China Bubble

It's not only the Dow eclipsing new highs every day, the Shanghai Composite has been on a tear - up 130% last year, and 50% more this year. All the talk has been about China's unsustainable bubble ready to pop:
All the discussion is market related, but here's an article that discusses an underlying economic reason why a bubble situation exists. It describes how China and its industries may be way over-leveraged with non-performing loans. Why? Local and regional banks still heed the bidding of the powerful "party line" and if local government officials tell a banker to make a loan, they make the loan.  If banks start toppling, it would create a credit crisis that would effectively shut down investment in China and pitch the global economy into recession.

With global markets reaching a crescendo, the babble of a universal bubble affecting markets like dominoes becomes more pronounced. Yet, I haven't read any recent books, articles or commentary about what happens if all bubbles pop (any suggestions?). My thinking is that a global crash would not wipe off, say 30% of the world's equity assets... more likely is a kind of zero-sum (ok, -5% sum) redistribution of assets over a transition period. And who is to say that if global stock markets crash, the huge wandering supply of global investment capital doesn't land in real estate?

Further discussion: Redistribution of global assets - a Contrarian Real Estate Opinion

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  • 5/16/2007 2:11 AM Grant Freer wrote:
    Pat, I thoroughly enjoy reading your comments. I have a contrarian real estate opinion for you
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  • 5/24/2007 3:27 AM kristy wrote:
    When housewives and taxi drivers and students and pensioners are obtaining loans to invest in the sharemarket with little understanding of the risks involved as is happening in China right now, this is exactly the time to be selling out of equities. I actually predict that the Chinese share market will fall up to 50 percent in 2007-2008 whether this is induced by the Chinese authorities or not e.g. through their raising of interest rates or imposing capital gains taxes or imposing stricter regulations on speculative activities and cutting down on corruption within their state run enterprises. With their phenomenal amount of bad loans, China must address the longer term affect that this will have on the quality of their output and on their firms' efficiency and productivity when non-productive companies have access to limitless debt offered by state run banks that do not effectively assess or evaluate the true risks involved in lending to non-productive companies. Also China must address the effect of artificially keeping their currency so low compared to foreign currencies such as the US dollar, this has the effect of China dumping excessive amounts of cheap goods in foreign markets. Although this has been good for global inflation, it does no good to China's economic future as their financial resources could be better allocated to more productive uses such as education, technology and training of skilled workforce and addressing the gap between their rich and their poor.

    Thank you
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