China - the next Japan?
 

Remember Japan's bubble of the 80's? Now some people are writing that China is also in that same position, and would burst soon due to some factors.



Still...
FT: China's exuberance undiminished by talk of asset bubble

So,what do you think?

No, no way. Different context, different political and economic systems and histories. Different narratives. China is China and Japan is Japan.

What's the GDP per capita in China? And in Japan? As long as there are many, many poor people in China who are desperate to become a bit richer the economy in China will grow.

hmmm more like China is the equivalent of USA 70 years ago.

I think everyone's missed the point. ShimatheKat is suggesting that China is heading towards a massive economic meltdown like Japan did in the 1990s.

On that tangent, I can't say for sure — one year ago, no one expected the subprime bubble to burst, but it did and in spectacular fashion. Any kind of bubble is primarily sentiment-driven: as long as investors (and speculators) feel comfortable with the risks, the bubble will continue growing. I, for one, am uncomfortable with the lack of transparency in China's monetary policies and I'm not particularly confident about the actual levels of liquidity in the country's banks.

Right now, China has two factors working massively in its favour: 1) It's practically the workshop for the world at the moment, and all those exports in turn lead to; 2) A huge forex reserve, which has grown large enough for Beijing to brazenly suggest dropping the greenback as the world's reserve currency.

These factors may yet cause China to overreach itself, but given how it is emerging from the current downturn relatively unscathed, I'd say that the moment hasn't quite arrived yet, if it at all.

Personally, I wouldn't mind seeing a major correction, if out of nothing other than spite. The Chinese are getting a bit too cocky for their own good.

Japan's is $34,100, China is $5,963.

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My question was a rhetorical one.

A massive economic meltdown followed by a decade of 1-2 percent growth per year. That would be China turning Japan and nothing less. And I simply don't see that happen. Well, it can happen of course that that would require some very stupid political decisions. But it won't be triggered by some bubble bursting and destroying wealth that wasn't there in the first place.

The Great Leap Forward doesn't strike me as a particularly clever decision but, yes, China's current leadership doesn't seem likely to repeat such monumental mistakes.

Nonetheless over-trading remains a concern, which is why Beijing has had to take steps in the past to cool down its growth.

As for whether rampant economic growth is fuelling a bubble (albeit in the coastal regions only), who really knows? At the moment, that growth is almost entirely export driven, so as long as China remains the factory for the world, a sudden meltdown doesn't seem very likely, bubble or no bubble. One would hope that most of that windfall profit is being channelled into productive infrastructure and social development, but the Chinese being Chinese, I wouldn't be entirely surprised if a significant chunk is being spent on property speculation.

Finally, it would be a mistake to think that any collapse would be limited to just the cities. The rest of the country would be hit just as badly, as millions of rural Chinese now flock to the coast to work. Poor as they are, rural Chinese could end up even poorer if China's economy were to suddenly fail.

Is the current expansion of industry and development sustainable? If it is, then maybe China won't have a huge collapse, and they'll adapt naturally as the economic situation changes gradually. If it isn't, then there there will be a meltdown once the business opportunities dry up.

I'm no expert in economics and I'm more than sure that I mixed up a few concepts in my earlier comments, so rather than giving a muddled answer, I'd advise anyone who is interested in the topic to google for published research online.

A simple search under the terms "China growth sustainable?" produced the following links:

• Is China growth real and sustainable? (Justin Yifu Lin, 2004)
• Striving for sustainable growth (China Daily, 2004)
• Is China's economic growth sustainable? (Ali Wyne, 2007)

Meanwhile, I observe that naysayers have been talking about China's imminent collapse since 2004, if not earlier. Others have also said that China would go into a tailspin after the Beijing Olympics. Now, it seems fashionable to wonder what China is really up to in its push to dethrone the US dollar as the world's reserve currency.

Economics is a dismal science and you'd probably get a different answer from every economist you ask, let alone what you can find in mainstream press. :heh:

That's exactly my worry. Will the US, UK and UAE spend like before? It remains to be seen as the last time something like this happened, it was followed closely by WWII, which gave the US economy a boost via the war industry, and US was least hit. With DPRK around, I can't say for sure. Remember, we aren't out of the Cold War yet, just the beginning of the end. The Korean war is still on, and so is ROC VS PRC.

For anyone who study control theory, critical damp system will always overshoot and settle down.

This is also true for economies. Individual economy fell behind global norm for varies reasons. Once those reasons are gone, it will catch up back to global norm, then overshoot and settle down.

So, China will follow the same pattern too. It is everyone's guess when it will overshoot, but investors will push it to overshoot.

And I'm guessing that in your opinion the USA is the best country ever. :eyebrow:

Don't think this is too accurate. I've lived in Beijing for the past two years and China has already experienced a huge deflation in the stock market for this current global crisis. The Shanghai stock market has lost about 72% of its value -- and my uncle who invested hundreds of thousands in it was also burned badly.

Just in terms of the volatile stock market, which partially fueled Japan's rise and fall in the 80s, China has already gone through that.

Also, domestic growth will continue as millions of farmers migrate to cities and the lower class get pushed up into the middle class and start buying urban products. PURELY just the amount of new "online citizens" (people using the Internet in China) each year is astonishing, so its growth is definitely not just hot air.

The short answer: No, the same won't happen in China. The bust of real estate bubble in Japan was the trigger for the problems of the nineties, not the cause.

Deflation and a liquidity trap were responsible the slow growth of the nineties in Japan. Underlying causes were insolvent corporations and banks and ineffective monetary policy. The details and economic theory involved are quite complex, but even checking wiki would give a global idea of what went on.

Bubbles are part of the boom-bust cycle and most economies will face them from time to time without affecting long term growth. China is no exception.

D: I would rather be in the US than in China.. but only cause of political standings etc.
US is a little better but I don't think the poster meant that the USA is the way to go~
both countries are seriously not the best int eh world, we all know that lol

Also if this is about China heading down the economical breakdown path, haven't most other countries done the same in the past few years
there's a global economic crisis, of course China will be affected that is obvious

No, he's not talking about China being backwards. He meant that China's current public sentiment towards the economy is like that of Americans in the 1930s. I'm having trouble equating this, and I think it resembles more with the 1950s.

I'm no economics buff, so I can't offer much.

And, I think he misunderstood me. I never really brought US into the equation, save for it being where China's money and demand comes from.

How likely is this going to happen? Very likely, I'd say.

The property prices in China are rising without end, and this causes the contractors to continually look for ways to save. Guess what they do, they reduce the safety. And thus, a condo collapsed in Shanghai, simply because it didn't have a deep foundation. Quite scandalous. I read somewhere that the safest bridges in China are those built pre-'49. The worst? Those which came up after '00. So what does this tell you? Corruption. And this will eventually hurt the market so bad, it'd burst.

After all, you never know until it's too late. :heh:

I doubt China will be the next Japan, not anytime soon. There's plenty of areas for China to grow yet. Some areas will definitely overheat and burst but China will remain the giant factory of the world for a long while still as long as there's plenty of cheap labour to be had.