What is China’s Return on Investment (ROI) on stimulus? China has stimulated more than $ 600 billion in its economy to achieve high GDP growth. Do you think these all are realistic investment that will provide return in future?
Majority of Chinese investment, in the last 18 months, during recession were made on development of highways, subways, flyovers etc. however it is not sure whether these developed facilities are going to provide returns in the future. These investments were made just to achieve high growth without making proper alignment of requirement & development.
Instant question arises in my mind that is it possible for a country to achieve 10% GDP growth during the time when global economy is in deep recession. Yes it can be possible if Chinese economy was domestically driven however truth is that before the recession hits china was an export driven economy with more than 60% of revenue comes from export. This triggers further question, how can a country that was export driven before recession can achieve 10% GDP growth rate during recession by enhancing domestic consumption. This seems really next to impossible as normally it takes more than a year’s time just to shift and make an alignment from export driven economy to domestic driven economy.
India has also achieved more than 7% growth during this recession however India’s growth is a real growth, from the beginning itself India was domestic driven economy and this high growth was achieved due to increase in real consumption rather than inventory pile-up or non-required development.
Now another question triggers when and how can China achieve benefits from these facilities? If these facilities can be used in future then how much will be the time lag before benefits starts coming out of it.
Does time lag between facilities buildup & usage can provide adequate desired return on investment? These are the initial trigger point that shows creation of bubble which can burst in future.
Can you imagine China as biggest bubble in world economy? Right now nobody can imagine but the way things are shaping up in China makes it reality.
One of the Consulting firms market intelligence cell has said in an Asset Allocation Submit, Asia 2010 that China is in the midst of “the greatest bubble in history” which is waiting to burst. As per the firm there is massive misallocation of wealth in China. Leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off balance-sheet debt through regional governments and the country’s human rights record are concerns. Debt fuelled bubble in China may trigger a regional recession within a decade.
Apart from this Washington based World Bank said in a quarterly report on China released in Beijing that China’s “massive monetary stimulus” risks trigger large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects.
As per the firm, China doesn’t deserve any investment except for short-term speculation, only India and Brazil are two of the “real economies” among the developing countries.
However reality is that China remained the largest overseas owner of US debt after trimming its holdings by $5.8 billion in January to $889 billion. China will suffer massive losses if the debt was dumped, reducing the funds available in the US securities market and forcing the prices lower.
What’s your take on Chinese economy? Do you think it is a biggest bubble waiting to burst? It will be great to have your comment…………