China Fight Club
By Chris ClairFirst rule of China Fight Club: Don’t talk about China Fight Club. It seems like a lot of people are disregarding Rule No. 1.
News item, March 17, 2010: “China in midst of greatest bubble in history.” “China is in the midst of ‘the greatest bubble in history,’ said James Rickards, former general counsel of hedge fund Long-Term Capital Management. The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director at consulting firm Omnis.
“‘As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,’ Rickards said…. China ‘is a bubble waiting to burst.’
“Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy.”
Interesting. Surely there must be some China bulls. Well, there’s this guy:
News item, Jan. 19, 2010: “Rogers trains guns on Chanos for China remarks.” “American investment guru Jim Rogers has debunked contrarian investor James S. Chanos’ suggestions that China’s investment bubble may lead to a Dubai-style implosion. Rogers said the Chinese economy is not in any imminent threat of collapse, and investors and companies are wise to stay involved with it.
“‘It is absurd to say China is in a bubble when the stock market is 50 to 60 percent below its all-time high. If you have a bubble you have things going through the roof. You have everybody screaming fire every day,’ he said.
“He believes the economic crisis could prove the catalyst for China to take over from the US as the next economic superpower.”
China is an interesting argument to have. Sure, it’s is a repressive, overly-state-controlled country that’s an ecological disaster waiting to happen. But it also happens to hold nearly $1 trillion of U.S. debt, and has a military roughly twice the size of the United States and a population that is currently about four times that of the United States. It’s also located a lot closer to the Middle East - and the oil there - than the United States, with the exception of the United States’ police stations in Iraq and Afghanistan. And it’s signing deals with oil-producing countries to secure access to the economic lubricant.
I wouldn’t bet against China. I wouldn’t move there, but I wouldn’t bet against it. Maybe it is a bubble economy, but if China’s bubble bursts, we’ll all be buried in the exploded-bubble goo.
