Bo Peng

Why I'm Worried About China

I'm not worried about China. I mean, things are not pretty there for sure, but not even close to "crisis".

1. Their banks do have some shaky assets which will get worse as the economy slows, but look like angels compared to those in the developed world. There's no chain reaction mechanism tying the real economy to the banks. It's to a large degree an isolated problem, and a much smaller problem. Nothing the government/GDP can't handle.

2. There's a housing bubble there in the process of busting. But it's nothing like the ones here and in Europe. There's no subprime or Alt-A. Some here have compared the housing price to income ratio in US vs China. Those people obviously know little how the newly emerging home-owner class in China live, their day-to-day cost structure, and where their real income come from.

3. The oversized package doesn't mean, as you feared, that everything stopped cold. It's not. It's the Chinese government's way of showing their resolve and capacity in avoiding China becoming a victim of contagion. The message is this: if the world stops consuming, then we'll create some consumption to get through the worst time. Many governments would like to send similar messages, unfortunately not many have the same back-up, therefore carry similar credibility.