China is in a dangerous situation. Credit growth is the one factor that all the bubbles that burst had in common. Because China isn't an open economy, the bubble there can probably keep inflating longer than it otherwise would have. But the Chinese can't escape the laws of economics. If China's bubble bursts, it would cause a second hit to the world economy, and that would be terrible...
Where would China be without the huge fiscal programs its government put in place? The numbers already are beginning to come down. Export statistics show diminished growth. China's net exports -- exports minus imports -- are at 8% of GDP. But gross exports are one-third of GDP, so the dependence on exports is much higher than economists say. You can keep the engine running for a while, if you have the finances. If you can't sell the products, you fill up inventories. But that is not a policy for the long term.
~ Felix Zulauf, "New Strategies for a New Era," Barron's, January 18, 2010
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