Is China the Next Bubble to Burst?

Posted on January 13th, 2010 in Uncategorized by Karl

Great debate in today’s NY Times Editorial page regarding China’s economy.  On the one hand, you have investor James Chanos saying that China is a screaming short.  Chanos states that it could be the next “Dubai times 1,000 – or worse” and boldly states that he is looking for every possible way to short China. 

On the other hand, author Thomas L. Friedman states that he would never bet against China.  His thesis can be summarized as: “Sure, China has problems and may have bounced back a bit too quickly.  However, don’t bet against a centralized Chinese government that is thoughtful attacking problems (inflation) and has the resources (savings) and commitment to do so.” 

Could both guys be right? 

Short term, few would argue that China’s recovery may be a bit “too fast, too soon”.  So the hedge fund manager Chanos may make some money taking a contrarian bet on China’s growth.  However, few would argue against (and certainly not bet against) China’s growth engine.

The more interesting angle is the following.  Does the US feel threatening by China’s growth prospects and success?  Many in Washington DC and (Main Street, USA) are nervous that China’s success is coming from a country that is certainly NOT a democracy.  China created the fastest growing economic engine with a mix of a tightly controlled communist regime AND capitalism.  This contradicts some very basic, core US values.  As Americans, we have been taught that these two (Communism and Capitalism) don’t go together.  Does China success prove that our “models” are all wrong?

The US is certainly nervous and threatened by China’s success.  I guess it’s OK to be nervous.  But no American should be cheering for China to crash and burn.   China’s growth may be the only thing that can bail us out of this global recession!