China Economy: Reality Or Complacency?5 April, 2011, 13:26. Posted by Zarathustra
Tags: Bubble, Economy, Inflation, Recession
When it comes to China, there has always been such a belief that the government will not let the growth to slow significantly. Real estate developers will go on and tell analysts that “no, the government don’t want us to die; they don’t want to kill the real estate market…”, pretty much in a same way that the too-big-to-fail banks think that governments will not want them going under because they are too big to fail.
So there has always been a level of complacency among analysts, commentators, pundits, and those companies executives. Executives in a property developer like to say that the Chinese government wants a “healthy real estate market”. So once the growth is stalled, there is a certain belief that the government will jump up and give the economy a boost, and that’s the reason why the “end of tightening cycle” call is becoming hot now. Unfortunately, the government will never solve the problem of debt-fuelled over-investment in infrastructure and real estate. The only way is to let the bubble burst.
I don’t know this guy, but David Carbon of DBS went on to CNBC and said the following:
[Now] everything is being turned off of a sudden. We have seen on again, off again 3 or 4 times in the past 2 years, and right now, we are at a point where things are too strong, and everything is being switched off.
Be ready for another sharp drop… by the middle of the year, everybody’s going to be jumping up and down and saying ‘too slow! too slow! we need another stimulus package’ like we have done every six months for the past year and a half.
That is a huge dilemma: the government does not want to see inflation and real estate bubble, but they don’t want to see recession either. That’s why they need a recession but they have never really got one. So people now start to expect that the tightening cycle will end soon.
Or will it? Is that a reality or simply complacency?