Bubble Trouble May Lie Ahead For China Bulls

Premier Wen Jiabao: "The biggest problem with China's economy is that the growth is unstable, unbalanced, uncoordinated and unsustainable." The rise of China is one of the blessed miracles of modern economic history. But Chinese leaders know they cannot repeal the economic laws of gravity. As the economist Herbert Stein observed decades ago, "if something is 'unsustainable,' that means it won't be sustained." That is surely true with the unbalanced, export-led growth that has powered China's ascent. "China's dependence on export-led growth ... is unsustainable over time," Robert Zoellick, president of the World Bank, argues in a forthcoming article in the journal the International Economy. He cites a recent IMF analysis saying that for China to maintain its trend of 8% growth annually with the current pattern of trade, it would have to double its share of world exports by 2020. That isn't going to happen. "For a country addicted to export-led growth, making the transition to a sustainable economy won't be easy. People who assume that an ever-expanding China will inexorably replace America as the world economic superpower should take a close look at the numbers."

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