Or not.<\/p>\n
\nChina is to slow down. She must. The inability to do so will bring dire consequences, including a Great Depression like social disaster that topples governments.<\/p>\n
USA GDP for 2005 is about 12.36 trillions dollars, more than 5 times larger than China, but growing at roughly quarter the speed. <\/p>\n
Per capita, USA is at roughly $42k and China optimistically $3k.<\/p><\/div>\n
\nThe eye-catching number is the 10.9% GDP growth this 2nd quarter of 2006. Exceeding the target irked the central government. They ordered slowing down. Every local governments seem to be doing exactly the opposite \u00e2\u20ac\u201d accellerating growth.<\/p>\n
Consumption of key natural resources \u00e2\u20ac\u201c oil, iron ores, copper, and soy beans \u00e2\u20ac\u201c did not go as planned either. Per GDP unit, China today consumes more energy than US by a large amount. Granted, a growing kid must eat more, but obesity also takes painful years to fix. China accounts for the majority of increased demands for these commodities. She is also the primary reason for the global sky-rocketing prices. Mother earth cannot seem to catch-up.<\/p>\n
\nMore pundits predict the coming collapse of the China bubble recently. The theory goes: the growth attracts investments; the investors pursue the same fastest and biggest returns; over-build becomes over-capacity that leads to price wars; loss of profits bankrupt few companies; small collapses panicked the investors and they withdraw their money; decreased capital heightens interest rate and send more companies to bankruptcy court; spiral down and total collapse. History has seen so many of these cycles. Why would China be different?<\/p>\n
What if the worst-case scenario happens?<\/p>\n
China has a historically unique economical structure. Investments on fixed assets accounts for almost half of GDP, exportation and internal consumption for 40% and 37%, with exportation growing twice as fast as consumption. Saving rate is among the highest in the world. Citizen income is still low. And, stating the obvious, it has a large population base. This structure makes the bursting, if happens, different than that of, say, USA or Japan.<\/p>\n
| <\/td>\n | US$<\/td>\n | %<\/td>\n<\/tr>\n |
| GDP<\/td>\n | 1,148.6<\/td>\n | 100.0%<\/td>\n<\/tr>\n |
| Fixed Investment<\/td>\n | 532.2 <\/td>\n | 46.3%<\/td>\n<\/tr>\n |
| Consumption<\/td>\n | 457.8 <\/td>\n | 39.9%<\/td>\n<\/tr>\n |
| Export<\/td>\n | 428.6 <\/td>\n | 37.3%<\/td>\n<\/tr>\n |
| FDI<\/td>\n | 88.5 <\/td>\n | 7.7%<\/td>\n<\/tr>\n<\/table>\n In billions, from Jan to Jun, 2006, China.\n<\/p><\/div>\n \nThe fixed asset investments \u00e2\u20ac\u201d buildings, factories, roads, public works, etc. \u00e2\u20ac\u201d simply become under-utilized. During the internet bubble, companies installed huge amount of basic connectivity such as high-speed fibre cables. Those cables stay buried long after the burst and became part of the social infrastructure. We love it. Innovations spawned to exploit the excessive capacity and the society rejoices.<\/p>\n Most of those fixed investments are made by foreign companies in the form of FDI (foreign direct investments). When Japanese snapped up trophies properties like Rockefeller Center and Sears Tower, US citizens felt their heirlooms lost. Few years later, they can hardly hide their snickers when the recession rendered those investment much less.<\/p>\n \nThe export industries will suffer slightly and temporarily, if that. This industry compete on price and quality. The excessive domestic infrastructure capacity will hold the manufacturing costs at bay. The population base supplies unlimited cheap labor. The imported machineries in the factories maintain quality. Raw materials are the same everywhere \u00e2\u20ac\u201d the definition of commodity. I don't see how China export industry losing its competitiveness. Burst or not.<\/p>\n \nHow about that 1.3 billions, or more, people. Wouldn't the collapse hurt them, turn them into rebels, and topple the government?<\/p>\n \nRemember how China was founded. Soon after 1911, Mao mobilized the poor and hungry to fight against Chang Kai-Shek's well-trained army. He won in 1949 \u00e2\u20ac\u201d less than 60 years ago. This is the government (actually the culture) that wrote the book on controlling large number of people. No social disorder will occur.<\/p>\n The worst-case scenario is for \u00e8\u20ac\u0081\u00e5\u00a4\u2013 (LaoWai: foreigners) only. It seems.<\/p>\n Possible Administrative Actions<\/h2>\n\nEven that, the government will try not to bruise the friendly foreigners. (Don't kill the goose.) Here are some obvious and well discussed measures:<\/p>\n
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