize the world. Of course the hope is that there is a central bank chairman hidden away in some musty office in Beijing who has the stature and knowledge of Greenspan and the guts that Greenspan lacked. I don’t see that there is much the G7 central bankers can do. Economists have created the legend that China is the new engine of world growth. I fear it is a myth about to become a nightmare.
Most economic leading indicators look forward about six months into the future. In the case of Japan, Barton Biggs was 3-4 years ahead of the market. We wouldn’t be surprised, therefore, to see a crack-up in China within the next year or two.
If Biggs is right, I would not want to be living in Taipei...or even Tokyo for that matter (especially now that Japan is has all but declared it would defend Taiwan in the event of an invasion). If China were to invade and Japan got involved too, it is doubtful whether the United States would stay out of it. Stay tuned...
You never can tell just when a speculative bubble will burst, just that it will. From 44,000 in 1990, the Nikkei fell to less than 8000 a few years ago, and it is less than 12,000 today, still off 70% from its highs of fifteen years ago. Here’s what Biggs said in 2003 about China at an economic symposium (we have no idea whether he still agrees with the statements):
As for the massive investment boom (or should I say “bubble") in China, a bust is bound to come. A country that does not have a free markets capital allocation mechanism is uniquely unqualified to mitigate the excesses of an investment boom. After all, if the West with its sophisticated public markets and information dissemination systems was totally incapable of coping with the technology bubble, what hope is there for China? The greater the bubble, the bigger the bust. In China’s case, the resulting unemployment of perhaps even several hundred million young men and women could destabilize the world. Of course the hope is that there is a central bank chairman hidden away in some musty office in Beijing who has the stature and knowledge of Greenspan and the guts that Greenspan lacked. I don’t see that there is much the G7 central bankers can do. Economists have created the legend that China is the new engine of world growth. I fear it is a myth about to become a nightmare.
Most economic leading indicators look forward about six months into the future. In the case of Japan, Barton Biggs was 3-4 years ahead of the market. We wouldn’t be surprised, therefore, to see a crack-up in China within the next year or two.
If Biggs is right, I would not want to be living in Taipei...or even Tokyo for that matter (especially now that Japan is has all but declared it would defend Taiwan in the event of an invasion). If China were to invade and Japan got involved too, it is doubtful whether the United States would stay out of it. Stay tuned...
