China’s Stock Bubble Passes Stiglitz Acid Test
Commentary by William Pesek
May 15 (Bloomberg) -- China’s stock-market boom is as clear a bubble as you will find, the conventional wisdom says.
When might it burst? Nobody knows if it will.
The Shanghai Composite Index has surged 45 percent this year. Just because China has deep pockets in this time of global crisis doesn’t mean its economic health supports this rally. Resources of China’s magnitude are a nice thing to have at the moment. And while probably too late to buy into the market, investors who are already there won’t be disappointed.
In a sense, buyers are betting on China’s socialist tendencies rather than its success in fostering free markets. Cash-rich China has simply built a better bubble. Rather than boding well for China’s long-term outlook, this rally serves as a reminder of risks facing the world’s third-biggest economy.
The strength of China’s fiscal position got a headline- grabbing endorsement this week from Nobel Prize-winning economist Joseph Stiglitz. At a May 13 forum in Beijing, Stiglitz said China “has taken very rapid action to address the crisis” and may emerge as “a winner.”
In the same address, though, Stiglitz undermined that argument in the long run. “We are at the end of the beginning, rather than the beginning of the end,” Stiglitz said. “The global economy may be declining at a slower rate and we may see a bottom soon, but it doesn’t mean a full recovery.”
Global Downshifting
The rapid growth rates of the mid-2000s are a thing of the past. The downshifting of global expectations is taking place from New York to Shanghai. Even with the trillions of dollars of stimulus the U.S. is pumping into markets, American households face a multiyear process of saving more and spending less.
That transition will prove painful for a world that relies heavily on the $14 trillion U.S. economy. The $4.4 trillion Japanese economy isn’t much better off. Gross domestic product contracted an annualized 16 percent in the first quarter, following a fourth-quarter drop of 12 percent, according to the median estimate of economists surveyed by Bloomberg News.
With the U.K., Germany and much of the euro area in recessions, feel free to engage in the fiction that China’s $3.2 trillion economy will save the world. Far from that happening, global trends will increasingly close in on export-driven China.
Stiglitz isn’t wrong to think China will have a better 2009 than other major economies. Its 4 trillion yuan ($585 billion) stimulus plan and record bank lending are helping to fill the void left by plunging exports. The trouble is, that’s a void too far, even for an economy that’s as top-down as China’s.
Flawed Assumptions
Be afraid when just about every economist agrees on something. Just about everyone seems to think China can pull this off, that it can artfully influence a vast, underdeveloped economy of 1.3 billion people without many of the policy tools at the disposal of the Federal Reserve or European Central Bank.
The flaw in this assumption is that it takes for granted that all those stimulus yuan will be spent wisely and productively on worthy projects and companies. It assumes that those investments, much of them funded with debt, will morph into well-paying jobs that generate wealth for China’s people.
An even more fantastic assumption is that little of China’s stimulus efforts will be squandered by corruption. It’s hard to know how China can avoid vast amounts of public money being siphoned off by local government officials to speculate on stocks or property or to make luxury-good purchases.
At What Cost?
Even if China ekes out healthy growth this year, the question is what it will cost. China may be setting the stage for a Japan-like bad-loan crisis a few years from now. One also has to wonder if China is moving fast enough to rebalance its economy away from exports toward domestic demand. It’s the “quality” of the growth that China produces that is the focus of economists such as New York University’s Nouriel Roubini.
China’s public-relations machine is working overtime to spin this story. Its success in getting the global media to play along explains why investors are rushing into Chinese shares. Just because China has built a more sustainable bubble, supported by the promise of ever more government largess, doesn’t explain away the challenges facing the fastest-growing major economy.
Government-directed bank lending has pretty much reached its full-year target and is poised to slow. The global export slump will increasingly take its toll. If China is a winner this year, as Stiglitz says, it’s a point that has many caveats.
Officials in Beijing will be hard-pressed to replace the role of the U.S. consumer. China’s stimulus efforts are no substitute for demand from American households, which are entering into a rare period of thrift. If you are sitting on big paper profits in China, it may be time to take them.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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Last Updated: May 14, 2009 15:00 EDT
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conventional wisdom: 参见http://www.cenet.org.cn/article.asp?articleid=31460
Shanghai Composite Index:上证综合指数
deep pockets in this time of global crisis: 指全球金融、经济危机时期中国仍有强大的资金与购买力
Resources of China’s magnitude: 指中国拥有的巨大的资源（应当指人口、购买需求、自然资源、生产加工能力等要素）
headline- grabbing: 被众多媒体报导的头条新闻
top-down: 自上而下的统一管理
eke out: 艰难的做到、达到
explain away: to make something seem less important or bad by giving reasons for it，解释、搪塞过去
paper profit: 帐面价值，作者看衰中国经济发展，提醒投资者见好就收