Why It’s Time to Bet on China for the Long Run
Paul Torelli submits:
Edward Chancellor, the very well-respected British financial journalist, recently penned a little paper called “China’s Red Flags” in which he argues China shows all the classic signs of a bubble economy. Chancellor has written several books which focus on market speculation and crashes, so the temptation is to respond that he has "man-with-a-hammer" syndrome: to the man with a hammer, every problem tends to look pretty much like a nail. I am not alarmed by Chancellor’s thinking, and I think he makes some good points. But my response is that no country’s growth path is perfect, and there is more than enough to like in China right now.
One reason to like China is that a long-term bet on China is also a bet on the competence of the Chinese government in handling its economic affairs. It is doubtful that in even the worst possible scenario, it would mis-manage the Chinese economy so badly that it could reach a state of crisis as bad as the the recent American economy. One major advantage to the autocratic Chinese system is that it does not have the liabilities of the messy, uncoordinated (and poorly regulated) American system. Chinese authorities can step in and change lending policies whenever they want, since there is no need for a democratic consensus. The government is sophisticated enough, and Chinese economists are not bogged down by ridiculous free market economic theories like Western economists are.