People rarely think about the crashes China had in the last 5 decades - the great leap forward movement, the culture revolution, the massive layoff in the mid to late 90s that saw tens of millions out of their jobs. Suddenly the exact same system/government that caused all those crashes are now ready to deflate the current bubble in an orderly fashion?
How all these happened in the first place? Because the central government had the full power to control the entire economy!
In a smaller scale, how about the recent stock market crash? Media stopped talking about it as it is no longer that newsworthy, but how about those 100 million investors who actually invested their life savings into that stock market? Have you ever calculated their annual returns in the last say 15 years? Did that bubble got deflated in an orderly manner?
Repeatedly, history has shown again and again that hard working smart Chinese people are paying heavy prices to overcome the burdens brought to them by those highly inefficient Chinese central governments, this never changed since the Han Dynasty, it is never about the government/system, the biggest difference is the people.
In case you have no idea of the definition of the current bubble, let me give you one - I live in Shanghai, there are millions of those ugly apartments built before the 90s which were basically handed over to local residents for free, the vast majority of them are located in average or above average areas. Thanks to a "booming" market, nowadays you need to pay $1m to get one of those 70 sqm ones. Did the CCP give every household $1m? No, they give you a bubble and you are paying for it. Oh, btw, Beijing is 20% more expensive than that even when the living conditions there are worse for obvious reasons.
One big difference now is the scale of this potential crisis is massive. A lot more is at stake here and the state is highly motivated to keep things as stable as possible.
Despite the inefficacy of the Chinese government, and I do entirely agree with you that they are continually on fragile ground as the tentacles of the government continually wrap around every aspect of the economy, they still have beat many peoples projections that they'd have a big recession/debt crisis by now.
Bingo. There is no historical law which states that more control enables more stability. Overly-controlling situations can just as easily cause more harm than good. China saw that play out repeatedly under Mao, while at the same time America's many attempts to control the Vietnam War ended in abject failure.
I think the real danger, however, is not what the CCP controls, but rather the peripheries that it cannot control, such as shadow banking and capital outflows (think the newly middle/upper-middle class Chinese family parking assets in overseas real estate; China's government cannot exert eminent domain in Vancouver or Miami).
This is from South China Morning Post, a paper that has now significantly shifted its viewpoint to align with the Chinese government, after Alibaba's founder purchased it.
Also, China's debt is huge, it's 300% gdp (bigger than US in 2008), and that's not accounting the shadow banking that would need to be unwound. Couple that the demographics crisis, fleeing foreign money/factories, middle income trap, lack of innovations, authoritarian government controls, capital outflow crisis, and one can see that there's no way this bubble will be unwound "orderly".
SCMP seems to be a little more independent than say the Renmin Ribao, but skepticism is warranted.
I would add to your list that Chinese capital has been completely misallocated. Roads and bridges to nowhere, ghost cities. They've poured more concrete in the last 5 or so years than the US did in the first 100 years of its history [1] to give you a sense of the scale. There are cities that are unoccupied - entire cities. I'm still unclear on how these were financed, but my guess is with liberalization of the financial sector these were packaged up somehow and sold to Ma and Pa. It's going to end like it always does, with lots of tears (except for those like Kyle Bass who have positioned themselves to profit).
I'm pretty sure history doesn't not count orderly bubble deflations. It's like recording non-car accidents. I'm not suggesting this article is likely true, I'm just skeptical that there has never been an orderly bubble deflation.
With the kind of control Chinese government has on everything in its economy l they probably are the one country that could deflate in a controlled manner compared to the rest of the world. Instead of a trillion dollar collapse in 2-3 weeks. They can probably control smaller shocks of few hundred billion over 1-2 years.
Something to note: the article features a link to the author's previous piece, titled "China's credit excess is unlike anything the world has ever seen."
So are we honestly meant to believe that the biggest credit expansion ever can be whisked away by the first ever orderly bubble deflation?
[+] [-] dis-sys|9 years ago|reply
How all these happened in the first place? Because the central government had the full power to control the entire economy!
In a smaller scale, how about the recent stock market crash? Media stopped talking about it as it is no longer that newsworthy, but how about those 100 million investors who actually invested their life savings into that stock market? Have you ever calculated their annual returns in the last say 15 years? Did that bubble got deflated in an orderly manner?
Repeatedly, history has shown again and again that hard working smart Chinese people are paying heavy prices to overcome the burdens brought to them by those highly inefficient Chinese central governments, this never changed since the Han Dynasty, it is never about the government/system, the biggest difference is the people.
In case you have no idea of the definition of the current bubble, let me give you one - I live in Shanghai, there are millions of those ugly apartments built before the 90s which were basically handed over to local residents for free, the vast majority of them are located in average or above average areas. Thanks to a "booming" market, nowadays you need to pay $1m to get one of those 70 sqm ones. Did the CCP give every household $1m? No, they give you a bubble and you are paying for it. Oh, btw, Beijing is 20% more expensive than that even when the living conditions there are worse for obvious reasons.
[+] [-] dmix|9 years ago|reply
Despite the inefficacy of the Chinese government, and I do entirely agree with you that they are continually on fragile ground as the tentacles of the government continually wrap around every aspect of the economy, they still have beat many peoples projections that they'd have a big recession/debt crisis by now.
[+] [-] rm_-rf_slash|9 years ago|reply
I think the real danger, however, is not what the CCP controls, but rather the peripheries that it cannot control, such as shadow banking and capital outflows (think the newly middle/upper-middle class Chinese family parking assets in overseas real estate; China's government cannot exert eminent domain in Vancouver or Miami).
[+] [-] throwaway04444|9 years ago|reply
Also, China's debt is huge, it's 300% gdp (bigger than US in 2008), and that's not accounting the shadow banking that would need to be unwound. Couple that the demographics crisis, fleeing foreign money/factories, middle income trap, lack of innovations, authoritarian government controls, capital outflow crisis, and one can see that there's no way this bubble will be unwound "orderly".
[+] [-] 1001101|9 years ago|reply
I would add to your list that Chinese capital has been completely misallocated. Roads and bridges to nowhere, ghost cities. They've poured more concrete in the last 5 or so years than the US did in the first 100 years of its history [1] to give you a sense of the scale. There are cities that are unoccupied - entire cities. I'm still unclear on how these were financed, but my guess is with liberalization of the financial sector these were packaged up somehow and sold to Ma and Pa. It's going to end like it always does, with lots of tears (except for those like Kyle Bass who have positioned themselves to profit).
[1] https://www.washingtonpost.com/news/wonk/wp/2015/03/24/how-c...
More on ghost cities: https://www.wired.com/2016/02/kai-caemmerer-unborn-cities/ http://www.businessinsider.com/china-ghost-cities-satellite-...
[+] [-] frgtpsswrdlame|9 years ago|reply
[+] [-] fnazeeri|9 years ago|reply
[+] [-] xbmcuser|9 years ago|reply
[+] [-] apo|9 years ago|reply
[+] [-] rm_-rf_slash|9 years ago|reply
So are we honestly meant to believe that the biggest credit expansion ever can be whisked away by the first ever orderly bubble deflation?
[+] [-] jcriddle4|9 years ago|reply
[+] [-] faragon|9 years ago|reply