The Great Chinese Depression?

It won't be long now. The signs have all come together. So many people have written about them and warned us that it seems punishment to reiterate them here.

For those of us who have seen the Chinese bubble form, we know that the truth cannot be avoided. Multiples of 70 times earnings for regional corporations without world class infrastructure or accounting are simply unsustainable at this point. For those caught up in the mania; the pain will be swift and overwhelming as the Shanghai and Shenzhen exchanges plummet at record pace due to heavy, unregulated leverage and naive first time investor hope.

Indeed, the pain won't be just for the common man. Chinese corporations too will feel the pinch as so many of them have invested so heavily to boost their own profits with equity market gains. Beyond the crash, a deeper question lingers: will this lead to a deep Chinese economic depression? History says 'yes'.

Every super bubble (1929, Tech Wreck, Japan 1988) has led to prolonged periods of economic malaise in which respective governments have gone to exceptional lengths to pull the country back from ruin. Like an unwritten law, it seems newly developing countries must go through this excited frenzy, depress and then slowly, steadily come back.

China's luckier than the West; we'll be here to help them when they fall. The U.S., Great Britain, Germany, France, etc had to suffer through depression and failed policies to reinvigorate their economies and eventually a world war.

In the long run China's prospects are fantastic, but the spiked bubbly they are currently consuming is nearing its end.

Comments

[Stoner:]

any detailed argument?

2007 Oct 30 11:17 AM

[Silly Wabbit:]

The US bailing out China??? I don't think so! China has 1.4 TRILLION of our treasuries.

The US didn't bail out Japan in the 1990s either.

Do you have any supporting statements to your wishful thinking?

2007 Oct 30 03:22 PM

[A-Laughing-Guy:]

The article makes me laugh. How ignorant but arrogant the author is. After wittnessing what IMF did with Asian countries during the 1998 financial crisis, and what Harvard economists did for Russian with shocking theropy, Chinese learned a lot of the “good intentions” of the Western countries. “China's luckier than the West; we'll be here to help them when they fall.” Will it happen? It is a dream that will never come true. The Western financial firms “helped” the Korea people through purchasing their assets at bargain prices in Korea during the 1998 crisis. When the Russian economy was falling and asking the help from the US, did they get money? Chinese government is doing right thing by restricting the “investments” from the people like.

2007 Oct 30 03:43 PM

[ehp246:]

Ditto.

This statement, "China's luckier than the West; we'll be here to help them when they fall.", just gives me chills in my spine.

Chinese will be lucky enough if they are just left alone. Thank you very much.

2007 Oct 31 08:53 AM

[izomax:]

I'd like to have some of the "good stuff" that the author is having.

2007 Oct 30 05:02 PM

[Let:]

I have been hearing and reading this sort of statements for quite a long time now, and in the meantime China's economy has just been getting stronger and smarter. But If China were to go into a depression, we would certainly not be in the position to "help them",
on the contrary...

2007 Oct 30 11:49 PM

[funny post:]

Given the unprecedented economic growth in the past decade, it's actually hard to imagine that the Chinese stocks are not as hot as they are right now. Chinese economy is basically sound, and still growing. Granted that there might be market corrections of some form, I highly doubt that it will impact the economy in a major way, as Chinese economy is not heavily dependent on the financial market.

2007 Oct 31 12:04 AM

[funny post:]

Given the unprecedented economic growth in the past decade, it's actually hard to imagine that the Chinese stocks are not as hot as they are right now. Chinese economy is basically sound, and still growing. Granted that there might be market corrections of some form, I highly doubt that it will impact the economy in a major way, as Chinese economy is not heavily dependent on the financial market.

2007 Oct 31 12:04 AM

[rlirph:]

It is amazing to read some many non-Chinese writing about the Chinese stock market even though many of them have never been here. One cannot become an expert by looking at data and charts and uses his own parametrics to decide what would happen.

First I am a US citizen. I am an American first even though I have been living in China for the past nine months. I am flabbergasted at
the way the economy is expanding. It will expand even more when the typical Chinese family loosen up their purse (typical savings rate is 40% of GDP). Most Chinese do not like to borrow. Wait until the concept of "Buy now & pay later" becomes acceptable then one would see the demand of consumer goods explodes.

Most of the economic growth comes from the US because of the huge trade imbalance. But who is at fault? We the Americans are like spoiled children who continue to buy even though we cannot afford them.

As long as the US continues to buy from China the trade surplus will continue. In other words China becomes a US servant by printing more money when the manufacturing order turns into Chinese currency. That is why the whole bank system is awashed in liquidity.

Do you think the Americans will become patriotic and pay higher prices for similar products? We do not like Chinese imports because of the safety concerns but most of us will continue to buy.

In other words this stock market bubble will continue until US slides into a deep recession which is not likely because Uncle Bern will not allow it. The Feds will cut interest rate all the way to zero to save the economy. This may mean the US dollars will go down further and creates a larger deficit in US dollar term.

For this reason it seems to me that the China market have a long way to go. I would say the bull market will end when the trade balance is reduced to a much more manageable level, like about
US$100 billion a year.

2007 Oct 31 02:24 AM

[User 81699:]

Scary. I see the China market somewhat like the parlour game "musical chairs." This article indicates something a little more horrendous.

2007 Oct 31 09:59 PM