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Thursday, 8 April 2010

A China Bubble? People Have Been Saying That Forever

One of the lingering concerns that fuels the "Wall of Worry" hanging over the markets is that China's economy is a bubble waiting to burst. Real-estate prices in Shanghai and Beijing have once again gone insane, industrial production is booming, and the Chinese government is already tightening lending standards to try to cool things down.

So is China really a bubble? Or is Wall Street once again missing the boat?

There are certainly plenty of problems and concerns in China, says Julian Chang, executive director of the Rajawali Foundation Institute for Asia at Harvard's Kennedy School. But when you look at the economy's performance over the last couple of decades, it has been nothing short of miraculous.

Julian notes that people have been worried about a bubble in China forever--and as yet those fears have all been for naught. Last year, for example, while the rest of the world cratered, China grew an extraordinary 8%+.

Over the next several years, Julian says, there will undoubtedly be scattered problems with China's economy. But the fears of an over-arching bubble are still overblown.

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