China's communist government owns a large part of the money-creation and money-spending apparatus. Money supply therefore shot up 28.5 percent in June. Since it controls the banks, it can force them to lend, which it has also done.
Finally, China can force government-owned corporate entities to borrow and spend, and spend quickly itself. This isn't some slow-moving, touchy-feely democracy. If the Chinese government decides to build a highway, it simply draws a straight line on the map…
…But don't confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing — and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.
This growth will result in a huge pile of bad debt — as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much.
The link is here. The claim is that the entire Chinese economy is a huge bubble waiting to burst, but in the meantime it is being sustained by government monetary and fiscal policy, plus it is being lending to its major customer (never a good long-run strategy), namely the United States. These charges were written by Vitaliy Katsenels.
I thank Laeeth Isharc for the pointer.
Is there a link to the original?
The original, at Vitaliy Katsenelson’s website:
http://contrarianedge.com/2009/07/25/the-china-bubbles-coming-but-not-the-one-you-think/
@Jonathan – Thanks for clearing that up for me!
Here’s my slightly modified operational definition of a bubble:
If we’re anticipating a bubble, we would first look for an indication of rising asset values that are decoupled from the growth rate of the income that might be realized from holding them, which is the precondition for a bubble. Are the examples Katsenels cites sufficient to meet that precondition?
“So the 7/15/09 “silly China prediction of the day” didn’t happen in the given time frame?
http://www.marginalrevolution.com/marginalrevolution/2009/07/assorted-links-9.html”
Good one.
Point of info. Vitaly is a pro. As such, he doesn’t really care if he proves it to you.
2008 – U.S. China trade deficit $268 billion. June 2008 – June 2009 increase in China’s holdings of Treasury notes – $265 billion.
anony,
A bubble is about prices being too high. I do not see ongoing social or environmental
conflicts or problems as being quite the same thing. Was the French Revolution the
“explosion of a bubble”? Well, degradation of French public finances was a minor
factor, but using the term in that one pretty much robs it of any meaning.
they can impact value.
Apologies for being off message, but I have found it curious that there has been no discussion of the recent release of the World Banks 2008 PPP GDP data. Makes George Bush look too good?
Barkley, people dismiss the idea that currency manipulation causes systemic risk, then they pee their panties when the d(eflation) word is whispered. Is it only government jerking around the money supply that doesn’t fool people?
“After 14 years working in Russia I find that considerably less than 1% of anything published in Western media is even slightly accurate about Russia. As historical ties and relations with Russia have been considerably closer and more extensive than with China, I assume that articles on China contain no useful information at all.”
widmerpool, I want to second you on this. After nearly 17 years working in the US, I find that many reports in the US mass media about China are neither accurate nor fact based. I had some discussion with my American friends here. One problem one can argue, of course, is that there is not a lot of visibility in Chinese system. That said, there isn’t enough due diligence on the Western journalists’ part trying to get to the bottom of facts in my humble view. Too much sensational journalism feeds into the popular view among public so it can sell. News reporting becomes a popularity contest in this country.
I would go on to say more than 90% reports on China is trash, which is not only useless but also harmful, because most of people in this country don’t have a correct view on China. No wonder English professor is confused. I can’t blame Englist Prof. but the news organization.
Interesting to read the comments, perhaps if we knew who owned what and how much it is worth we possible could assess the value of what is being, or not being said. In other words who is pulling the strings, and why? Answer that one, along with why we have who we have in the White House and questions will no longer lack answers. Bubbles…?
Sean, I am neutral on CSM and FT, very negative on Econ. It is probably the least reliable source on China. I used to be a subscriber so I know the mag well. Its view on China is very biased and the mag has reduced to a piece of “expensive toilet paper” (quoting from my friend from UK). I regularly read news from both English and Chinese channels and even that I have to be very critical. (it is probably too much to ask you to read Chinese.
But at least, they give me the views on both sides and with some help from my friends and family members still in China, I think I can get a fairly balanced view on the subject than most of pepole here.
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