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Saturday, March 24, 2012

Not That Being "the Next Japan" Sucks

Some of our elites tell us that China's communist rulers, being reasonably enlightened autocrat, are practicing capitalism better than our business leaders and too-timid government regulators.

But is China's economic growth a bubble about to burst?

Will China become the next Japan? Will its economic bubble burst? Should the Chinese brace themselves for deep deflation and economic stagnation? These questions have begun to swirl ever since stock prices and real estate values started to soar.

Even though the Chinese stock market did crash some years ago and hasn’t fully recovered since, housing prices have continued to rise, making for some striking similarities between China now and Japan before the appearance of the its own asset price bubble.

Not that this means that the real economic progress that China has made disappears. But the growth rate of the past may have been borrowing from the future and the bill may be due.

Nor does it mean that China won't be a growing military threat to their neighbors and a challenge to us. China can continue to modernize their military from the improved economy they have built even if the economy stagnates for even decades as it works through the imbalances it has created before resuming a more reasonable rate of growth. Look at Japan for confirmation of that. And China could gain local superiority over forward-deployed American forces in the early weeks of a war, should the worst happen.

Put away the white flags. It would be a little embarrassing to try to give up to China's "inevitable" rise just as they stumble in the face of economic reality.