Posted By thestatedtruth.com on February 24, 2010

Feb. 24 (Bloomberg) — China’s economic growth will plunge to as low as 2 percent following the collapse of a debt- fueled bubble within 10 years, sparking a regional recession, according to Harvard University Professor Kenneth Rogoff.

“You’re not going to go a decade without having a bump in the business cycle, Rogoff, former chief economist at the International Monetary Fund, said in an interview in Tokyo yesterday. We would learn just how important China is when that happens. It would cause a recession everywhere surrounding the country, including Japan and South Korea, and be horrible for Latin American commodity exporters, he said.

China, set to surpass Japan as the second-largest economy this year, has helped pull the world out of its deepest postwar slump. Record lending, soaring property values and accelerating economic growth prompted the government to begin retracting stimulus measures implemented during the global recession.

“Their response to the latest financial crisis clearly raised the risk that they have a debt-fueled bubble in the economy said Rogoff, who in 2008 predicted the failure of big American banks.

In 2008, China cut interest rates, started rolling out a 4 trillion yuan ($586 billion) spending package and scrapped quotas limiting lending by banks to counter slumping exports.

While Rogoff said he isn’t sure what will cause China’s bubble to pop, he said land is the best bet as it is the most common source of crises. Real estate values in Shanghai and Beijing have taken a departure from reality,said the economist.  China, the world’s fastest-growing major economy, expanded 10.7 percent from a year earlier last quarter. The World Bank forecasts a 9 percent expansion in 2010.

China may provide more than a third of global growth in this year, according to Nomura Holdings Inc., Japan’s biggest broker. The country’s policy makers aim for a minimum of 8 percent growth annually to create jobs and avoid social unrest.

The global financial crisis left 20 million Chinese migrant laborers unemployed and more than 7 million college graduates seeking work by March last year. In February 2009, a clash between police and about 1,000 protesting workers from a textile factory in Sichuan province injured six demonstrators, rights group Chinese Human Rights Defenders reported.

World exporters are increasingly relying on China as consumers in the U.S. and Europe retrench.

Chinese policy makers are trying to cool lending that helped property prices in 70 cities climb at the fastest pace in 21 months in January. The government aims to reduce new loans to 7.5 trillion yuan this year from a record 9.59 trillion yuan in 2009. The People’s Bank of China raised the proportion of deposits that lenders must set aside as reserves twice this year to cool the economy.

“If there’s a this-time-is-different story in the world right now, it’s China, Rogoff said in the speech at a forum hosted by CLSA Asia-Pacific Markets, a unit of Credit Agricole SA, France’s largest retail bank.

People say China won’t have a financial crisis because there’s central planning, because there’s a high savings rate, because there’s a large pool of labor, blah blah, he added. I say of course China will have a financial crisis one day.

More at http://www.bloomberg.com/apps/news?pid=20601087&sid=a4MydrE5VOEM&pos=4

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