The Chinese are about to chrash & burn just like the Japanese did - and at
about the same time too, namely when everybody and dog are touting the
pending Chineese takeover of the world economy.
They have the Japanese experience to learn from. And they were smart
enough not to go for political reform without economic reform (and
thus entirely avoided the colossal Russian disaster). And conditions
are radically different from Japan of the 70s. For one thing, they
have enormous political clout, essentially for free, on account of the
way they are doing business.
It may indeed crash and burn, but I doubt it will be for anything like
the same reasons. One possibility is that there's not enough resources
and market in the world for all the stuff they can manufacture,
regardless of the price. They have to absorb scores of millions of
workers from the agricultural sector into more urban settings. So,
social unrest is a possibility if market forces can't supply the jobs.
Another possibility is economic collapse and rampant grassroots driven
protectionism in the West, with the same result. Protectionism won't
be initiated by the elite class, because too many people, and too many
important people as well, are making too much money off of cheap
Chinese labor, and, increasingly, by selling things there. But anyone
who owns stocks probably is affected-- allegedly that is a sizable
fraction of the US population (CNBC calls it the 'investor class').
... problem is, the whole Chinese show, impressive as it is, runs on
borrowed money and non-performing loans; after all, if there was real growth
in the Chinese economy they would not be so keen on buying up USD. They
would invest at home instead.
They are not buying USD or Euros. They are trying to get rid of them
into more stable and useful instruments (for example, by buying IBM's
laptop division or Maytag, as well as lots of BIG resource companies
in Australia, Canada and so on). China is the biggest destination for
investment funds in the world. The domestic market and growth figures
are quite impressive, although not yet nearly on a par with their
biggest customers - the EU, the US and Japan (in that order), it's
growing by 9.5%/year average over the last 25 years and the middle
class grows by the population of Hungary every year.
It will be fun to watch - maybe one should place a few bets with LEAP PUTS
on NASDAQ for good measure. The USD and then the Market will not like very
much that the Chinese stops buying it and pull the money back out to bail
out things at home.
Well, don't hold your breath. It's in nobody's interest to leave the
game. Nobody who matters anyhow. If bad things happen, I would expect
people to work together to prop things back up again.
I've been to two China conferences in the last month or so. There are
many interesting things afoot-- most of them positive for the world.
