Rallies in commodity prices and mining-company shares stem from a "bubble of belief" in China's economy, one that is likely to burst, says Albert Edwards, a strategist at Societe Generale.
"I believe we will look back on the Chinese economic miracle as the sickest joke yet played on investors," Edwards wrote in a recent report that cited falling earnings at the country's industrial companies, Bloomberg reports.
While the Chinese economy expanded 6.1 percent in the first quarter from a year earlier, Edwards wrote that he was skeptical about its ability to sustain that level of growth during a global recession.
"The bullish group-think on China is just as vulnerable to massive disappointment as any other extreme example of bubble — nonsense I have seen over the last two decades," he notes.
"The fall to earth will be equally as shocking."
China's stimulus program is turning out to be much more expensive than official figures indicate, which raises the stakes for the government's attempt to restart high growth through massive borrowing.
Even though its stimulus package is one of the largest in the world, China says it plans to hold its budget deficit to just 3 percent of gross domestic product this year.
"There is no such thing as a free stimulus package,” Stephen Green, an economist for Standard Chartered in Shanghai, told The Wall Street Journal.
“There is a huge amount of unreported government debt, and we're adding to it now clearly."
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