China’s Bubblebath: Part 2

Monday, February 26, 2007 18:20
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Following our last post on the China Bubble China’s Bubblebath – Updated, we need to frame the theory a bit more for several reasons:

  1. China is a huge country that possess many distinct regional economies (see post here to learn more)
  2. In China, bubbles are not just pure economic, but can be caused by a number of poli/ socio economic events as well

The next logical step at this point, prior to actually getting into the nitty gritty, is to layout the phenomenon, issues, and other events that are bubbles in the economy, or are leading to the formation of bubbles.

At times, the issues raise will not be “bubbles” in the truest, however they are events that if aggravated could have real economic consequences. These are issues that are typically not found in more mature economies, and that in a state of hyper growth carry real risks.

So forgive us if we push the boundaries a bit. this whole post is sure to introduce controversy, but the goal is to create a constructive dialog to show readers what bubbles exist in the economy, and what issues are most important to watch out for.

1) The Super Scary Bubbles: External China

Out of the reach of policy makers and economic planners, there are a number of phenomenon around the world that could slow down the growth, perhaps severely restrict the growth, of the Chinese economy. These issues are typically not presented in the popular press as issues that would affect China per se, but a simple analysis of the issues will offer some insights into how international events could affect China’s economy

  • U.S. Economic Recession:
  • Regional War/ Conflict:
  • Global Health Epidemic:
  • Anti-Chinese Sentiment:

While perhaps the most unlikely, these events are potentially the most dangerous as there is not a single government entirety that can address the underlying concern.

2) The Super Scary Bubbles: Internal China

The phenomenon in this category are the usual suspects for foreign press when looking at what could go wrong in China. Overheating here, over investment there, and a lack of controls everywhere. The reports can often paint an “on the verge” picture depending on the political environment at the time. Regardless of the popular spin, one thing everyone can agree on is that if any of the below happens, the China economy would suffer greatly as a result.

  • Collapse of Central Party
  • Taiwan War/ Conflict
  • Macroeconomic policy
  • Big 4 BankRUPTCY

With these problems being internal ones, it will be up to China’s politicians and economists to war game the possibilities and plan accordingly. there have already been a number of regulations that have been released recently, and as sectors/ markets within the Chinese economy mature over the next 10 years, the likelihood that any one of the above will decrease.

3) Regionalized Bubbles:

Recently receiving more coverage, issues affecting the various regions/ provinces of China are not only greater in number, but the chances of occurring are also greater in probability. While these events are serious, and could potentially have lasting affects in a particular region, the probability that these phenomenon would have a larger affect on the country as a whole is slim.

These are the isues that that policy makers are most concerned with, and have been trying to address through the various laws that have been passed recently. It is important for

  • Income Disparity Gap:
  • Industry Wide Corruption:
  • Migrant Worker Disruption:
  • Real Estate / Stock Exchange crash
  • Natural Disaster:

4) Localized Bubbles:

Closer to ground level, are local issues that could significantly inhibit a local economy, as seen in the Northeast provinces of China. Unlike many of the larger national phenomenon, these issue are city specificand the chance of a macroeconomic impact are very slim (some supply chain disruptions are possible).

  • Industrial Over Investment:
  • Socioeconomic Tension:
  • Labor Conditions & Unemployment:
  • Real Estate Over Pricing
  • Environmental Contamination
  • Local Party Corruption & Graft

While each of these issues is important on their own and could probably support their own doctoral thesis/ blog, our aim will be to really identify and perform a basic analysis. some items, we will devote more time to than others, but in all cases we will make sure to to provide supporting links to other resources.

If you have a topic you feel belongs in the above, or if you think the placement of an item is incorrect, please let us know in the comments section.

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