China pessimism

Visiting China, Johan Norberg says that while he's impressed with all of the new wealth that there is also reason to be cautious:

But it´s also impossible to ignore potential risks. I have rarely met a more obvious sign of a real estate bubble than when my taxi driver explained that he owns four flats to speculate on increasing prices. Massive resources created by entrepreneurs have gone into government overinvestments in construction. And the banks are burdened with enormous bad loans to inefficient state-owned enterprises in the northern provinces. A financial crisis does not seem unlikely, and how the undemocratic system would deal with such difficulties is another mystery. As long as China´s political and legal system is not as open as the economy, China will remain a risky and unpredictable place.

That bit about the cab driver reminds me of a similar story. This should also give people pause:

Paramilitary police and anti-riot units opened fire with pistols and automatic rifles Tuesday night and Wednesday night on farmers and fishermen who had attacked them with gasoline bombs and explosive charges, according to residents of this small coastal village.

The sustained volleys of gunfire, unprecedented in a wave of peasant uprisings over the last two years in China, killed between 10 and 20 villagers and injured more, according to the residents. The count was uncertain, they said, because a number of villagers could not be located after the confrontations.

This, of course, comes on top of China's recent environmental disaster in Harbin that resulted in the likely suicide of one government official.

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Remember how Japan was portrayed during the 1980s as this unstoppable behemoth that was going to take over the world? And then instead it fell on its face? I'm reminded of that when I hear the way some people talk about China. The warning signs are already there. The lack of transparency and democracy in the country has to catch up with it eventually.