ussmex

China: Exactly Where Japan Was in the 1980s?

I think Vitaly's most basic point is that China is being over-hyped in the face of unsound fundamentals. Having only spent a short amount of time in the country I have no in-the-trenches perspective upon which to draw, but my gut-feeling tells me he's right. I believe it's reasonable to assume that they will realize their eventual potential more quickly than, say, the United States of 1910 because of tech advantages such as cell phones.

But I believe much of China's recent advance will turn out to be a mirage and that they're well on their way to another bursting bubble. Simply put, their central command has not and does not allocate resources efficiently. It spent the last decade or longer positioning the economy to cash in on a rate of Western consumption that is not ultimately sustainable. In its rush to paper over that problem it is, without a doubt, funding important infrastructure projects, but at the same time it's funding speculation, creating a lending environment that encourages "entrepreneurs" to continue to throw crap against the wall (much like our dot com phase), and, most disturblingly, spending billions to entrench the most technologically advanced spy state the world has ever known.

As they've forced the development of an export-based economy how many world-class companies have they they forged that can thrive during an economic downturn? Enough to overcome the billions wasted on coddling the cronies at state-run enterprises, or on fly-by-nights in the export economy that can't pay back their loans?

I'm in Vitaly's camp in this one. China is not immune to the boom/bust cycles related to the misallocation of resources. It's in their future to make great strides, but as people pop the celebratory champagne bottles over their arrival be on the lookout for bubbles.