What they broadly say is:
- greek crisis is largely fear of the future that started when unthinkable events like Lehman Brothers collapsed which now has led investors to question everything. Generally the greek furore will die down but the euro will somehow never recover from this.
- China is going to continue its meteric rise
- USA should continue to allow China to grow despite continuing to be an undemocratic dictatorship with an aggressive military
- USA must stop threatening a trade war if china doesn't play ball
- We should all let china export its deflation-inducing growth to the world and learn to love China,
- there is no bubble in china, its all good
Overall the whole position is highly suspicious, it is offered as a prediction of what is going to happen when it looks more like what Goldman Sachs would like to happen and where it has bet its money. The fact that they are writing articles like this in the FT, betrays alarm that things are not going the way they have bet.
Here are some points that need to be considered:
- Dictatorships don't end up well in the long run, their internal contradictions build up over time and then cause instability, but this is not going to be a story of peaceful and admirable democratisation like in central europe. Asia is still fairly barbaric in terms of values and there are many military implications because of China's rising military power. These will come to a head in the near/medium future. China is not switzerland, it may well become aggressive one way or another especially if it realises that it is a good way to keep internal stability in the absence of jobs and growth.
- People like goldman have shown a lemming-like quality in their investing so much on the china story just as they invested so much on the previous US real estate bubble before. For various reasons china's future is going to be far less predictable than its past in the last 30 years, Goldman et al seem to have bet the house that things will continue exactly as they have in the past. It has to be remembered that the last time Goldman was badly caught out and would be bankrupt now if it wasn't for the american taxpayer saving Lehman. Their judgement is impaired, this is not the goldman of the past.
- There is a massive bubble in China, it seems to be using its savings to produce even more capacity to export to the west at a time when the west does not want to import anymore. China's mercantilism is glaringly obvious now, and its savings in the good times are artificially propping up its economy now (that is if you trust chinese statistics...). The degree of this lopsided hydrocephalic development is underappreciated. The biggest problem china has is that not a lot needs to go wrong for a vicious cycle to be set in motion, creating the mother of all panics as the people that have plowed investment into china may pull all that out quite suddenly. This realisation may be the reason for Goldman to be wheeling out its chief economist in the media. More to calm investors rather than offer insight. There is a distinct Enron-like press management feel to the whole thing.
- China benefits from the free trade religion in policy in a massive way, trouble is that a big trade war would probably tip china over very rapidly especially as all players seem to have concluded that they all want to pursue beggar you neighbour policies leading to this massive trade war. The biggest loser out of this by far would again be China.
- There is no political support for current policies towards China, it was never strong but now it is heading very low, and sooner or later policy will shift to match it.
- Linear development on unsustainable trends over very long periods of time is not how the world has experienced history. Its exactly when a nation looks unassailable that folly prevails (look at Japan...).