Investors warn of China crisis
Friday January 28, 2011
GLOBAL investors are bracing for the end of China's relentless economic growth, with 45 per cent saying they expect a financial crisis there within five years.An additional 40 per cent anticipate a crisis after 2016, according to a quarterly poll of 1000 Bloomberg customers who are investors, traders or analysts. Only 7 per cent are confident China will escape turmoil indefinitely."There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained," said Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted last week. Mr Panis likened the expected fallout to the aftermath of the US subprime mortgage meltdown.On January 20, China's National Bureau of Statistics reported that the economy grew 10.3 per cent in 2010, the fastest pace in three years and up from 9.2 per cent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($A6 trillion).Any Chinese financial emergency would reverberate around the world. The total value of the country's exports and imports last year was $US3 trillion, with about 13 per cent of that trade between China and the US. As of November, China also held $US896 billion in US Treasury notes. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao's visit to the White House for meetings with President Barack Obama last week.Fifty-three per cent of poll respondents said they believed China was a bubble, while 42 per cent disagreed. China's neighbours were the most concerned: 60 per cent of Asia-based respondents identified a bubble in the world's second-largest economy.Worries centre on the danger that investment, which surged almost 24 per cent in 2010, may be producing empty apartment blocks and unneeded factories.Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, said he was "exceptionally worried" that the Chinese would eventually face "major dislocations within their banking system".Chinese authorities also raised interest rates twice in the fourth quarter in a bid to cut inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price increases. Food prices rose 7.2 per cent last year, according to the National Bureau of Statistics.Haroon Shaikh, an investment manager with GAM London, cited "rapid wage inflation" and soaring property prices as the financial markets' chief concern.Li Daokui, an adviser to China's central bank, said rising real estate prices were the "biggest danger" to the Chinese economy. He said the People's Bank of China should "gradually increase rates in the first and second quarters".Since peaking at 3159.51 on November 8, the Shanghai Composite Index has slid about 14 per cent. "The market is right to be nervous," Michael Pettis, a finance professor at Peking University's Guanghua School of Management, wrote in his financial newsletter this week.Some investors remain unbowed. "China can continue to grow over 10 per cent for the better part of the next five years," said Ardavan Mobasheri, head of AIG Global Economics in New York.However, the poll found other signs of investor caution towards China.Asked to identify the worst market for investment over the next year, 20 per cent of poll respondents said China versus just 11 per cent in the last poll, in November.