The Economist put together the following chart of the GDP of Japan and China as compared to the USA. Obviously China is nowhere near as advanced technologically as Japan was in 1990.
Also, note that ever since WWII, economic growth of the USA has been very consistent, averaging 1-2% in inflation adjusted GDP.
If the GDP of China was 12% of the USA in 2000, and 18% in 2005, does it seem reasonable that the economy would grow to be 38% the size of the USA by 2010?
Spending time in China starting in 2003 and living here full time from 2005 onward, I have not seen increases in consumer spending, increases in employee salaries or any other dramatic changes that would account for the massive shift.
What I have seen, is that the “Rise of China” is the most read news story of the decade. When good things happen, everybody wants to be involved and nobody wants to be left out. What happens when everybody is chasing the same asset, without paying attention to underlying value? Bubbles. I’ve also seen huge increases in gov’t spending without attention to ROI.
According to what happened in Japan, perhaps the bubble can hold on for another 5 years before bottoming out. But I doubt it will last that long. Why? Hopefully people will recall the Japan story sooner rather than later.
Also, facts about the true internal debt numbers could burst the bubble of the current Chinese miracle very fast.
The sad thing about this is that China is a great country. When bubbles anywhere burst, there are a lot of average people that get hurt in the process.