Chinese Economic Bubble?
03 September 2011
ack in the 1980s to mid 1990s, SE Asia was indeed very interesting.
Not only that it was a region with spectacular growth, it also at the time had a number of very prominent, highly influencial tycoons whose wealth were extraordinary even by international standard.
Bill Gates was nowhere to be seen back then. He was just climbing gradually.
Personally I still remember the days when it would seem that overseas products were very much within reach by quite a lot of people from SE Asia. And it was not so much the case of rising middle class. Rather, it was a clear signal of currency overvaluation prior to the inevitable crash in 1997.
Since then wealth has been regenerated in many parts of SE Asia. But we are now in a completely different world. Global wealth has also been generated in many other parts of the world such as Russia, Latin America, Middle East, and to lesser extent, Australia.
The Chinese in particular has been on overseas buying spree. They are the dominant force in property markets in many gateway cities of the world. Their dominance has far surpassed the dominance of the SE Asians even during their heydays.
One would then wonder whether this is sustainable going forward. Could the mainland Chinese be getting ever wealthier at rising pace in many years to come? Or is it the case of some kind of bubble waiting to pop?
Their case, though, is quite unique. While the SE Asians enjoyed huge currency overvaluation in early 1990s which thus propelled their spending power overseas, the Chinese were told, at least by several western financial figures, that their CNY was actually undervalued. If anything, if the CNY was to continue rising, their ability to spend overseas would rise even further.
However, one should note that the Chinese economic growth has been fueled by a lot of construction. There is therefore the danger that they have built too many things too fast. And if construction spending was to decline, the GDP would not only slow down, but in fact reverse.
Sometimes I just wonder whether those mainland Chinese channeling money overseas were just plainly diversifying their interests or whether those up there in business, politics actually know something that the average person does not. It is possible that they sense that no party lasts forever.
So maybe the Chinese economic growth trend while still positive in the long-term, is about to enter a more mature phase of slower, more sustainable growth.
It is just a possibility which will have repercussions all around the world.