Is China a Bubble?

We've been hearing for several years now about China's massive growth and off-the-charts savings rates. But I've seen a few things recently that have made me start to question these.

First, I heard an economics nobel laureate say that China's household savings rate is not very different from the rest of Asia; their high national savings rate is largely accounted for by corporate savings, namely retained earnings. Now, retained earnings are profits that are not paid out as dividends, or more precisely, reported profits that are not paid out as dividends. What if those reported profits aren't quite on the up and up?

Second, China's banking system has been pretty weak for a while. It's riddled with non-performing loans that do not get written off. So who knows about the real state of the system?

And then third, the Wall Street Journal today published this article, which details the massive debt crunch that is facing Chinese universities. One excerpt:

China is suffering from a higher-education equivalent of the global credit bubble. On government orders, China's universities -- most of which are state-controlled -- boosted enrollment by up to 30% a year, year after year for most of this decade, and built vast new campuses. Financing was considered a cinch: New students would mean more tuition to pay off the loans that funded the expansion. But those plans were wildly optimistic, leaving hundreds of universities across China crippled by debt...

In impoverished Anhui province, 50 universities owe $1.2 billion to banks, according to Zhao Han, who is vice president of the Hefei University of Technology in Anhui. Mr. Zhao, who is a government adviser with access to the financial figures, says some schools have debt payments that equal half of their tuition revenues.

This is classic, CLASSIC bubble stuff.

It's a far cry from three snippets to calling a bubble, but this is something I'll look into for future posts.