The bursting of China's political bubble.
Position | Off the News |
When most market analysts talk about, the bursting of the Chinese "bubble, they are referring to the recent dramatic losses on the various stock exchanges. The more serious bursting, however, could be of the social and economic bubble where government officials have allowed expectations to soar that hundreds of millions more Chinese citizens will soon be able to join the middle class.
Last month, Beijing announced a whopping $586 billion fiscal package to stimulate domestic demand. The package is so large many Western observers quickly concluded that Chinese economic strategists are worried not only about collapsing exports, but about seriously weakening domestic demand. Some forecasters predict fourth quarter GDP growth in China could drop from last year's nearly 12 percent to between 5 and 6 percent.
Market analyst Criton Zoakos points out that economic downturns in China never involve negative GDP growth. Instead, recessions take the form of GDP growth under 8 percent. In other words, 8 percent is the minimum growth level necessary to absorb new entrants into the labor force.
So what's the track record of a drop of GDP growth to the 5-6 percent range? Not reassuring. In 1958-1961, China's Great Leap Forward began when GDP growth dropped to 5.1 percent. Growth during the Cultural Revolution of 1966-1969 averaged 4.5 percent. The 1989 Tiananmen Square revolt occurred when growth...
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