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    Chasing Chinese Failure

    Chasing Chinese Failure

    China is ascendant so our administration wants us to emulate China’s infrastructure investments and constructions, by building high-speed and light rail projects few will use and which will further drain state budgets.

    It will not last.  China’s ascendancy, that is.  I agree with this analysis by a short seller (someone who makes money when stocks or other assets go down), 5 Reasons China Will Collapse in 2011:

    According to the Chinese zodiac, 2011 will be the “Year of the Rabbit,” which is considered to be a lucky sign. But I think China’s luck is about to run out, and I’m not the only one who sees the writing on the wall.

    Despite what you hear from the China bulls out there — and there are plenty of them — 2011 will not be the “Year of China” for investors … unless they plan on shorting China stocks and ETFs, that is.

    Here are the 5 reasons detailed in the article:  The Great Chinese Credit Bubble; The Great Chinese Labor Force; The Great Chinese Commodity Gobbler; The Great Chinese Currency Reserve; and The Great Chinese Nation-State.

    Note that some of these reasons given for a Chinese economic collapse are the reasons often cited as China’s strengths.

    While I’m not willing to say that 2011 will be the year in which the Chinese bubble bursts, there is no doubt that China is an economic bubble waiting to burst.  And unlike our economy, the state-dominate Chinese economy will have a tougher time recovering.

    If you want to see the Chinese bubble in pictures, check out images of entire cities build by China which sit empty, the so-called Ghost Cities.  You think your local subdivision was unduly speculative, China has replicated the Florida, Arizona and Nevada housing bubbles on an almost unimaginable scale.

    Build it and they will come is the stuff of which bubbles are made.

    Haven’t we seen this picture before?  Europe is collapsing, yet Democrats and the Obama administration want us to emulate West European socialist entitlement policies.

    We created our own bubble with unsound government policies encouraging (and in some cases mandating) cheap credit and unaffordable loans to home purchasers.  Everything stems from those failed policies, and now we want to double-down because the Chinese are on a building binge.

    Fortunately, the incoming Republican House will have a chance to stop the runaway train.  We do not need to chase the coming Chinese failure.  
    Update:  China Lifts Rates Again to Cool Inflation.

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    I'll leave it at this: Japan's development model, characterized by heavy-handed state intervention and overwhelming dependence on exports, is littered with glaring structural deficiencies. Despite these many weaknesses, at its peak, Japan was able to achieve a per capita GDP that was nearly 90% of America's. As I noted, China currently has a GDP per capita under 20% of America's. To me, this suggests that it China still has many growth opportunities available and that it will be able to continue growing for a lengthy period of time EVEN IF ITS ECONOMIC MODEL IS SERIOUSLY FLAWED (an example: The Soviet Union followed essentially Stalinist economic policies, which are anti-market, for over sixty years before suffering a collapse that had at least as much to do with declining world oil prices as it did with its own economic flaws).

    I'm not saying that America should adopt Chinese-style economic policies, I'm not even defending China's model as far as it concerns China. All I'm arguing is that systems (even brutal and inefficient ones) have a great deal of staying power and can continue to follow their own internal logic for many years even if that logic is stupid and nonsensical. China is not going to suffer a catastrophic and wide-ranging systemic collapse in the near future, and anyone that expects that it will suffer such a collapse is engaging in wishful thinking.

    Per capita GDP data taken from:;=l&strail;=false&nselm;=h&met;_y=ny_gnp_pcap_pp_cd&hl;=en&dl;=en#ctype=l&strail;=false&nselm;=h&met;_y=ny_gnp_pcap_pp_cd&scale;_y=lin&ind;_y=false&rdim;=country&idim;=country:JPN:USA&tdim;=true&hl;=en&dl;=en

    1. Mark Adomanis, sorry to have misspelled your name in my previous comment. (After my antivirus software let me get infected, I enable Javascript in my browser on a page-by-page basis. That can be awkward: the submitted version of my comment was not the proofread version.)

    2. In keeping with my reluctance to assign probabilities, I had softened unless either country implodes–more likely the USA, unfortunately–China will be a competitor/rival in the unfolding century to unless either country implodes or stagnates, China will be a competitor/rival in the unfolding century.

    3. MAB&W;, Chanos's track record gives his opinion weight. Don't try this at home is good advice for the individual investor who is bearish on China. Such an investor might consider purchasing short ETFs–with no more money than he can afford to lose.

    4. Bill Jacobson, thanks for the Christmas wishes in another post. Merry Christmas and Happy New Year to you, to Kathleen, and to my fellow readers and commenters.

    All of you "economist" types give me a pain. Never seem to know what you are talking about. Perhaps you should have learned to drive a truck. At least you would be useful to society.

    I might also add that what is bad for China is ultimately good for the free world.


    How many of you have actually visited China?

    How many of you lived there?

    It would be enlightening to find out.

    Personally, I lived in China 2005-6. I saw incredible changes in my short time there. After I repatriated to the US, I have been there 4 more times.

    From what I have seen and experienced, the growth is a double edged sword. The middle class is growing at an alarming clip. When I arrived at the city I lived in, there were few cars; traffic was chaotic. When I left a year later, they actually put up iron fencing along the double yellow line to keep cars in the proper travel lane.

    The growth of the middle class is a hopeful sign. As people become more well off, it will make it more difficult for the CCP to keep their level of control. This will eventually lead to the collapse of the current regime, which is a good thing.

    As for the few of you who stated that there are 1 billion uneducated and uncultured slaves, I suggest you try to rethink your bias. The Chinese civilization has been in existence for over 5000 years. While their culture may be "primitive" to Western standards, it seems to have worked for them. While their education might seem to be lacking by Western standards, almost everyone can read and write – that's how they get past the dialect thing. To say they are uncultured and uneducated is pure ignorance.

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