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Michael Roberts — Is China headed for a crash?

Summary:
China in not headed for a "crash" for the simple reason that the government controls the banking system.The question in any financial crisis is who is going to assume the losses. In market economies, it is generally "the little people" (h/t Alan Simpson), that is, those that do not count. But ultimately the Chinese government will absorb the losses instead of those now affected, the mortgage holders and bank depositors. And cowboy capitalism will be moderated more. The Chinese government has already been doing this lately, having recognized systemic risk increasing with the current liberalization policy.The problem arose from too much capitalism, as some of the leadership had been complaining. That is now likely to change in the direction of a more managed economy in which there is less

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China in not headed for a "crash" for the simple reason that the government controls the banking system.

The question in any financial crisis is who is going to assume the losses. In market economies, it is generally "the little people" (h/t Alan Simpson), that is, those that do not count. But ultimately the Chinese government will absorb the losses instead of those now affected, the mortgage holders and bank depositors. And cowboy capitalism will be moderated more. The Chinese government has already been doing this lately, having recognized systemic risk increasing with the current liberalization policy.

The problem arose from too much capitalism, as some of the leadership had been complaining. That is now likely to change in the direction of a more managed economy in which there is less risk allowed.

Michael Roberts sees that as potentially limiting growth but China economy was expanding at a blistering rate and can afford to slow down the pace without significant economic contraction.

While this is not likely to be sorted out overnight, it is not the collapse that Western Cassandras are foreseeing.

Michael Roberts Blog — blogging from a marxist economist
Is China headed for a crash?
Michael Roberts

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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