This Euphoric Theory Of Chinese Growth Confirmed Michael Pettis's Fear Of A Bubble

China Auto Show

Ex-pat professor Michael Pettis mentions a classic bubble anecdote in his latest newsletter.

At a conference last November, he was giving his “standard bearish presentation” on China. Then he was confronted with his “favourite indicator of a liquidity-induced bubble”: Euphoria.

I was followed by an effervescent partner of a local foreign-owned  financial-services company. After explaining graciously that professor Pettis was great on “theory”, he pointed out that he himself preferred to look at “reality” when making predictions (isn’t it always a worrying sign when they say that?).

And from checking out China’s reality (he called it “looking out the window,” throwing in a half-mistaken reference to Keynes) he was pretty sure that Chinese growth was healthy, sustainable, and solid.  Talk of a bubble, he insisted, was wrong.  And then he produced his trump card.  Did we know, he asked the audience slowly and significantly, that Lamborghini was planning to double their sales offices in China this year? With an explosion in the sale of luxury cars how could anyone think there was a bubble?

Pettis adds:

And by the way its not just Lamborghini – BMW is expecting double-digit sales in China in 2011. With evidence like that how indeed could you think there is a bubble? Yikes!

See 5 reasons Citi is bullish on China here >

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