Thursday, 20 January 2011

Independent: Great Stall of China

Sean O'Grady in The Independent's Econoblog offers a more sober assessment of China's future as an (economic) superpower:
One has to acknowledge that journalists love puns, even bending stories, to fit a headline. So I’m a bit cautious about chucking the phrase “Great Stall of China” into public discourse, but it seems appropriate, in the circumstances.

Sino-sceptics, like me, have long worried wondered whether the hype about China taking over the world was really that well based, given all the distortions in her economy. It’s quite reminiscent of the alarmist, overblown stuff being written about Japan in the mid 1980s, before she succumbed to a 20 year slump. The latest Chinese data support that sort of scepticism.

Specifcially, if you think Britain has a problem with inflation take a little look at China where shop-price inflation has just eased back but will accelerate again soon to 6% or more,  and, more worrying still “asset price inflation” – house  prices really and shares to an extent – have been in a bubble for many months now. It is only matter of time before the Chinese real estate bubble bursts, and loud popping noise form the east seems more likely than not in 2011. That is a grim prospect.

The consequences are unknowable but might include; a mass sell off of dollar assets, causing chaos sin currency markets as the Chinese repatriate their assets; alternatively a renewed effort to return to export lead growth which would mean flooding markets with  more Chinese Yuan, equally destabilising and another ratchet up in the US-China currency war; big losses for Chinese banks, and thus the state that owns them, who lent into the real estate boom; losses for western investors in emerging market funds and companies directly involved in the Chinese economy; general collapse in global investor confidence and “risk appetite” ; slower exports form the west to China, damaging our recovery.

The point is that we can see this crisis coming; we can’t do anything to stop it, but what precautions are the UK authorities taking for the inevitable Great Stall of China?

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