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sinobubble
This page considers the 'China bubble', reminiscent of
past bubbles in developing economies such as Argentina
and Mexico.
it covers -
introduction
Bubbles may be national or regional rather than sectoral
(ie affecting a specific country or group of emerging
economies rather than railways, telecommunications
or biotechnology). Preceding pages of this profile noted
irrational exuberance affecting offshore investment in
Argentina, Chile, Ottoman Turkey and Brazil and - more
recently - in Mexico, Malaysia and other 'tiger' states.
That enthusiasm was marked by -
- some
splendid architecture, eg superb fin-de-siecle streetscapes
in parts of Sao Paulo and Rio
- extravaganzas
such as Malaysia's Cyberjaya, the Petronas Towers and
Proton car
-
the disappearance or near-disappearance of financial
intermediaries (such as Barings in 1890).
The bubbles are an illustration that globalisation predates
the internet. French rentiers fuelled the explosive growth
of the Tsarist economy prior to 1914, Victorian and Edwardian
investors pumped money into Latin American 'economies
of the future' on the basis that extraordinary returns
would continue indefinitely or that returns would eventually
be commensurate with the capital provided from offshore.
Some national bubbles were home-grown, rather than reliant
on restless capital from oversas. One notable example
was the 1980s Japanese property
bubble, which saw land values reach stratospheric heights.
Perceptions that property would continue to increase in
value at a steep rate fed speculative lending (including
wild finance involving art)
and 'financial engineering' in the stock market. As with
all bubbles, the result for some people was tears. Japan
experienced a decade of deflation, with low or zero real
economic growth and the collapse of major financial institutions.
The real cost for ordinary people - for example those
who couldn't afford to sell their houses - has not been
counted. (There has been less attention to the personal
impact of inflated prices in the Singapore property market
in the past decade.)
Joe Studwell's The China Dream (London: Profile
2003) crisply notes how successive generations of overseas
investors have been bewitched by the notion of China as
the 'market of the future', one offering marvellous opportunities
for financiers, industrialists and advisers.
The latest version of that dream features hype about sure
profits through trading on China's stock exchanges. Soaring
share prices in Shanghai and Hong Kong reflect excursions
by foreign capital and expressions of hope by people within
China, who are essentially prohibited from direct investment
outside the world's largest autocracy. Some of those prices
have a distinctly dot-com flavour.
China syndrome
As of November 2007 China had five of the world's ten
largest companies by market capitalisation (although only
two in the top 20 by sales), with PetroChina (a notional
US$1 trillion at its IPO in that month and trading at
54 times analysts' forecasts for 2007 earnings, against
18 times for the industry) valued at more than double
ExxonMobil (US$480 billion) and nearly twice as much as
BP and Royal Dutch Shell combined. The other giants were
China Mobile, Industrial & Commercial Bank of China,
China Life Insurance and Sinopec. In 2003 the combined
market capitalization of China's publicly traded dot-coms
was US$5 billion, reaching US$50 billion in late 2007.
In the US at that time Google's market value was US$219
billion, (behind ExxonMobil, General Electric, Microsoft
and AT&T). 41% of the top 20 most valuable companies
in the world by market cap were Chinese, against 38% US
companies. A point of reference is 1999 when US companies
accounted for 77% of the top 20 and 1989 when 73% were
from Japan.
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