Daily Telegraph
Andy Xie, a leading consultant, said China's boom was a "giant Ponzi
scheme" that was likely to "bring very bad consequences" for
the country.
"The stock market is in a final frenzy again. The most ignorant retail
investors are being sucked in by rising momentum," he said. Equities
are overvalued by 50pc to 100pc.
Mr Xie, who wrote his doctoral thesis on Japan's bubble in the 1980s, said
China's ratio of property prices to incomes is seven times higher than in
the US. It costs three months' salary per square meter of space – arguably
the highest in the world – though tower blocks are sitting empty. Prices are
being propped up by state enterprises, abetted by local Communist bosses.
Mr Xie said Chinese booms and busts follow a political rythmn. There is a
deeply-rooted belief that the authorities can keep the game going – the "Panda
put", China's answer to the "Greenspan Put" – and that the
Communist Party will not let the rally fizzle before the 60th anniversary of
the revolution on October 1. This belief is self-fulfilling, for a while.
Mr Xie expects China's rally to falter around October, followed by fresh shots
of liquidity before the economy falls into a deeper slump by 2012. "Property
prices could drop like Japan's in the last two decades, which would destroy
the banking system," he said.
Mr Xie said China's asset boom is the flip-side of the weak US dollar. US
monetary stimulus is in effect leaking across the Pacific. Bust will follow
when the dollar rallies, draining liquidity again. If the Fed tightens
abruptly as it did under Paul Volcker in the early 1980s, the denouement
could be painful for China.
