China Will Face Crisis Within 5 Years, 45% of Investors Say

Thus says Bloomberg

"Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

“There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion).

Any Chinese financial emergency would reverberate around the world. The total value of the country’s exports and imports last year was $3 trillion, with about 13 percent of that trade between China and the U.S. As of November, China also held $896 billion in U.S. Treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao’s visit last week to the White House for meetings with President Barack Obama.

Worried Neighbors

Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy.

Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories.

Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is “exceptionally worried” that the Chinese would eventually face “major dislocations within their banking system.”

Chinese authorities also raised interest rates twice in the fourth quarter in a bid to choke off inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price increases. Food prices last year rose 7.2 percent, according to the National Bureau of Statistics."

The Growth Machines

The GDP growth rate of african countries continues to impress. I think the 2 reason which will continue to be in africa is 1) Natural resources and 2) Population

"MUCH has been written about the rise of the BRICs and Asia’s impressive economic performance. But an analysis by The Economist finds that over the ten years to 2010, six of the world’s ten fastest-growing economies were in sub-Saharan Africa. On IMF forecasts Africa will grab seven of the top ten places over the next five years (our ranking excludes countries with a population of less than 10m as well as Iraq and Afghanistan, which could both rebound strongly in the years ahead). Over the past decade the simple unweighted average of countries’ growth rates was virtually identical in Africa and Asia. Over the next five years Africa is likely to take the lead. In other words, the average African economy will outpace its Asian counterpart."

Says The Economist

PMI - China and US

US PMI

Situation is grim as market is specualting that what will be in store when Stimulus fizzles out




China PMI - economy continues to recover and looks promising

A clear sign of decoupling, i believe

China Vs India

Bottoms up versus top down

India is a bottoms up story, while China is a more top down story. GDP figures can hide more than they reveal, nonetheless provide useful pointers. GDP growth rate in China has been driven by centrally commanded infrastructure spending, while the Indian GDP growth is driven by robust domestic aggregate non-commanded demand fueled by rising incomes. An additional interesting factor is that the India growth story is driven by rural and non-main urban centers, a factor which will be explored in this article subsequently.

The Indian growth process is chaotic with a garrulous democracy arguably slowing down progress. The Chinese growth story appears orderly and disciplined – the country resembling a well run machine. To quote from an article Contest of the Century in The Economist,

“Autocrats in Beijing are contemptuous of India for its messy, indecisive democracy. But they must see it as a serious long-term rival—especially if it continues to tilt towards America.”