Interesting question posed by John Plender in the FT a couple of days ago : Is the credit crunch a prelude to a crash in China?
History suggests, Plender argues, that it could well be. He says that the credit crunch is a symptom of the liquidity bubble in China — a hiccough in a huge global recycling of liquidity that is the markets’ response to huge macro-economic imbalances.
China is still at an early stage of development, it may be a case of many bubbles and many crashes. The only question is whether the impact is felt globally, as in 1929, or mainly domestically, as with Japan in the 1990s. The longer policy remains inflexible, the greater the likelihood of a global backwash.
In this anniversary month of some of the great market crashes — 1929, 1987 — this piece provides a reality check to the soaring prices on the Shanghai stock exchange and runaway growth in the economy.