Nouriel Roubini Sees China Bubble Bursting in 2013 After Change in Political Leadership

April 14, 2011

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  • Overinvestment in fixed assets will be deflationary both domestically and globally
  • The overinvestment is “evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings.”
  • The problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem.
  • Chinese policies have led to a massive transfer of income from politically weak households to politically powerful companies.
  • “Eventually, most likely after 2013, China will suffer a hard landing. “
  • Recommends China letting the currency rise, but that could “bankrupt a large number of SOEs and export companies.”

Full story : Project-Syndicate

HistorySquared

Roubini is citing 2013 to coincide with the change of political leadership. Historically, presidential changes have coincided with crises, as pointed out by UC Berkley economic historian Barry Eichengreen. The new leadership no longer is under the obligation to uphold the status quo of old, and indeed, may be motivated to do the opposite having seen the unintended consequences and wanting to leave their own mark. Unfortunately for the Chinese people, early evidence suggests this new leadership is unlikely to be the relatively pleasant as old guard.

Further Reading : China’s Princelings To Usher in New Era of Brutality, says Wang Deng

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