Sep 10, 2009

The Chinese Bubble

Don't forget China is ranked No.72 in the (CPI) Corruption Perception Index with a score of 3.6 over 10 by Transparency International and is below countries like Ghana and Columbia and share the same ranking with countries like Swaziland and Trinad and Tobago. CPI HERE.

Transparency is low in China and corporate governance is not a subject with Chinese companies, figures being churned out should be taken with a pinch of salt.
And to quote from Michael Pettis, a professor at Peking University’s Guanghua School of Management said "Forget about fundamentals, China lacks the necessary tools that fundamental investors use (e.g. good macro data, good financial statements, a clear corporate governance framework, a stable regulatory environment, a market discount rate) and so no matter what people say, there are no fundamental investing here. There is only speculation, and the two things above all that drive the markets are those old speculator favorites, changes in underlying liquidity and government signaling."

Yes, China has seen tremendous economic growth in the past 2 to 3 decade from manufacturing activity due to its lower cost of operation from cheap labor resulting in it becoming the "factory of the world" generating massive export growth. Together with China's massive infrastructure built up has seen growth rising at double digits in that period.

The recent economic crisis has seen exports plunges and China chose to alleviate the economic slowdown through a high lending policy by injecting massive liquidity into the local market fueling a massive bubble with escalating real estate prices and a speculative stock market.

With the global outlook not looking comfortable, China can't continue with this lending policy and will need to keep its reserve to counter further global downturn. I suspect that the non performing loans are piling up as cash gets locked up in stocks and real estate.

Andy Xie, the former Morgan Stanley chief Asian economist has called China a Giant Ponzi scheme, watch Andy's interview with Bloomberg HERE.

Read Premier Wen on Economy Rebound Unstable HERE (Latest news)
Read Zhu Min from Bank of China "Bubble Everwhere" HERE (latest news-few minutes ago)

China, China, Burning Bright,
Bubble, Bubble, Day and Night,
When Will Bubble Pop?
And Will China Rock?


Anonymous said...

With a huge population of 1.3 billion people, the domestic demand of China can sustain her economic growth even if US and Europe are still in bad shape economically, so don't worry.

Unknown said...

Hi Anon,
China is far from being a develop nation yet and not a market economy, has too much state involvement in the economy. Majority of China still lives in poverty. Consider the population earnings below; Approx:
60 million earns above 20k per year.
160 million earns 2k to 20k pa.
400 million earns 1k to 2k pa.
700 million less than 1k a year.
China needs economic and political reform to further their quest to becoming an advance nation. At present it is not sustainable and a fools gold.

Unknown said...

*Household earnings per annum.

Donplaypuks® said...


Are your figures for per capita income in US$, Renmimbi or RM?

I agree that China's statistics are dubious and when taken as a whole, the data is disturbing.

The problem here is that they, including India, keep following the Western economic models of gambling on the stock market and engaging in currency and real estate speculating ponzi schemes.

The resulting damage if the bubbles in India and China burst will sink even the USA!!

They should embrace old fashioned virtues like working hard, investing only a % of savings in blue chips for the long term and not simply print money.

We are all of 1 race, the Human Race

Unknown said...

Yo donplaypuks,
yes it is in USD.
The fundamentals are not in place and one big casino now. When the bubble pop remember to duck.. and wonder how it will impact Malaysia?