China Tells

Vitaliy Katsenelson is a Director of Research at Investment Management Associates. He immigrated to USA from Russia in 1991, and he is the author of ‘Active Value Investing Making Money in Range Bound Markets’.

Katsenelson made a compelling presentation in February, 2010 (Read the Presentation Here) that China’s collapse will come sooner rather than later. Katsenelson theorizes there are three stages of of crisis phases: 1) Late Stage Growth Obesity; 2) You Lie; 3) Super Steroids R Us. According to Katsenelson, China now is already at the third stage of crisis, therefore a collapse might happen any time from now. Katsenelson makes an analogy that China is like a running bus with a bomb as storied in the movie ‘Speed’. If the bus runs below 50 mph, the bomb will explode. Similarly, if China’s economic growth slows down to below 8% annually, all kinds of problems will surface and all small probability ‘black swan’ incidents will happen.

I think there is a good point from Katsenelson’s presentation that China will face a lot of problems if the economy slows down. The employment rate in sectors of excessive capacity, such as cement and steel, might plunge and result in serious social unrest. The Non-performing Loans of Banks might skyrocket if the property sector is hit by a slower growth, and domestic inflation might go out of control if there is a pan banking industry crisis.

Of course, all these events seems very remote and unthinkable as of today. What Katsenelson described is an extremely pessimistic situation, though with a theoretical probability to happen. However, it provides as a valid warning that there is danger of the economy to get out of control if the government misbehaves. To complete the logic, Katsenelson still need to explain the China growth story in the past 30 years, and he simply concluded that ‘China government lied’. Such a conclusion is virtually impossible to test and verify, until the crisis happens or it never happens.

Vitaliy Katsenelson是International Management Associates研究部的总管。近日他做了一个非常有影响力的报告。在报告中Katsenelson声称，中国已经到了危机的第三阶段，也就是最后一个阶段。在这个阶段，中国经济随时都有崩溃的危险。如果中国的经济如他所料在短期内崩溃，那么受影响的不仅是中国，也还有全世界各国，到时候的情况堪称全球经济大海啸。