[Marxism] Is China the next bubble?

[Louis Proyect <lnp3@xxxxxxxxx>]

(Spoke to an old friend from the Trotskyist movement last night, who had
returned from a 2-week vacation trip to China. Two things stuck out. One
was the hyper-development that is like nothing he has ever seen, not even
in his home-town Los Angeles. There are vast commercial and residential
developments all around Peking and Shanghai that dwarf anything he saw in
his previous trip 15 years ago. The other thing was the persistence of
socialist consciousness, even in the most unlikely places. One of his hosts
was what might be described as a yuppie living in a lavish apartment with
an impressive view of Peking. She was as committed to communism as anybody
on this mailing list and saw China's current stage of capitalist
development as a necessary first step to achieving a classless society. In
other words a kind of neo-Kautskyism.)


NY Times, January 18, 2004
Is China the Next Bubble?
By KEITH BRADSHER

DONGGUAN, China

THE prospectus for China Green Holdings Ltd. looks a little like a seed
catalog. Color photographs show the corn, cabbage, pickled plums and other
vegetables that the company exports, mostly to Japan. There is even a
helpful list of the growing times for broccoli, cauliflower and sweet peas;
it is tucked between tables showing that the company earned $14.1 million
on sales of $31.2 million in its last fiscal year.

Though China Green's business literally involves small potatoes - cubed and
shipped in plastic bags - its initial public offering in Hong Kong was
anything but. Retail investors put in bids to buy more than 1,600 times as
many shares as were available for sale, making it the most oversubscribed
I.P.O. ever in Hong Kong. The stock jumped 58 percent last Tuesday, its
first day of trading.

Japan had its bubble in the late 1980's, when the Imperial Palace grounds
in Tokyo became worth more than all the land in California. Thailand and
Indonesia had their bubbles in the mid-1990's, when speculators and
multinationals poured money into what seemed like a Southeast Asian
miracle. The United States had its Internet and telecommunications bubble
in the late 1990's, when stock prices looked as if they could rise
indefinitely and unemployment kept hitting new lows.

Each of those bubbles ended badly, with millions of families losing their
savings and many losing their jobs.

As 2004 begins, China's economy looks as invincible as the Japanese,
Southeast Asian and American economies of those earlier times. But recent
excesses - from a frenzy of factory construction to speculative inflows of
cash to soaring growth in bank loans - suggest that China may be in a
bubble now, especially on the investment side of the economy.

Bubbles can last years before they pop, but they seldom deflate painlessly
when they do. Nobody knows how harmful a sharp economic slowdown would be
to China, a country undergoing huge social changes, like the migration of
peasants to the cities. The Communist Party rests its legitimacy on
delivering consistent annual increases in prosperity.

The Chinese government is showing concern. In the last few weeks, the
central bank has tried to dissuade banks from reckless lending while the
government has bailed out two of the largest ones, to prepare them for
possible hard times as well as planned stock sales. The State Council,
China's cabinet, has warned that it will discourage further construction of
new factories in industries like aluminum and steel, whose capacity has
grown swiftly in the last three years.

Because China is now so important to the global economy and to global
political stability, the possibility of economic trouble is starting to
draw serious attention among economists and China specialists.

Huge billboards in Guangdong Province commemorate Deng Xiaoping's decision
a quarter-century ago to allow capitalism to gain a foothold in a few
cities here in southeastern China. Practically ever since, China's
astounding economic growth has provoked warnings that the boom may not be
sustainable. Year after year, China has proved the worriers wrong, although
there have been a few missteps along the way, most notably when inflation
surged temporarily and foreign exchange reserves withered in the early 1990's.

But even by Chinese standards, things have been moving at a blistering pace
of late. Official statistics, which the government tends to smooth so as
not to indicate big booms or busts, show that the economy expanded 8.5
percent last year, despite the fact that growth came to a virtual halt
during the second quarter because of an outbreak of SARS. According to
independent economists, however, the Chinese economy actually expanded at
an annual pace of 11 percent to 13 percent through the second half of last
year.

Strains are already showing. Blackouts have become a problem in a majority
of China's provinces, as families with new air-conditioners and
refrigerators compete with new factories for electricity. Auto sales soared
75 percent last year, as prices in a market protected from imports until
2001 drifted down toward global levels. Still, automakers are planning huge
factory expansions in the hope that such growth will continue.

full: http://www.nytimes.com/2004/01/18/business/yourmoney/18china.html


Louis Proyect
Marxism list: www.marxmail.org


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