Is China entering Japan's nightmare ? or already ?

gaijinalways said:

Dogen z posted
But since the OP's question related to Japan's bubble years, it's highly relevent to Japan, whether China is included or not. I see property bubbles in some of the hot zones in China (Beijing, Shanghai, and Guandong Province), just like ones in Japan centered especially in urban areas of Osaka and Tokyo from 1992 until 2001. I'm just not sure if the bubbles in China will fall as sharply as Tokyo's did and certainly the peak pricesin China probably won't be as high. Tokyo prime real estate at its peak had Ginza being worth more than California, and prices in Ginza for an average napkin sized piece of real estate were astronomical.

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It seems like us humans are wired for speculative excesses; in fact I don't think there's a country on earth without some kind of financial/real estate bubble throughout its history, of course not necessarily on the scale of disaster as the Japan and US financial/real estate bubbles.

But Japan and the U.S. have advantages other nations don't: Japan is the world's largest creditor nation, U.S. have sole authority to print the world's reserve currency.

The was most important part of the article quoted by Adulado

Adulado said:

...his [Chanos] detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

"I find it interesting that people who couldn't spell China 10 years ago are now experts on China," said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. "China is not in a bubble."

Colleagues acknowledge that Mr. Chanos began studying China's economy in earnest only last summer and sent out e-mail messages seeking expert opinions.
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I don't believe China is entering Japan's past nightmare. The Chinese government studied what happened in Japan and is careful not to repeat it.

Dogen Z said:

I don't believe China is entering Japan's past nightmare. The Chinese government studied what happened in Japan and is careful not to repeat it.

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Let's hope you're right. However, I fear China may just follow in the footsteps of Japan and the US unless they go rogue and do something on their own. Check out this article, "China heightens bubble fear as it tightens monetary policy" which complements the above mentioned link by Chanos. Some excerpts:

Fears that China could fall victim to a speculative bubble resurfaced on Tuesday as country's authorities ordered its banks to set aside more reserves in a precursor to a full-blown interest rate increase.

The People's Bank of China raised the reserves requirement for local banks by 0.5pc to 15pc of their deposits, only hours after raising the interest rates on its one-year bills in a connected attempt to cool economic activity.

China's policymakers hope to slow spending amid worries that the economy is overheating as money pours in from around the world. The increase in reserve requirements, which comes earlier than most economists had expected, is likely to be followed by an increase in the country's benchmark interest rates, experts said.

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China's foreign reserves top $2tn
BBC NEWS | Business | China's foreign reserves top $2tn

From Japanese experience, this is a bad news for China !
China's huge amount of foreign reserve is more than doubled of that of Japan, but a result of their USD-pegging policy. Japan experienced such a dilenma, resulted in 1980's bubble economy.

In short, Chinese government continues to collect USD in the market in order to keep USD-pegging, meaning .... purchasing USD and selling RMB in the market .... flooding RMB in the market and causing property bubble.....

China is exactly following Japan's path ... and moving towards the nightmare.

Krugman Says China Yuan Policy Depresses Global Economic Growth
Bloomberg - Are you a robot?

"We should not be afraid of what the Chinese might do if we pressure them to stop this currency manipulation," Krugman said.

At the end of 2009, China was the top foreign investor U.S. government debt, with holdings of $898.4 billion in Treasury securities.

Krugman said the U.S. may need to get more aggressive in its negotiations with China, perhaps by treating the exchange- rate issue as a countervailing duty or other export subsidy.

"Without a credible threat, we're not going to get anywhere," he said. "The chance that we would trigger a trade war is very small and it's hard to see any alternative."


Personally I don't care about China's currency manipulation. If they let the yuan float, China will definitely suffer from devaluation of USD-asset. Plus their cost-competitiveness will be seriously damaged. But USA is desperate for promotion of exports, and China is now a target for US export.

But considering nature of two countries, it will not be easy. US pressure against Japan worked some 30 years ago, but I don't know for this time.

While Chinese government clearly states yuan's current exchange against USD is fair, China may have already been trapped as Japan experienced a long time ago.

Taking On China
It's true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.

So we have no reason to fear China. But what should we do?
Opinion | Taking On China (Published 2010)

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It is not possible for China to keep USD-pegging policy as it will cause property bubble. Maybe China is taking different path from Japan, but option is limited as well.