Understanding China, One Blog at a Time

An American in China

To Fear the Chinese Economy or Not, Thats the Question

Posted by w_thames_the_d on December 22, 2010

here is an excerpt from a great article on teh Chinese economy.

” According to Goldman Sachs (GS), the U.S. stock market has outperformed the MSCI-CHINA index since 1993 by 8 percentage points per year, in spite of the tech bubble burst in 2000, the 9/11 attack, and the credit market implosion in 2007-2008.

That’s amazing. The popular perception that China is the great investment story is overhyped. The reason is that many of the largest companies are owned by the government. If the real estate bubble bursts, it may produce a rerun of 2008, when the Shanghai stock market plunged about 60%.

Is China the next great superpower? It could happen. In fact, many analysts predict that this may happen over the next 20 years. But we remember the late 1980’s when the same was said about Japan. At that time, Japan was 18% of world GDP and predictions were that Japan would become the world’s largest economy. Today, Japan and China combined are about 8% of world GDP. Japan’s economy today is the same size as 20 years ago, while the U.S. GDP has doubled.

A lot of things can happen on the path to greatness. China still has to make the transition from communism to a more democratic system. Will that happen without turmoil? Not in my opinion.”


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