Several bloggers I respect have remarked upon Richard Florida's April 7th article for Financial Times: "Do not get impaled on the spikes of China's success". Florida is Hirst Professor of Public Policy at George Mason University (NCAA "Final Four" in basketball) in Fairfax Virginia.
Florida talks about the amazing uneveness of China's economic success. How localized it is to a few provinces, how shallow it is in terms of who participates, how thin their educated class really is, and how over-stretched it is in providing for its own citizens. The irony of this shallowness occurring in one of the few remaining communist countries needn't be overdone. Nor should the irony be missed that a lot of foreign capital has been thrown into the world's largest (potential) market willy nilly, as if capitalism and profit potential didn't matter.
It will be easy for me NOT to pontificate since I have never been to China, except for Hong Kong, and I am rather weak in Chinese history in recent times. But from a market and geo-political perspective, which I do know, it has seemed to me for a while that China is at greater risk for a major market/economic crash than any other active economy.
Except for the densely talented regions detailed by Florida, China is still run by the Communist Party and Red Army. This is where most of the bad debts are and the corrupt management. Granted that the modern boomer/booster economy will have much unexposed corruption, but the other part will have to be far, far worse. Imagine New York's Eliot Spitzer on the loose in China exposing the weakness, venality and corruption! Oh my!
The defining moment for China is the 2008 Olympics in Beijing. Property speculators and other boosters are, of course, counting on the Olympics to sell into, but for the Chinese government it is the keys to the kingdom. Everything is being propped up, deferred, suppressed, and polished up to make a statement: WE ARE THE WORLD. It's even more a turning point than the US presidential cycle. And it may turn out to be, as my European history university professor used to say about 1848 Europe: "it was the turning point of history upon which history failed to turn".
China's modern success really only began in the wake of the 1997 deflationary crash in Asia, and that crash set the tone for events leading to the bubble burst and decline to 2002-2003. If you've read my Kondratieff work you'll know that we are not going back into the Asian deflation and Western near deflation of the late 90's and early 2000's. But major crashes and economic pullbacks do indeed occur during inflations as they do during disinflations.
China is now overdone in many ways, and it is questionable whether they can navigate their way to the eternal Goldilocks economy with their untested greater leadership riding a tide not created by themselves. It used to be said that when the US caught cold, the world got pneumonia. Currently we might say, not entirely metaphorically, that if China gets a bad cold the world will get a bird flu pandemic.
I have no intent to make a prediction, but in my opinion the Achilles heel of the world economy right now is China. Some of the fault lines--banks, intellectual property piracy, contract disputes, material support of islamist (and other) bad boys, undermining of US energy sources--are well known, but many others are not. And therein lies the problem. In addition, those with real and valid axes to grind know about the Olympics.
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