A financial bubble may well be brewing in China, but that doesn’t mean it’s about to burst, says Bill Bishop, an investor and former executive in China.
In the wake of a prediction by investor Marc Faber that China may crash in the next nine to 12 months, hot on the heels of Jim Chanos, Andy Xie and many others, "there may now be more China Bears than Panda Bears,” Bishop writes on his blog at Sinocism.com.
But that doesn’t mean these experts are correct.
“None of the bearish cases that I have read take into account politics, social stability and the overriding mission of the Communist Party to retain power,” Bishop writes.
The bears are viewing China through their financial models, he points out.
“But as we learned in the crash of 2008, most of those models are flawed, even when applied to ‘free markets.’”
Bubbles are indeed apparent in China, Bishop acknowledges.
“But bubbles can last for a very long period, especially when you have an authoritarian government, a nonmarket economy, and a ruling party that took as one of its lessons after the collapse of the Soviet Union the need to deliver fast economic growth at all costs.”
Others see the government as cautious too.
“Beijing still prefers to fine-tune credit conditions and the property market rather than using blunter instruments that impact the entire economy,” Brian Jackson, a strategist at Royal Bank of Canada in Hong Kong, told Bloomberg.
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