Monday, December 19, 2011

Krugman on 2012 — Will China Break?

Now the bubble is visibly bursting. How much damage will it do to the Chinese economy — and the world?
Some commentators say not to worry, that China has strong, smart leaders who will do whatever is necessary to cope with a downturn. Implied though not often stated is the thought that China can do what it takes because it doesn’t have to worry about democratic niceties.
To me, however, these sound like famous last words. After all, I remember very well getting similar assurances about Japan in the 1980s, where the brilliant bureaucrats at the Ministry of Finance supposedly had everything under control. And later, there were assurances that America would never, ever, repeat the mistakes that led to Japan’s lost decade — when we are, in reality, doing even worse than Japan did.
Read it at The New York Times
Will China Break?
by Paul Krugman

Could Krugman be right that we've seen this before?
I hope that I’m being needlessly alarmist here. But it’s impossible not to be worried: China’s story just sounds too much like the crack-ups we’ve already seen elsewhere. And a world economy already suffering from the mess in Europe really, really doesn’t need a new epicenter of crisis.
See also Michael Pettis on capital misallocation in China (Dec. 3) if you missed it.

Read it at China Financial Markets
How do we know that China is overinvesting?
by Michael Pettis

UPDATE: Don't overlook Dr. Doom on this either.

Read it at Project Syndicate
China’s Bad Growth Bet
by Nouriel Roubini

However, Roubini doesn't see a hard landing hitting until 2013.

Roubini tweets: "Paul Krugman asking 'Will China Break?' Consistent with what RGE/I have been writing for a year on hard landing risks."


Calgacus said...

I agree with Matías Vernengo's Krugman is wrong about China. Only problem is it is too short & doesn't mention Pettis & Roubini too.

Tom Hickey said...

TWo big problems with trying to assess the Chinese economy.

First, data.

Secondly, a great of debt is owed to state banks. Many consider that backdoor fiscal in that a lot of it will just be written off.

Unforgiven said...

From a comment on this article at China Briefing

“I recall travelling to a University in Zhengzhou 3 years ago with a magnificent brand new purpose built campus on 500 Mu of prime agricultural land. The campus is able to accommodate 55,000 students.

In discussions with University leaders I asked where the funding came from as I doubted that the Central Govt would fund, Henan Provincial Govt had no funds and Universities are not a municipal responsibility. I enquired as to whether the University had borrowed ALL the money to which the Party Secretary replied that yes indeed all the capital to build the campus was borrowed. Asked how the University planned to pay it back, the Secretary simply commented with a smile, what would the bank do with a University campus?”