Industrial Insight

china and bubbles…. | December 5, 2011

http://interloping.com/2011/12/03/china-and-1999/

Dec 03 2011


Behavioral Economics, Finance, Investing

China and 1999

There are, of course, limitations to the interpretation of China’s mass investment in Treasuries as the largest vendor-financing scheme in world history. However, the de facto result of current Chinese monetary policy does have similarities to the “here’s the money to buy my gear” pitch by 1990s telecom equipment manufacturers. The policy is designed to support manufacturing and the support of the greenback does improve the ability of Americans to buy Chinese exports.

Earlier this year, I involuntarily attended a client presentation on the growth and investment opportunities in China. About a third of the way through, a slide was displayed charting Industrial Production growth for China, Germany and the U.S. as a percentage of total global GDP over the past decade. Fair enough, very impressive Sino performance. A button was then clicked and these growth rates were extrapolated to 2035 when China was seen overtaking the U.S. My first reaction on seeing this was to sincerely hope that someone from the CFA Institute was in attendance so that the presenter wouldn’t leave the building with his charter. The list of potential hurdles to continued 10% annual GDP growth for China could, and have, resulted in 1,000 page tomes on Amazon. Economists and strategists frequently aren’t in the ballpark with their year over year forecasts, never mind 24 years out. In a straight line.

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