Wednesday, 5 April 2017
How long will China last?
Even I can't write about Brexit everyday - the newspapers seem less reticent. Surely Brexit insomnia will set in soon?
However, on a wider note, I have been considering recently how much longer China's debt bubble can last. As with all markets, accurate prediction is the key, without that there is no chance of making money. With China, being a communist controlled state, they have a lot more levers to pull when it comes to juicing their finances than most countries. Plus as the largest economy in the world they can also rely on everyone else to play the extend and pretend game in order to keep the party going.
The chart above shows the path that Japan and Korea both pursued during their own debt fuelled booms. As can be seen, China is on a huge tear currently that will out-shoot even Japan.
Japan has never really recovered from its debt-binge in terms of economic growth and development, sure they have nice stuff there and a high standard of living, but real growth is near impossible due to the debt burden and demographics. China will be in that boat too in short order.
The chart though is quite long-term, so I can see China having another 5 years or so of debt fuelled 5%+ growth before the big crunch. Perhaps this will then coincide with Brexit and the collapse of the Euro - who knows the domino effect.
One thing we can be sure of, this will happen as sure as eggs are eggs. In our own way in the UK, we know all too well the consequences of a debt binge - the China scale is around double the problem in relative terms that we had in 2008;