Is the China Bubble About to Explode?
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  • bpuharic

    Isn’t this the “Japan, Inc.” model that so many of us in the semiconductor business saw in the early 80’s? Not sure where it’s headed but it doesn’t look good…

    • Philopoemen

      I don’t remember Japan’s economy being nearly as centralized as China’s…

      • rheddles

        Actually, Japan was probably more centralized as industrial production capacity was controlled by MITI and the keiretsu. That’s why Japan never overbuilt capacity. I get the impression that there are thousands of “military” commanders and party leaders who have independently decided to start businesses with money from state banks that are unregulated, feeding the unconstrained growth in capacity. And it doesn’t look good. Perhaps they can hire Kevyn Orr.

  • Jim__L

    Whether “overcapacity” is a problem depends on the context of the overcapacity, and how it’s handled. If there’s a glut of one particular product on the market, that has the potential to result in new thinking about applications for that product, and new opportunities for businesses that rely on that product for growth.

    On the other hand, if oversupplied products go to waste, that’s obviously bad. If companies producing oversupplied products go bankrupt, that’s bad too, especially if new and innovative companies that crop up to take advantage of the oversupply can’t survive without those products at oversupply prices. (See: solar installation industry.)

    This is just an instance of the old-fashioned virtue of making the best of what you’ve got.

  • Kejda Gjermani

    Innovation—the Philosopher’s stone of economic growth—cannot be planned. Chinese authorities can choreograph rural migrations and erect skyscrapers to prettify city skylines. But that won’t do. It takes something very different to create a lively, self-sustaining modern economy capable of intensive growth: steady property rights, unrestricted labor mobility, developed credit markets, provisions for intellectual property, and limits on bureaucratic interference—all missing in China. Only under such conditions can Hayek’s economic calculation problem be solved, entrepreneurship thrive, and decentralized knowledge direct economic activity. But when all you have is a hammer, everything looks like a nail. So instead of setting the economy free, Chinese central planners continue to experiment with mercantilist schemes and boondoggles of fiscal largess because these are the only tools at their disposal.

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