March 21, 2005

ENRON NATION:

Can China handle threats to growth and stability? (Ian Bremmer, March 20 2005, Financial Times)

Many analysts continue to tout China as the great investment opportunity of the new century. Yet, the long-term sustainability of its economic expansion remains uncertain. Can China’s explosive growth survive its corrupt and inefficient political system?

The economic record is, without question, impressive. Foreign direct investment levels jumped again in 2004 to a record $64bn. Between 1978, when its market-based economic reforms began, and the end of 2004, China has raked in an estimated $563.8bn – about 10 times the amount Japan has amassed since 1945. Wall Street analysts remain bullish on the People’s Republic, largely because these analysts tend to project growth rates for China’s next generation based on the performance of the last.

However, given China’s enormous and growing social and structural problems, there are few countries where past performance is less a guarantee of future results.


Actually past performance is an excellent predictor, just not the recent past.

Posted by Orrin Judd at March 21, 2005 3:57 PM
Comments

"Actually past performance is an excellent predictor, just not the recent past."

Any investment counselor who relies on growth figures released by Beijing is guilty of malpractice. I sense that, assuming the $64B foreign 'direct' investment figure is anywhere close to accurate, that figure includes a large chunk of baksheesh paid to Chinese 'partners' (i.e. "ganbu-lers" - see http://www.washingtonpost.com/wp-dyn/articles/A38448-2005Feb19.html - or others with political influence - 'guanxi') on which there will never be a return on 'investment'. I'll have to consult my children on the Chinese expression for 'bubble burst'.

I leave it to 'X' to chastise me if I have conflated Cantonese and Mandarin words.

Posted by: Fred Jacobsen (San Fran) at March 21, 2005 8:00 PM

"Actually past performance is an excellent predictor, just not the recent past."

Any investment counselor who relies on growth figures released by Beijing is guilty of malpractice. I sense that, assuming the $64B foreign 'direct' investment figure is anywhere close to accurate, that figure includes a large chunk of baksheesh paid to Chinese 'partners' (i.e. "ganbu-lers" - see http://www.washingtonpost.com/wp-dyn/articles/A38448-2005Feb19.html - or others with political influence - 'guanxi') on which there will never be a return on 'investment'. I'll have to consult my children on the Chinese expression for 'bubble burst'.

I leave it to 'X' to chastise me if I have conflated Cantonese and Mandarin words.

Posted by: Fred Jacobsen (San Fran) at March 21, 2005 8:02 PM
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