Friday, January 15, 2010

China Will Implode Someday, says Marc Faber

Guru focus writes:
A couple of days ago, Short-sell Guru Jim Chanos called China “Dubai Times 1000” and predicted a crash in China. Another Jim, Jim Rogers disagreed and called Jim Chanos did not know what he was talking about.

Who is right?

Yahoo! Finance Tech Ticker brought Marc Faber to be judge.

Faber acknowledges there is excessive credit in China, but the oversupply of money has been used to build the infrastructure, education, and R&D, rather than consumed. And that is the difference between China and US.

Faber too is worried about the bubble burst in China, but he does not see it imminent. “ It is very difficult to pinpoint a day when China will implode, I don’t think it will happen right way”, he said.
Faber is right about a China implosion and the difficulty in identifying when it will occur. As I have said before, these things can go on for years. One signal that it may be near, though, is the recent money tightening moves by China's central bank. If the People's Bank of China stays on that path, the crash could occur by the end of 2010.

(ViaLRC)

2 comments:

  1. "Faber acknowledges there is excessive credit in China, but the oversupply of money has been used to build the infrastructure, education, and R&D, rather than consumed. And that is the difference between China and US."

    With China housing up 7.8% y/y, 1.5% m/m, garlic prices trading 15 times prior. China has bought HUGE amounts of soybeans, copper, ect and is basically supporting the entire commodity complex....how good is the case that China is investing in infrastructure?

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  2. Matt M,

    More important is the question, "How useful is that infrastructure investment anyway?"

    If you build a railroad and no one rides it, if you build a road and no one drives it, if you build a tunnel through a mountain in the woods and no one travels under it... does it make a contribution to productive activity?

    Can, say, Wal-Mart increase its earnings to infinity simply by building enough logistics centers and other trucking infrastructure? If Wal-Mart can't, why can China? Faber seems to be leaning on some faux-economic materialist objective value theory here right now, the same error Schiff often made/makes, "Well, at least they're making STUFF!"

    Making stuff doesn't contribute wealth to society unless the stuff is stuff consumers prefer. Every Austrian knows that, and so should Faber.

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