China GDP Grows 11.9% in Q1

More evidence of China’s overheated economy emerged yesterday with the release of the country’s Q1 2010 GDP estimate of 11.9%. This is the highest reading since Q2 2007 when GDP grew by an impressive 12.6%. In a statement by the country’s State Council accompanying the GDP release, the agency noted “the problem of excessive increases in housing prices in some cities is particularly acute.” This follows on the release of the March property-price index which rose 11.7%, accelerating from February’s 10.7% rise. While concerns are mounting that China will begin raising interest rates, official readings of broader inflation were only 2.4% in March, below Beijing’s target of 3%, suggesting that rate hikes may not be imminent. 

Though I firmly believe that China has all the makings of a growing asset bubble (i.e. debt-fueled growth in property prices, an overheated banking system, fixed asset investment approximating 30%), without the government taking decisive steps to prick the bubble, it’s exceptionally difficult to call the top. One of the most dangerous corners of investing is shorting a bubble that has yet to run its course (think tech in 1997/1998). While Lumpy Investor will continue to report on the mounting bubble forming in China, I will do so from the sidelines. Headlines like this: “Time to Deal? Carlyle Raises $2.55 Billion In Asia Fund” suggest to me that we many only be in the early innings of the China saga. Private equity funds are lemmings and I can assure you that every other mega buyout fund is plotting their strategy on how to benefit from the “Asia Miracle.”

The only thing I can say with reasonable certainty is that the longer the insanity takes place, the more painful the reckoning will be when rationality inevitably reemerges.