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| Image: Knowledge@SMU |
Some of you may be wondering why I have been posting all these links to Knowledge@SMU. In addition to there being some gems on the website, I also have been a contributor and the articles I have posted so far have been written by me (though I might post some others in future not written by myself).
Investors in China have rode some fast and furious bull runs and equally heart-stopping falls, and they might wish to pay heed to the huge and potentially devastating effects of the unsustainable amounts of local government debt, which might ultimately require a bailout not unlike that of the bank bailout in the developed world.
Carl E. Walter and Frasier J.T. Howie sound off warning bells in their book entitled Red Capitalism, which talks about the near-incestuous relationship between the mega- State Owned Enterprises (SOEs) and the government, and how China's banks are practically "state utilities" to be turned on and off by the central government.
They warn that "“one cannot simply assume that words such as ‘stocks’ or ‘bonds’ or ‘capital’ or ‘yield curves’ or ‘markets’ have the same meaning in China’s economic and political context” than that understood in international finance. They highlight the need to look beyond the curtain to glimpse the rot beneath and discern the true flows of capital in this so-called economic miracle."
Read the full review here.
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