That’s the question Richard Koo asks in his latest note. He says:
“How likely is Japan-like collapse in China?
Driving these concerns is the fact that house prices have risen to the point where they cannot be purchased on an ordinary income. There is also the worry that China could experience its own lost decade (or two) if the housing bubble were to collapse.
But at a time when problems in the eurozone have led to an export slump, it will not be easy for the Chinese authorities to generate another economic expansion while preventing a housing and real estate boom. Infrastructure is one of the few sectors other than exports and housing capable of driving the Chinese economy.
During my recent trip to China, even a person working in national security told me that if the Chinese economy continues down its present path the resulting bubble collapse could do tremendous damage, just as it had in Japan. His remarks suggest that the economy has become a key strategic issue for the government in Beijing.”
Koo says a sustained collapse in China is avoidable if their government enacts the right policies. I wish I had a good response here, but unfortunately, I just can’t honestly say that I (or anyone outside of the Chinese government) really understand what is going on in China….It’s like a black box economy as far as I can see. The takeaway for me is (and has been) – stay away from that which you can’t understand.
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