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Howard Gold's No-Nonsense Investing
April 1, 2011, 12:01 a.m. EDT
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One way to end Irish crisis "” let banks go bust
By Howard Gold
NEW YORK (MarketWatch) "” For several years, China's economy has achieved one milestone after another: world's largest automotive market, biggest energy consumer, number-one exporter and leading manufacturer.
It has catapulted past Japan to become No. 2 in gross domestic product. Some say it's a matter of time before it leapfrogs the U.S. to become the world's largest economy.
All of that was powered by China's phenomenal GDP growth "” 10% annually for the last three decades, unmatched in recent history.
Factories, offices and other workplaces in Yamamoto Town were destroyed by the tsunami two weeks ago. Now residents here are lining up for help getting unemployment insurance -- and a job. WSJ's Eric Bellman reports.
But now China may be on the verge of a big slowdown as its leaders and lenders squeeze the liquidity out of a system that has produced one asset bubble after another in the last few years. That inevitably will spill over into China's stock markets, making them less hospitable for investors than in years past.
There are signs of big changes ahead from the highest levels of the Chinese government. In a March 5 speech to the National People's Congress in Beijing, Premier Wen Jiabao laid out what's ahead in the government's next five-year plan.
Wen said the government's two top priorities were first, maintaining price stability, and second, increasing consumption.
The second, of course, has been the biggest concern of the U.S. and other developed countries, which have run huge trade deficits with China and have urged Beijing also to let its currency, the renminbi /quotes/comstock/21o!2220385 (USDCNY 6.5477, -0.0006, -0.0092%) , rise.
It's a huge change. In previous five-year plans, economic growth was routinely the top priority, said Michael Pettis, a China expert at the Carnegie Endowment for International Peace who teaches finance at Peking University. Significantly, the leaders also trimmed their growth targets to 7% annual GDP increases, from 7.5% in the last plan.
Of course, China effortlessly racked up double-digit growth, and then some, year after year. But in an interview, Pettis said those days could be coming to an end.
"I think there's a growing concern in the more sophisticated economic circles that something is going to change," he told me. "Some people say the 7% [target] will be optimistic."
In fact, Wen himself told reporters in March: "It will not be easy for us to achieve 7% GDP growth with quality and efficiency."
Why? Because China has been performing way above the norm for years. The country has been in an investment-led boom since Deng Xiaoping unleashed free-market forces in the late 1970s.
"Certainly countries have grown rapidly in the past, but such growth has generally abated in time; 30 years is a very long run," wrote David Beim, a former investment banker and now a professor at the Columbia Business School.
In an important new paper, "The Future of Chinese Growth," Beim argued that China's hypergrowth cannot continue. Japan, he said, also racked up double-digit percentage growth rates from the mid-1950s to the mid-1970s, then growth tapered off and reached the 5%-7% range by the mid-1980s. Pretty strong, but not spectacular. Korea followed a similar path. Read Beim's paper "A Contrarian View of China's Growth."
Missing in the 88 pages the Central Bank of Ireland has produced in determining that the Irish banking system is undercapitalized by some $34 billion is a different way to end the euro-zone nation's financial crisis, says Steve Goldstein.
1:24 p.m. March 31, 2011
"Big share-price moves hit Ireland's banking sector; BoI up 21%; Irish Life off 48% http://on.mktw.net/ha4z34" 2:40 a.m. EDT, April 1, 2011 from MarketWatch
"Hong Kong stocks gain as property, energy shares rise; Hang Seng Index up 0.5% http://on.mktw.net/eJSW2F" 8:33 p.m. EDT, March 31, 2011 from MarketWatch
"Japanese stocks start new fiscal year with gains; Nikkei Average up 0.3% http://on.mktw.net/h9Um27" 7:05 p.m. EDT, March 31, 2011 from MarketWatch
"RT @dcallaway: Hey SF fans of MarketWatch. Cool investing debate in town on 4/5 at the Clift Hotel. Pls joins us. http://on.fb.me/flYoy3" 5:07 p.m. EDT, March 31, 2011 from MarketWatch
"RT @dcallaway: Six threats to stocks in the second quarter http://on.mktw.net/ewIJ8P" 4:48 p.m. EDT, March 31, 2011 from MarketWatch
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