I'm in China this week and have had limited internet access (and time) to post while bouncing between meetings and cities. I'm here as a guest of the China-United States Exchange Foundation and traveling with a great group including MSNBC's Jonathan Alter; ThomsonReuters' new acquisition the kidnapping-defying David Rohde; National Public Radio's managing editor David Sweeney; and Daniel Gross, now at Yahoo Finance and author of one of the most fun and counter-intuitive books I have read on economic history, Pop! Why Bubbles are Great for the Economy.
I personally think that the US has overdone its bubbles and is now paying a heavy price -- but Gross's book is still a stimulating and important take on innovation and how it works.
There are probably significant economic bubbles embedded in China's political economy -- I just can't find them. Some argue that the entire country is a bubble, or a Ponzi scheme, that will collapse the moment China has a really bad year. Very few of the people we have met here have been able to navigate the question of what happens if the great numbers we keep having recited to us about improved water quality, more good air days, surging levels of year on year economic performance, more patents issued, all in accordance with primary targets in the 11th 5-year plan.
China's bank reserve requirements are 21%. These must be among the highest reserve levels in the world. Housing prices are falling at the moment as the government is working to rein in speculators -- but the fall off is minor and it is not creating a cascading spiral downward as over-leveraged real estate holders dump holdings. Most second, third, seventeenth homes bought by China's new rich, who the Chinese are beginning to call "the golden collars" are bought with cash full board -- no leverage.
The odd thing as that many of these homes sit vacant as many Chinese who buy more homes as investments don't want to spoil the home with renters -- and when they sell, they want to sell them new. The indifference to rents shows to some degree how under-leveraged some key sectors may be.
Carnegie Senior Fellow Michael Pettis has one of the best blogs in the China-watching business and his work would be good to troll through for those digging into the China bubble question.
My gut at the moment is that as the renminbi continues to rise, China will do what Japan did after the September 1985 Plaza Accord after which its currency significantly rose and begin to collateralize more of its assets and expand China-directed manufacturing capacity all around the world. Japan experts Karel van Wolferen and R. Taggart Murphy provide some of the best late 1980s/early 1990s chronicles of Japan's global expansion fueled by a strong currency. China's global diversification could make what Japan did look trifling.