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Is China an ‘Enormous Tail-Risk’?

Posted By Barry Ritholtz On January 23, 2011 @ 6:17 am In Economy,Short Selling | Comments Disabled

“The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.”

-Anonymous hedge fund manager in Mayfair. England

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Fascinating article in the UK Telegraph about the increasing risk that China’s rampant “growth at any cost” poses to the global economy:

“There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.

One academic said: “Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of ‘distress China’ funds is a sign to sit up.”

More analysts are becoming bearish too. Last week, Lombard Street Research put out a note warning of China’s “already dangerously home-grown inflation”.

The analysts said figures showing the continuing boom in China were far from welcome: “On the contrary, Chinese policymakers have to slam on the brakes.” The financiers are warning that rather than depending on China as the prop of the recovery plan, Britain needs to be braced for another shock.”

My question is whether China’s central planners can circumvent normal market forces — or if they can keep the economy humming along for 20 years as they migrate 800 million people from the exurbs to the cities . . .
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Source:
Hedge funds bet China is a bubble close to bursting [2]
Louise Armitstead
Telegraph, 16 Jan 2011
http://www.telegraph.co.uk/finance/economics/8261740/Hedge-funds-bet-China-is-a-bubble-close-to-bursting.html


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[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2011/01/shanghai_1804276c.jpg

[2] Hedge funds bet China is a bubble close to bursting: http://www.telegraph.co.uk/finance/economics/8261740/Hedge-funds-bet-China-is-a-bubble-close-to-bursting.html

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