It might have something to do with Australia’s position relative to China. Or China’s position relative to America. But does it bother you that China is such a foregone conclusion? Daily Reckoning editors are born and bred to question foregone conclusions. Daily Reckoning readers get nervous about investing in them.
So let’s question away and find out if your path to prosperity is really to learn Mandarin and buy Chinese stocks.
First of all, remember that China is making the same mistakes as America and the Soviet Union. That’s right – you might have read China has the best of both worlds. A command and control economy to keep order, and a capitalist mentality to create prosperity.
We’ve got a different slant. China has embraced communist manipulation and capitalist abuse of debt. Add the two together and you get vastly over indebted local governments who hide their true obligations away using the same techniques that Wall Street does.
Unlike their Wall Street counterparts, but just like their Soviet comrades, the Chinese know of this problem. That’s why they’ve been auditing their local governments. Estimates of what they found have been bouncing around all over the place. But the point is that the problem exists.
Secondly, keep in mind that China’s dramatic economic growth has so far been par for the course. If you suppress a gigantic economy with a gigantic population for a long time and then lift the lid, it is bound to go flying. But doesn’t that mean the busts will also be bad?
Last but not least, it’s worth noting that the communist party won’t just fade into the background. There’s a chance its leaders will gradually embrace more capitalism over time. But how will they react to their first recession, whenever it comes? Surely those still red under the bed as well as above will make a comeback? A mini communist revolution?
Dan Denning seems to think the opposite. We’ll let you know tomorrow what he says.
Until then, all you need to know is that all the editors made it to Sydney.
for The Daily Reckoning Australia