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China Will Face Crisis within 5 Years, 45% of Investors Say
added: 2011-01-28

Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years.

An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil.

On Jan. 20, China’s National Bureau of Statistics reported that the economy grew 10.3 percent in 2010, the fastest pace in three years and up from 9.2 percent a year earlier. Gross domestic product rose to 39.8 trillion yuan ($6 trillion).

Any Chinese financial emergency would reverberate around the world. The total value of the country’s exports and imports last year was $3 trillion, with about 13 percent of that trade between China and the U.S. As of November, China also held $896 billion in U.S. Treasuries. The trade and investment links between the two nations were underlined with Chinese President Hu Jintao’s visit last week to the White House for meetings with President Barack Obama.

Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy.

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

Chinese authorities also raised interest rates twice in the fourth quarter in a bid to choke off inflation, a sensitive political issue since the 1989 Tiananmen Square protests, which followed uncontrolled price increases. Food prices last year rose 7.2 percent, according to the National Bureau of Statistics.

Li Daokui, an adviser to China’s central bank, said rising real estate prices are the “biggest danger” to the Chinese economy, in an interview with Bloomberg News in Davos, Switzerland. The People’s Bank of China should “gradually increase rates in the first and second quarter,” Li said.

Still, the poll found other signs of mounting investor caution toward China, where three decades of market-oriented reform has obliterated a legacy of Maoist impoverishment.

Asked to identify the worst market for investment over the next year, 20 percent of poll respondents say China versus just 11 percent in the last poll in November. Almost half of those polled - 48 percent - say a significant slowing of growth was very or fairly likely within the next two years.

Most poll respondents remained confident of the Chinese government’s ability to fend off demands for greater political liberalization. Just 1 percent expect a political crisis within the next year and 27 percent expect one within the next two to five years.

And by a 60 percent to 30 percent margin, those surveyed say President Hu’s policies were favorable to investors. Hu tied with German Chancellor Angela Merkel for the poll’s top spot.

Source: Business Wire

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