As China’s growth rate slows and its debt-to-income ratio grows (it’s presently a multiple of what ours was just before the collapse of the housing bubble), international bankers and investors seem to be becoming increasingly nervous. I strongly recommend that you read Michael Pettis’s comments on China’s present conundrum over the John Mauldin’s blog. Here’s his summation:
Beijing must find a way of generating domestic demand without causing China’s debt burden to surge, which basically means it must rebalance the economy with much faster household income growth than it has managed in the recent past, and it must begin aggressively writing down overvalued assets and bad debt to the tune of as much as 25-50% of GDP without causing financial distress costs to soar. Everything else is just froth.
I think the question that should be asked is why have the Chinese authorities been reluctant to let household incomes grow faster? Maybe they just want to maintain China’s position as the lowest price labor market but I don’t that’s the whole of it. I think they’re worried that increasing household incomes will result in demands for more political and economic freedom which would loosen their hold on the country.
International bankers worried, huh? I guess that means the US government is going to bail them out again.
Yeah, China is worrying and the lack of transparency about the current state of their affairs, combined with the general ignorance of China in the West, doesn’t give me a warm-and-fuzzy. It’s been a number of years since China’s had a significant internal crisis – I think they are probably due.