Monday, January 9, 2012

The Coming Chinese Slump

Robert Samuelson has an excellent column in this morning's Washington Post describing mounting fears of a "China Bubble".  Here's the nature of the problem:

How all this affects China’s growth is controversial. “Most likely, China will have a soft landing,” says Justin Yifu Lin, the World Bank’s chief economist. “Growth goes to 8 percent or 8.5 percent.” That’s down from about 9 percent in 2011. Government debt is still low enough to permit ample stimulus, Lin thinks. Many forecasts agree.  But skepticism is mounting. The Japanese securities firm Nomura sees a one-in-three possibility of a “hard landing” — a drop in growth to 5 percent or less. To Americans, now experiencing annual economic growth around 2 percent, this may seem fabulous. But for China’s modernizing economy and huge labor force, a 5 percent growth rate would raise unemployment and social discontent. The adverse GDP swing would roughly equal the U.S. decline in the 2007-09 recession.

Read that again--China could have a 5% growth rate and STILL experience an economic swing reminiscent of our recent swoon. Folks, China is building pyramids, spending money on roads to nowhere and office buildings that are largely empty--in order to produce 9-10% growth a year.  After all, when you need to create as many jobs each year as the Chinese Communist Party does, the music can never stop.

You want to talk about a threat to our national security?  China's economy sinking fast qualifies.  There should be an NSC Study group meeting regularly--bringing together State, Commerce, Treasury and Defense--devoted to thinking through what happens when the China bubble bursts.  It could get ugly, fast.

1 comment:

"The Hammer" said...

The Chinese model is unsustainable. In command economies you can get phenomenal growth rates initially but it's short lived, the incentives just aren't there.

How long it will take I haven't a clue, but China will crash and burn and I just hope all those Western companies who, out of pure greed, went in there transferring all our technology and know how, I just hope they go down too.

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