Just a Little Scaremongering

Every week, Robert Samuelson writes a new column for Newsweek and its sister publication, The Washington Post, and every week it seems, I link to it. Today is no exception. Read:

Finally, China’s economy could grow so rapidly that it requires more imports. Unfortunately, just the opposite may happen. China’s present boom may be unsustainable. Credit is exploding. Loans are expected to grow by 3.6 trillion renminbi this year — equal to a third of gross domestic product, Lardy says. He foresees defaults and excess industrial capacity. Economist John Makin of the American Enterprise Institute — speaking at an AEI seminar — warned of a China “bubble.”

What Samuelson doesn’t mention is how much China today sounds like Japan in 1990. Huge trade surpluses with the United States, endemic corruption in the banking system, and a serious problem with excess capacity.

There are also important differences between the two countries, ones which might make a prolonged Chinese deflationary spiral unlikely. On the other hand, there’s this pair of differences: Japan’s history of warlordism is far in its past, and Japan never had nukes.

Japan has survived a decade-plus of slow- or no-growth, because they have a wealthy populace, already long comfortable with democracy and safe under the protection of American might.

The chances of China surviving whole more than a couple years of hard times is unlikely at best, and the results could be a global catastrophe.