Monday, March 8, 2010

Is China over-inflated?
As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.”

Unfortunately, the story focuses more on James Chanos, and less on Chinese macroeconomics, but China is looking down the face of a number of demographic problems, and a round of stimulus spending that borders on the absurd. Its rate of growth is clearly not sustainable. FP's Joshua Keeting rebuts, but China has already earned its status as a significant world power. The question is if China is due for a significant shock, and how well it will handle what is about to come.
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