The problem with China-nay-sayers is they do not understand the Chinese playbook, which was pirated word for word from the South Korean and Taiwanese editions. The scary part for most folks is that South Korea + Taiwan = a single province in China in population size.
The Chinese is following the same pathway paved by the South Koreans and the Taiwanese. Both of those countries were under what we would call “capitalist authoritarian regimes” who guided growth and development until the economy took off.
If you look at the South Korean and Taiwanese GDP growth chart from the 60’s, both were showing steady upward trend, then both took off in the 90’s, but instead of continued skyward trend (which was what happened to Japan and its bubble), both nations then bended back to slow upward trend after reaching developed nation status in 00’s. That second bending of the curve received a lot of bad press in both countries, but it was the right course in retrospect. If you count, we are looking at 40-50 years post development for that 2nd bending of the curve to develop.
If you are afraid of a Chinese bubble, that is what you watch for. If you see that skyward trend continuing even after the average Chinese PPP per capita reach beyond $20-25k, then yes, you got a bubble forming. But it goes deeper then that. Because China is so big, you got to look at its ~40 provinces/municipalities as 40 countries individually.
For example, Shanghai (population of 16 million) currently has a PPP per capita of $20k. we should start to see Shanghainese growth rate slowing down over the next decade as that municipality reach “developed status.” If it doesn’t, then there’s a problem. What should happen is Shanghainese growth rate will flatten as investors depart Shanghai and attack inland provinces next door (kinda like how Hong Kong investors went to Guangdong and how Taiwanese investors went to Fujian).
The graph here shows the Shanghainese GDP growth. now the 2008 decline from 14% growth to 9.7% may be due to the global recession. but the idea here is we should be seeing a slowing from double digit growth to single digit growth for the city. But the rest of China will continue high flying at double digit growth and that is ok, and not indicative of a brewing bubble.
