Economists have been crying out "bubble bubble !" on china for 10 years. The science of capital as applied to western countries do not apply to a system like china where there are so many SOE. Imagine if economists applied the same type of thinking during WW2 and the space race.
China seems to be in a similar "war" mode, with there economy. This is a good thing since their goal seem to be allow billions of asians to have the same level of living standard as western countries.
The growth of tech outside of silicon valley is good news for everyone. It creates an alternate market for competition, rather than the current monoculture.
Ah, there it is... the "this time it's different!" argument.
I fear that the different that the number of "State Owned Enterprises" will have is that where the bubble would "naturally" be popped by "natural" market forces, the incentives in China will cause it to inflate even farther, even faster, until it pops even harder.
Bubbles are not created by "capitalism". Bubbles are created by feedback loops feeding on themselves, which are unavoidable (where there is any form of negative feedback, there are oscillations). A State may well keep a bubble alive where capitalism would have popped it. That it hasn't popped yet could really be a sign that this time it's different; China does have greater capacity for growth on the same tech stack than the US does. But it could also mean that the malinvestment is getting even farther than the US tech bubble ever did. Bubbles being what they are, the greater capacity for growth could even be making it worse... if the economy could support X more growth but the bubble inflates that into 10X more investment, that could mean the greater capacity for growth is itself a participant in the inflation.
The "pop" isn't caused by "capitalism" either... bad investments that can't pay for themselves are bad investments that can't pay for themselves, regardless of the economic system in which they occur.
(I fear, because no one will escape this unscathed if it happens. The Western economies still haven't recovered from their last recession and are quite rickety themselves (since the West seems to have fallen in love with centralized management once again itself, and there is perhaps not a bit of book cooking here too). If a Chinese bubble does pop and it is that bad, it's not going to be any fun for anyone.)
However it's really not good news if it is a bubble. My take from the article, while companies may be pulling a profit, given the average valuations they are still extremely overvalued. If this is the case absolute profit means diddly without income to value ratio and there will be a rude awaking when people realise this as we have seen repeatedly in history. Unfortunately finance world errors like this flow heavily into day to day life of everyone else.
And as for people crying out "bubble bubble !" on china for 10 years. In my life typically people make these claims for years pre-implosion (see dot-com bubble) almost to the point you get skeptical and think they are naysayers, and then it happens. And if this market pops, people wont trust the sector for some time after a bust forcing people out of the tech industry, general flow on repercussions to the economy, let alone the international repercussions for an economy the size of China.
Having lived through both the first dot-com bubble and the recent real-estate bubble, I've noticed a pattern:
1. Natural cynics think things are looking a bit bubbly.
2. Years pass.
3. Society as whole becomes heavily invested in the bubble. I can't go to a cocktail party or family reunion without people buttonholing me to talk about tech stocks or real estate.
4. An ideology is invested explaining why assets of category X will undergo very long-term exponential growth. During the dotcom boom, it was "Dow 36,000". During the real estate boom, it was "If you don't buy a house now, you'll never be able to afford one." (If you're cynical, you might assume this kind of delusional hype is an effort to find one last fool to buy in before the party's over.)
5. The whole thing explodes messily.
So for me, those are the warning signs: Society-wide buy-in, and new ideologies that explain why "X will always go up." Oddly, this means I'm not too worried by a near-term tech bubble, despite the hype and money in San Francisco: I'm not seeing the widespread public buy-in and rampant wishful thinking I've seen before. Of course, this may be because few companies are undergoing IPOs, and the bubble is limited strictly to private capital.
Unfortunately, there aren't enough resources on Earth to allow all Chinese citizens to live at US standards; possibly EU standards if people cut back meat consumption, no longer need fossil fuels, etc.
Not NQ Mobile.
"Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times"
That money has redirected into equities. China saw three million new stock trading accounts opened in just the first two weeks of April.
China has been flooding their economy with truly massive sums of liquidity and debt the last five years. It will continue to redirect into available assets until it gets destroyed in a crash (which will be in the form of a huge stock market crash, soon).
This is end of the line for China's boom phase. They're almost perfectly repeating what Japan went through as their growth boom came to a halt, including the mistakes (extreme debt, asset bubbles in real estate and stocks, etc), and other signals such as demographic decline and 'deflation.'
I've been following Michael Pettis quite closely. Great analyst, understands and explains the global balance of payments very well, lives in China, etc. His opinion has moved from 'China needs to rebalance' to wording that sounds like he's not sure there is going to be much growth for a long time.
China's growth for some time has been the result of malinvestment on a massive scale. At minimum since 2008, possibly even before that. The factories that we think could be productive and producing things people really want at the right price could be in that position because of very negative inputs (unaccounted for pollution, interest rates being subsidized by someone else, etc.) Fundamentally, when you have an economy growing at a rate above the interest rate, many companies can just overgrow their debt while taking on new debt. Unprofitable operations can be hidden for decades.
It is now within the realm of possibility that China could see 1-2% growth for decades ahead. In short term, I would expect negative GDP growth. Based on what has happened to the price of oil (and other raw materials), and the drop in high end consumption due to a 'corruption crackdown' this could already be underway.
In general this should be a good thing. Certainly it is for the environment and climate change.
I think it'll be a massive hit that will level them out when it happens, but I don't think it'll be a "New Japan" with deflationary problems and a truly stagnant economy. They'll probably end up more like the US with a steady growth rate over a long time horizon that will fix things in 10 years or so. Which, if we are being honest, is really not that much longer than its taking the US to fully recover from the Great Recession.
US at dot.com peak was already very competitive market. Chinese technology sector and markets are still undeveloped. Even decreasing GDP growth is almost double what US growth was during the bubble. This increases profit potential.
It was only a year ago that the Shanghai stock market was thought toxic given so much insider trading (you couldn't make money on it without guanxi).
