The Chinese economy

Check out today’s article in the International Herald Tribunre on this complex and very strange topic. A taste:

But amid all the excitement, little attention is being paid to the risks. One of the biggest is China’s fragile financial system, which many observers believe harbors a bad-loan problem that dwarfs even Japan’s. You would think that when the legs on which an entire economy stands are shaky, investors would care. Few seem to.

Like Internet companies in the 1990’s, China is thought to be run by geniuses with boundless prospects. Companies that do not join in will miss capitalism’s greatest gold rush. But two developments this week serve as reminders that investing in China comes with risks, and big ones.

The reasons he cites are 1.) the attempts to bail out the banks, devastated by bad loans (a direct result of the state-owned enterprise fiasco) and 2.) attempts to increase reserve requirements on commercial banks. He doesn’t see imminent implosion, but he does see huge risks.

He also points out how suspicious the glowing numbers trotted out by the CCP ministries are; it is quite amazing that so many US firms and investors have been suckered by them. I love statistics in China, because they so precisely reflect the way things are done there (i.e., make the statistics say whatever will please The Party). Anyone remember the SARS “statistics” back in March, proving that the plague had been eradicated, with no cases in Beijing? As Santayana so pithily put it, those who forget the past….

The Discussion: One Comment

Okay, it’s been awhile since I’ve been to your site.

But, I think that with mainland Chinese companies pushing into the US, that there might be a new revenue stream coming into China. Consumer electronics and IT might be stagnant, but with the lower priced Chinese goods (which are not bad quality), China, Inc. might be the next Japan, Inc., which had been replaced by Korea, Inc (think LG and Samsung).

Just my .02

September 3, 2003 @ 9:46 pm | Comment

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