China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.
Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth.
FLG has been writing about this since this blog started. He has gotten into several disagreements with his MBA classmates on this issue. FLG may be wrong, but his classmates are merely repeating mantras from the media, not thinking about this with any analytical rigor. (And when there is any analytics at all it's based around linear projections from current trends.)
However, he also thinks that Dr. Doom is, as his moniker would imply, a little too bearish. FLG thinks the problems will arise more around 2015 than 2013. But that's 100% gut, not empirical analysis.
H/T to Buttonwood