If it does, it brings the world down with it... Plus, does anyone trust communists to run a capitalist economy? Feels like trusting religious zealots with our own financial system (oh, wait, we're doing just that!)
Could China's red-hot economy collapse?
Fifteen years have passed since the collapse of Japan's asset-inflated economy.
Finally, though, structural reforms to overhaul the political, economic and social systems have begun to take effect and the economy is showing signs of recovery.
The crash of the Japanese economy in 1991 was triggered by sudden drops in land and stock prices. Six years later, in July 1997, similar bubbles popped throughout East Asia, setting off a regional financial crisis.
The Chinese economy has been steaming ahead for several years, fueled mainly by a construction boom and rapid growth in the auto industry. A lot of momentum is also coming from strong exports (especially to the United States) and two big upcoming national events: the 2008 Olympics in Beijing and the world exposition in Shanghai in 2010.
Observers have been warning for some time about the overheating of investment in the construction and auto sectors. Many point out that Chinese industry is awash in excess capacity, causing a large output gap between actual and potential production.
The current building boom is also troubling. Rare is the vacant lot in Beijing where a new building is not being put up.
In Shanghai, there are mounting concerns about land subsidence, stemming from a growing forest of high-rise buildings and excessive exploitation of underground water.
Assuming that the monthly pay of professors at Beijing or Tsinghua University is about 4,000 yuan, the 38-million yuan price of the average house in this district is equivalent to 800 years' worth of salary.
The Chinese government has been trying hard to curb the expansion of its own bubble economy, one driven by excessive capital investment and industrial production. The government has instituted restrictions on lending by banks and other financial institutions. It has also started taking steps to stem the rise of property prices.
February 17, 2006
Posted by blogger at 2/17/2006