James White on the post-capital China paradigm.
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Being a China Bull – China’s Post-Capital Future
By James White
Source – An Abundant World, published December 14, 2012
Michael Pettis’ questions challenged the China Bull to look at three specific issues; the sustainability of China’s debt, the new focus of investment and improving consumption. My response has looked at these questions from different angles. I remain comfortable that being a China Bull is a defendable, though admittedly uncertain position. Uncertain because it means saying:
This time is different.
This phrase has, over decades, led many an economist to an early grave.
The return on capital does not define the economic outlook
My day job and the job of all working in financial markets has been to explain the return on capital for an economy, industry or firm. This is an essential function. Capital markets are about pricing capital and I contribute to that process in a very small way.
The problem comes when the return on capital becomes synonymous with the health of the economy and the welfare of its participants. Yet this is exactly where we’ve collectively arrived. Equity indices have come to reflect the health of an economy. But equity indices are not economic health reports.
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