George Magnus – China Like US in 1929, Japan in 1980s

Georg Magus is one of the handful of economists to predict the financial crisis, and like almost all of those that did is predicting trouble in China. In a fascinating interview with China Daily to promote his new book his latest book, Uprising: Will Emerging Markets Shape or Shake the World Economy? he argues China’s supposed property bubble may burst and its economy could experience the same sort of slowdown that has afflicted Japan for the past two decades.

“It is the most obvious place where there is obviously asset-price inflation,” he says.

He believes the Chinese government’s 4 trillion yuan (4.5 billion euros) stimulus package since the economic crisis could end in some form of bust.

“Whether the tools of monetary policy are being applied adequately to put this genie (asset-price inflation) back in the bottle is where my concern is in a nutshell,” he says.

Magnus says China’s political leaders are currently grappling with the same sort of economic issues that faced American politicians in the 1920s before the Wall Street crash and, indeed, the Japanese in the 1980s.

Magnus says it is alarming that China is talked of today in similar language to Japan three decades ago.

“The balance of financial power then seemed to be changing, Japan was the world’s largest creditor, the emperor’s gardens in Tokyo were supposed to be worth more than the whole real estate of California and Japan was going to take over the world,”

Magnus rejects some of the analysis of other writers such as the British Marxist intellectual Martin Jacques, author of When China Rules The World, who predicts a gradual Chinese ascendancy throughout the 21st century.

“There are those that say the West is finished. China will rule the world and we will all become Chinese. I don’t think it will be quite like that,” he says.

More news today that China desperately fears overheating, mininmum deposits for first time homebuyers have risen to 40%, and local government leaders warned that they will be severely disciplined if they run up excessive debt.