The economist who predicted the global financial crisis, Nouriel Roubini, had pessimistic views on China’s near-term economic future. Roubini highlighted over-investment as a potential sign that China may be facing a downturn in 2013. He shared this anecdote with Reuters:
“I was recently in Shanghai and I took their high-speed train to Hangzhou,” he said, referring to the new Maglev line that has cut traveling time between the two cities to less than an hour from four hours previously.
“The brand new high-speed train is half-empty and the brand new station is three-quarters empty. Parallel to that train line, there is a also a new highway that looked three-quarters empty. Next to the train station is also the new local airport of Shanghai and you can fly to Hangzhou,” he said.
“There is no rationale for a country at that level of economic development to have not just duplication but triplication of those infrastructure projects.”
“For example, that same global demand contraction that may cut U.S. exports would drive down the prices of many commodities, like oil. Rising food and gasoline prices are arguably the chief obstacle for the U.S. economy at this time. Consumers and businesses have both cut their spending in response. If those prices begin to decline, then the U.S. recovery could get back on track.
Moreover, more aggressive investment in the U.S. could extend beyond just Treasuries. U.S. corporations could benefit if investors looking for a higher return than Treasuries provide turn away from equities in developing nations for a time and move to U.S. stocks. Of course, U.S. corporate debt will also look more attractive than bonds from firms in other nations with worse economic situations.”
Evidence of sliding commodity prices were noticeable at the end of today’s trading. From the Washington Post:
“Silver and copper fell on the latest sign of a slowdown in China’s economy. Both metals are used in manufacturing, and investors are concerned that a slowdown in China could cut into demand.”