Sunday, December 04, 2005

Chinese Economic Pessimism

Recently there have been a few articles predicting that a downturn in the Chinese economy is in the making. The best of the genre is below.
  • Newsweek has an article entitled "Second Thoughts," which argues that China's rate of growth is too high, leading businesses to look elsewhere. Overproduction is (Hat Tip: Peking Duck)
    Runaway fixed-asset investment—the construction of unneeded factories, office towers and resorts—combined with sluggish consumer demand, has knocked the Middle Kingdom's macroeconomy severely out of whack. China's GDP is still expected to grow by 9.4 percent this year—but some economists believe serious problems are lurking behind that robust number. They argue that exports and excessive investment cannot continue to drive growth, because both have already reached unsustainable levels.

  • Stephen Roach of Morgan-Stanley argues in "China Slowdown" that his earlier predictions of an imminent slowdown in the Chinese economy were early, not wrong.
    (Hat Tip: AsiaPundit)
    In my view, the die is now cast for a significant slowing of Chinese GDP growth in 2006. At work is likely to be a downturn in China’s all-powerful investment cycle, driven by an important and surprising contraction in bank lending... The consensus view in the markets is that China will sustain its investment boom through the 2008 Beijing Olympics -- that it will simply not accept the potential embarrassment of a growth slowdown until after that momentous event is over.

Keep predicting a downturn and one day you'll be right.