Thursday, December 12, 2002

Several months back I read a story on China which made the (to me) startling statement that their economy would surpass ours within the next 20-25 years. I thought that was idiotic, but I have since seen other statements by experts on the issue which tended to support it.

It is with that background that I read this welcome bit of contradictory information:

TNR (requires registration)


But what if they're wrong? Look closely at the Chinese economy, and you'll find a far less rosy situation than that portrayed in most of the business press. The country's growth rates are vastly overstated, the result of cooked books and massive deficit spending. Companies selling to the Chinese market--foreign and domestic alike--are struggling just to break even. The economy is plagued by persistent deflation and a useless banking system. "Businesspeople have created a lemming effect," says Graeme Maxton, a specialist on China's auto industry. "They have convinced themselves they have to be in China or their competitors will overtake them, so they ignore economic fundamentals." The Chinese economic miracle, in other words, is largely a house of cards. And, when it falls, the consequences could be catastrophic.