The China Bubble (1)

Gady Epstein, Forbes Magazine, dated December 28, 2009-

China’s economy is humming along in high gear, thanks to a fast-growing pile of dicey debt. Such booms tend to end badly.

China’s economy is the envy of the world. As developed nations struggle to eke out a bit of growth and to get unemployment rates out of double digits, Chinese output gallops ahead at an 8% annual rate. This $4.7 trillion economy, it seems, is the world’s dynamo and the prototype for the future.

Take a close look, however, and you may come away thinking China resembles nothing so much as Japan shortly before its stock and property markets melted down two decades ago. A speculative frenzy of borrowing and bidding up is at work. If and when prices crash, there will be hell to pay.

Signs of the times: government bureaucracies funding themselves by foisting debt on state-owned business enterprises; local governments raising capital by selling land at sky-high prices to corporations they own; and a People’s Bank of China lavishing liquidity on the entire system in a way that makes Federal Reserve Chairman Ben Bernanke look downright stingy.

“It’s a Ponzi scheme whose head is the central bank, and it can print money,” says Victor Shih, a China expert at Northwestern University……. (to be cont’d)

– From The Forbes