Popping the China Bubble

October 23, 2009

Good sense from Michael Auslin in The American:

Just like today with China, pundits, investors, and the media largely proclaimed that the Japanese party would go on forever. Today, the sophisticated management of the Chinese government is offered as proof that China will always experience growth (or if contraction, a soft landing). Back in the 1980s, Japanese companies were assumed to have discovered the secret to hyper-efficient production and thus endless profits, while the country’s bureaucrats were lauded as perfect macro-planners. Inefficiencies, protected industries, poor management, and a sclerotic bureaucracy were all ignored by those who wanted to believe the hype. Yet such weaknesses were exacerbated by a culture of excess that destroyed consumer reality. Once it took root in Japan, expectations changed permanently and traditional restraint was abandoned. The savings rate dropped, and people paid exorbitant amounts for new houses and cars. I remember watching as whole parties in Tokyo restaurants walked away from tables full of food that was ordered and then left to be thrown away. The economics fed and then followed the social disease. Eventually, the asset bubble burst and the whole edifice came crashing down.


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Something to note about the ‘Chinese Miracle’ of their resurgence since the crisis took form: America’s bailout price tag officially was $787B over two years; China’s was $585B in 8 months. Now one might say, ‘well shoot, their economy is doing so much better with so much less gov’t intervention.’ Of course, one doesn’t realize their economy is actually about 1/8 the size of America’s. So multiply their $585B by 8 to see what they’re really spending compared to America. That’s why they are booming, and that’s why their currently inflating bubble is going to burst like fireworks on the 4th of July sooner rather than later.

Face it, if American people cut consumer spending by 5% (which is probably the low end with 10% the high end) and 50% of China’s export market is America, that represents 2.5%-5% shave on their GDP, straight up. I don’t care how many treasuries they hold or how much the Chinese have saved, they can’t fill that void. So if they want to play pretend and keep posting 8-10% GDP growth something’s gotta give.

China is being hailed as a saviour, but they shouldn’t. They are at best a future competitor or at worst another also-ran about to move into flat-line growth for 20 years. The moral of the story: there is no saviour, and the concept of passing debts and so forth to future generations… well the future is today!

It’s not the end of the world, it’s just that standard of living won’t rise for a long time and unemployment will stay high. Not sure if America can stomach these concepts as your communist (ie Europe and Canada) allies have many years ago, but you’d better get used to it fast or the 2nd amendment will make life interesting.

The other scary thought is that certainly America is a dying empire… and the mark of the dying empire is imposing (or trying to) will by force of arms. If America moves on Iran we should all know it’s the death of American supremacy. I think we end up like the turn of the the 20C, with several powers all vying to be the next dominant power… and we all now what that led to.

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Thanks for the link, James! I totally agree with Michael, China will come crashing down one day in the near future.

Posted by Gordon | Report as abusive

Funny how when the Japanese are observed to be wasteful it gets some ink. Here in the states, we’ve been disgracefully wasteful for decades and every system in place encourages it. Never mind those old folk who actually remember the rationing of the 40s and the hunger of the depression. Those are the true conservatives,,not those money mad asses who claim the label these days.

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