It’s become popular to theorize that China is smarter than the US, that China’s economy is doing better, that China will rise to surpass the US, etc. This theory is false, in our opinion. China has massive government controls and intrusions into the market throughout the economy.
This article (http://www.zerohedge.com/news/2013-01-23/what-really-goes-china) enumerates some of China’s problems:
- credit bubble of unknowable but staggering proportions
- moral hazard encouraging perverse and destructive behaviors
- fraud, corruption, nepotism, and opaque bookkeeping practices
- borrowing short to lend long with endless “rolling” of liabilities
- dependent on rising asset prices
- rampant overbuilding of real estate assets
According to Chinese-American friends of ours who currently live in China, a few other trends are:
- second passports
- selling a home in China to buy one outside
- bypassing capital controls
- brain drain, especially in high-value fields like engineering
As always, it is difficult to predict the timing of a credit bubble collapse, but it does not seem so far away to this observer (admittedly an outsider).