Quote from Dell-Boy:
Just got copy of, money week
Everyone was recommending getting into China. But after years of experience, we've learned that when everyone is thinking the same thing, no one is thinking at all.
Besides, everyone knows you can't trust the information coming out of China. At best, it is biased. At worst, it is pure lies.
So we sent our own correspondent, Dan Denning, to China to get to the truth. He went everywhere, talked to everyone who spoke English and saw with his own eyes the dramatic and exciting story that China has become. His conclusion:
âYes, China is a long-term buy. It is the next powerhouse economy. It is the economy of the 21st century.
âBut no, China is not a buy now. Instead, it's a time bomb. Here's what's happened.
âOver the last year, there has been a frenzied rush into China. Shares have risen by more than 50%, despite the fact that the economy has grown only 9% and rates are soon likely to rise.
âAs soon as consumption falls off in the US - as surely as it will - the Chinese export-led economy will be hit hard. At the same time, a bubble is developing in the property market (prices in Shanghai and Beijing have seen double-digit growth for a few years now and speculators have been piling into a building boom) and many of the country's banks are in a poor state financially.
âLonger term, it won't be a smooth ride either. For starters, take the fact that China has no meaningful pension system, despite the fact that by 2025 it will have 220m senior citizens with no real social safety net (China's one-child policy has left them without a traditional support network). Then there is the public health cost of China's rapid development. This kind of fast-paced industrial growth hits the population hard. And it implies big medical bills in the future. This rather suggests that China's comparative advantage as a low-cost manufacturer is not sustainable.
âThere's also a political risk in China: more than 50% of China's population still works in agriculture and lives in a state of poverty. As it gets richer and its farmers get older, at the very least you have an economic problem. At worst, you have a political one: the rural interior versus urban coastal populations and mega cities, perhaps. Now is not the time to be holding Chinese stocks.
âTo make a long story short, Americans bought and the Chinese sold. Americans borrowed and the Chinese lent. Americans squandered their capital and China built up its capital. Everybody has over done it. The Americans have too much debt. China has too much capacity. The next stage won't be much fun for either of them... though China should come out much better off in the long run.â
