China will face crisis within 5 yrs: Investors

Written by Bloomberg | Updated: Jan 28 2011, 14:16pm hrs
Global investors are bracing for the end of Chinas relentless economic growth, with 45% saying they expect a financial crisis there within five years. An additional 40% anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7% are confident China will indefinitely escape turmoil.

There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained, says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted January 21-24. Panis likens the expected fallout to the aftermath of the US subprime-mortgage meltdown.

On January 20, Chinas National Bureau of Statistics reported that the economy grew 10.3% in 2010, the fastest pace in three years and up from 9.2% a year earlier. GDP rose to 39.8 trillion yuan. Any Chinese financial emergency would reverberate around the world. The total value of the countrys exports and imports last year was $3 trillion, with about 13% of that trade between China and the US As of November, China also held $896 billion in US treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintaos visit last week to the White House for meetings with President Barack Obama.

Investors concern contrasts with Chinese government statements on the outlook for the economy, which is poised to overtake Japan as the worlds second biggest. The Politburo said last month that the nation had a sound base for stable and fast growth in 2011 after consolidating its recovery.

In an interview in Davos yesterday, Li Daokui, an academic adviser to the central bank, said he doesnt expect any hard landing and the economy may expand about 9.5% this year. 53%of poll respondents say they believe China is a bubble, while 42% disagree. Chinas neighbors are the most concerned: 60% of Asia-based respondents identified a bubble in the worlds second-largest economy.

Worries center on the danger that investment, which surged almost 24% in 2010, may be producing empty apartment blocks and unneeded factories.

Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management, says he is exceptionally worried that the Chinese would eventually face major dislocations within their banking system.