Monday, July 27, 2009

The Coming China Bubble

You think capitalism causes bubbles? Try five-year-plans. Foreign Policy magazine has an article predicting a bursting bubble, allowed by the CCP's central planning, which has aimed more at heading off disaster tomorrow than encouraging sustainable growth over the long-term. The underlying causes of the expected hard landing are the same as those discussed in Gordon Chang's The Coming Collapse of China, which admittedly has been hard to take seriously for the last few years. Then again, imagine someone had told you in 2005 that the U.S. was about to suffer a historic housing crash and recession that would leave GM government-owned and several major investment banks a historical footnote.

"Mean reversion is a bitch," the article says, but this isn't cause for celebration, because (hundreds of) millions of people in China will suffer, and there will be effects outside China, to put it mildly. If the article-writer is correct - along with Gordon Chang, who wrote the Coming Collapse of China a decade ago - can we stop it now? Probably not. But the lesson here is the more open and the more transparent is the Chinese economy and China in general, then over the long run the better for China, and the better for everyone else. Of course this isn't what the CCP wants because they lose control, and their jobs.

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