The Rise and Looming Fall of China: Its Productive Capacity and the Upcoming Credit Bust

China has been able to achieve a rapid growth in the space of a few years mainly thanks to capital inflows and a positive trade balance driven in large part by its peculiar relationship with the U.S. The U.S.-based multinational corporations and banks have fully taken advantage of this deal. China got the export market and has been able to build the needed industrial base and transfer technology from abroad.

And yet, China’s innovation endeavor and productive capacity have been icing on the cake, as noted. The fundamental issue is whether, after all, their rigorous innovation/productive capacity building has benefited the few at the cost of the many.

While they have built industrial capacity, they have been blowing bubbles through excessive lending, wasteful infrastructure stimulus and speculation in the real estate market. Some like Jim Chanos argue that exports are only a small portion of China’s GDP.

China’s rapid economic growth has come with a cost. China is modeled after Japan, which has shown the perils of a command economy for the last 25 years. Of course, so is Korea. Even Western media outlet has reported China’s cool down, which was bound to happen. The looming credit bust may rock the world, given that many countries have depended on China’s growth. Perhaps people would then come to realize the nature of communism and pitfalls of a command economy colluded with Western crony capitalism.

(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)