45% of Investors Expect China Financial Crisis Within Five Years

In a global Bloomberg poll, 45 percent of investors are expecting a financial crisis in China within the next five years, and yet another 40 percent are expecting that one could take place sometime after 2016. Those polled included investors, traders, and analysts, and about 53 percent indicated that they also consider the Chinese economy to be in a bubble fueled by speculation.

According to Bloomberg:

“On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion).

“Any Chinese financial emergency would reverberate around the world. The total value of the country’s exports and imports last year was $3 trillion, with about 13 percent of that trade between China and the U.S. As of November, China also held $896 billion in U.S. Treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao’s visit last week to the White House for meetings with President Barack Obama…

“…Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories. […] Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is ‘exceptionally worried’ that the Chinese would eventually face ‘major dislocations within their banking system.'”

By region, 60 percent of the Asia-based respondents think exaggerated expectations are to blame for China’s overheating asset prices. The potential problems China may face include diminishing exports to consumer-driven economies, how to manage its vast dollar reserves, and soaring inflation… not to mention how it will handle pressure to allow its renminbi currency to appreciate further and faster. You can read more details in Bloomberg’s coverage of a global poll showing that investors expect a China crisis within five years.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning