27 October, 2005

here comes sickness

Via the Horse’s Mouth, a Clinton adviser says that China will have an economic collapse.:

China’s economy faces a "collapse" over the next decade owing to a high savings rate and over-investment in industrial capacity, according to a former economic advisor to previous US president Bill Clinton.

"At this moment China is saving too much and is investing too much in factories which the world does not need. Like this it is certainly heading for a great fall, a collapse," former advisor Robert Wescott told the Portuguese business daily Jornal de Negocios on Monday.

"It could be in 2007, maybe in 2014, I don’t know. But what I know for sure is that China will have over the next ten years a great fall in economic activity," he added.

AsiaPundit agrees. There are serious bubbles and imbalances here that are not being corrected rapidly enough and there will be a day of reckoning. The open question is what will happen after the ‘collapse.’ There are many possibilities. When the  Indonesian economy imploded there was regime change. When Japan’s bubble burst there was stagnation. South Korea re-emerged stronger and improved.

As well, one interesting difference between China’s ‘coming collapse’ and the humbling of South Korea and Japan is that this will have implications that are much more global. The South Korean and Japanese problems were domestically created - but China’s overcapacities are often due to excess foreign investment. Korea’s crisis meant the end of DaeWoo, but when China falls General Motors and Volkswagen will be feeling the pain.

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by @ 11:49 pm. Filed under China, Asia, Coming collapse, East Asia, Economy, Northeast Asia

2 Responses to “here comes sickness”

  1. Richardson Says:

    I’m not so sure about an economic collapse in such a short-term, but the other two major problems looming on their horizon are a) rapidly aging society and b) enormous imbalance of males to females of marriageable age – both due to the ‘once child’ policy.

    Within 20-25 years they will go from over 15 workers per retiree to a 2:1 ratio, just like the U.S., but w/o all the financial infrastructure in place.

    The lack of females will unleash a plethora of social ills;


    It’s going to get a lot worse before it gets better. If their economy is also in the crapper at the same time, and they have energy needs they can’t meet, we could be looking at another World War.

    I don’t think that’s sensational, just realistic.

  2. Dan tdaxp Says:

    The Economics of that are pretty glib. Overinvestment and overproduction are not problems, but misdirected investments can be. If China is borowing at high interest or through revolving capital to finance the investments they will be stuck, but that wouldn’t be an issue if they are saving the money themselves.

    Mis-directed investment could at worst be the same as throwing money away, but it’s not a timebomb.

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