Martyn at the Peking Duck points to a Newsweek item that caught my attention earlier this week. Arguing that China is not necessarily the place to be putting your money right now.:

Recently words such as ‘collapse’ have been replaced with, for instance, ‘unsustainable’ and speculation that China’s stunningly successful economic formula of massive domestic investment, cheap money, use of existing technology, export-led growth, cunningly hidden protectionist policies, the hard-selling of the mythical ‘China market’ and huge amounts of FDI cannot last forever and is consequently starting to show cracks. After all, what goes up, must come down, or so says this *must read* article.

Despite “insatiable” domestic demand and government measures to curtail investment in overheating sectors, China now has an overproduction of, for example, steel, cement and cotton - all this during the biggest building boom in history. Likewise, China’s factories are churning out too many finished consumer goods like cars, mobile phones, textiles and clothes. Adding to the gloom includes higher manufacturing costs, sluggish domestic demand, anti-dumping quotas, razor thin profit margins, fierce competition, rampant intellectual-property theft and a weak legal system. Furthermore, fixed-asset investment (infrastructure projects, factories, apartment blocks, office towers etc.) will likely top a staggering 54% of GDP this year. Comparisons with the investment frenzy that led to the 1997 Asian Crisis are inevitable.

AsiaPundit is often asked what he would recommend as an investment strategy for China. AP does not usually offer investment advice, but if he is plied with a few beers he will often offer nuggets such as this.: “China really reminds me of what Korea was like a decade ago, I’d probably wait for the crash and then buy into high-quality distressed assets.”

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