China’s Quest for a Shortcut to Greatness
Vitaliy N. Katsenelson, CFA submits:
The Chinese economy must be getting out of control, because the Chinese government is doing the unthinkable: It is desperately trying to put the brakes on the economy. When you pump a stimulus package that represents 14% of GDP through a fire hose into an economy–which was already on shaky bubble foundation–in a very short time you’ll have some serious unintended consequences , you’ll get super bubbles.
To understand what’s taking place in China today, we need to rewind the clock about a decade. At that time the Chinese government chose a policy of growth at any cost. To achieve that, it kept its currency (the renminbi) at artificially low levels against the dollar — this helped already cheap Chinese-made goods become even cheaper than its competitors’.