The Valor Blog.
Investment News and Views, Direct from Our Team.

Absolutely ridiculous!

China does not know how much debt it has.

They are attempting to work out a figure for their local government debt. The estimates are within a $2 trillion dollar range. Yes, that is correct, a range which is around 30% of their economy. See the WSJ article here.

Is this one of the most ridiculous bubbles in history? Maybe?

How can anyone analyse this economy to make a confident investment? They can’t!

For those that believe China is a top down controlled economy ruled by seven guys in a room, I would suggest reviewing your thesis. This is the initial planning of the economy, however, China is driven by the local municipalities who are running rampant expanding their credit. This is one of the major factors in why the majority of analysts have missed this credit bubble. Experts talk of the government implementing a stimulus package in the event of a slowdown. The credit growth in the last few years of approximately 30% per year is possibly the biggest stimulus package in economic history. A bigger stimulus? Economic textbooks are already being rewritten with the current stimulus.

When you are flying a 747 toward a mountain, there is a computer with a GPS which shouts “Whoop Whoop, Pull Up, Pull Up!!!”. The credit bubble in China is shouting a similar chant to investors. Very few are listening. This is controlled flight into terrain.