A bubble not always bad if it leads to investments

By Wu Xiaobo Source:Global Times Published: 2018/2/5 0:08:39

Illustration: Luo Xuan/GT

What is the biggest bubble in the world today? The yuan. A bubble is not always bad, but the question is what to do after the bubble bursts?

About 30 years ago, like China today, Japan was in a bubble. How big was Japan's bubble? At the time, the total value of land in Tokyo was said to be equivalent to the value of all land in the US plus the entire market capitalization of the New York Stock Exchange.

Inside the bubble, the Japanese were excited, hoping they would soon become the world's largest economy. They were buying up all the good things in the US - the tallest buildings, the best beaches, the largest movie theaters and clubs. The Americans were also happy because the Japanese were buying the American bubble with a bubble of their own.

Three decades later, the Chinese people are grateful for the lessons the Japanese provided: we can't use our bubble to buy those of other people. We should use the bubble to buy the best of others, in other words, buy good assets and invest in poor countries.

What does it mean to buy good assets? From 2002 to 2017, China's foreign investment increased by nearly 20 times, and then it dropped steeply. Why? Because in 2017, a few people made the same mistakes the Japanese did 30 years ago. They started to buy houses, beaches, hotels, movie theaters and football clubs. All these are bubble assets. The super-rich Chinese people who were buying those bubbles were even more foolish than the Japanese.

If they were just using their own money, that would have been fine, but they borrowed heavily from banks in China, so it was the money of other people. What should they buy are robotic and pharmaceutical companies, the best assets. With new regulations having taken effect in 2017, we will see that cross-border mergers and acquisitions continue to increase in 2018, but with more rationality.

What is there to invest in when it comes to poorer countries? We were also a poor country in the past, but now we've got a little money.

Recently, a 20-something student told me that he had finished his education in Singapore and was working in his father's garment factory. His father wanted to send him to Myanmar to set up a garment factory, but he was hesitant.

I told him that Myanmar is the largest granary in South Asia with beautiful rice-growing plains. Myanmar enjoys the best seaport in the Bay of Bengal. For such a resourceful country, what will happen if it gets 20 years of peace? It will definitely become a remarkable place.

Why did this young man's father want to move his factory from China to Myanmar? In today's Myanmar, 1 yuan ($0.16) can buy three ears of corn, and the average monthly wage of female workers is only 10 percent of that in Dongguan, South China's Guangdong Province.

This kind of "post-development country" is what China was 30 years ago. So long as it has stable development, and learns from Chinese economic models, management experience and industrial capabilities under the framework of the Belt and Road initiative, the economy will develop rapidly.

Some neighboring countries that have been lagging behind China for 10, 20 or even 30 years now offer abundant business opportunities.

The author is a Hangzhou-based economic commentator. bizopinion@globaltimes.com.cn


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