China problems

A couple of weeks ago, I heard a (ABC Radio National) Counterpoint interview with George Friedman from Strategic Forecasting about the future of China. He made out a pretty convincing sounding case for possibly quite severe economic troubles ahead. A transcript is now available.

This seemed to be a crucial point:

George Friedman: The conservative count of non-performing loans is $600 billion in non-performing loans. A more realistic estimate that comes from companies like Ernst & Young are $900 billion in non-performing loans. There are some who say that non-performing loans are in the $1.2 to $1.3 trillion range. However you look at it, we're talking about somewhere between 30% and 60% of the Chinese GDP being bound up in bad loans. To benchmark it, when Japan reached about 15% non-performing loans of GDP it began its severe generation-long recession.

When East Asia, particularly South Korea, for example, reached about 20%, 22% it began to tumble.

The news today that China is expanding its military spending was in line with what Friedman said here:

China is not that difficult a country to blockade, and the Chinese regard the Americans as highly unpredictable, not fully rational, and that makes them very nervous. So one of the things we've seen the Chinese do, we saw a Chinese submarine penetrate an American carrier battle group a few months ago which is a pretty aggressive and unusual move. We've seen them in space use lasers to try to blind American satellites, and we've seen them demonstrate an anti-satellite system.

So the Chinese are moving fairly aggressively in the high-tech side of things to develop counters to American power, and quite frankly they've got people in Washington quite concerned because they seem to be very good at it.

You really should read the whole interview.