A recent research paper written by Edward Chancellor, a member of the asset allocation team of global investment manager GMO, argues that past manias and financial crises have shared common characteristics, many of which are clearly evident in the Chinese economy.
In the first place, he says, you need a compelling growth story to get a bubble started. Often, this involves a revolutionary new technology, such as railways in the nineteenth century, or, more recently, the internet. In China’s case, the growth story rests on from its massive population of 1.3 billion people.
Chancellor argues that China’s growth is decidedly lop-sided, relying too heavily on increasing exports. China, he warns, simply can’t keep increasing its trade surpluses with western countries without provoking protectionism from the US and others.
In BusinessSpectator he also points to other common features of speculative manias – such as a fixed exchange rates, risky lending practices, and corruption – which are also evident in China. He thinks a bubble inevitable.