John Mauldin picks up on the China Bubble thread that I have been on for the past two weeks. He quickly dismisses China as being able to drive the West out of our Greater Recession Depression, since "China is just 7% of global GDP. Even if they grow at 8%, that only adds 0.5% to global growth, and it is likely that we will see global GDP shrink by 2.7% in 2009." See chart. He adds: "China is roughly as big as the other three of the BRICs (Brazil, Russia, and India) combined. Russia and Brazil are in recessions. Also, note that it will be decades before China's economy is as big as that of the US, even with growth of 5-6% a year more than that of the US."
He notes that China's stimulus is 1/3 of GDP, equivalent to a new Porkulus bill of $4.5T by the US. (This is still paltry compared with Japan's stimulus in the '90s, of $6.5T, more than their GDP; it did not work but saddled Japan with stifling levels of debt.) The Chinese stimulus is going out as bank debt. Mauldin quotes from Vitaliy Katsenelson's recent Foreign Policy magazine essay:
"This growth will result in a huge pile of bad debt -- as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much."
Simon Hunt adds that:
"Money is cheap with loans and credit freely available, so much so that China risks developing new bubbles in the stock and commodity markets and real estate. Speculation is based on the simple premise that prices must rise. Foreigners as well as domestic participants are feeding this frenzy, especially in metal markets.
"The frenzied loan and credit growth is unlikely to be cut back until the fourth quarter at the earliest. It is not this year or next which worries us, but post 2010. What will China do when the world economy gets hit with its next big leg down?"
He sees a staggering amount of copper (as one example) being stockpiled. Mauldin describes it as China engaged in hiding the Old Maid (the USD) by stockpiling and dumping their USD reserves on other countries, Australia in particular. In the card game, whoever ends up with it loses.
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