There's been lots of talk around President Obama's Asian trip about China's economy being much more resilient than that of the U.S.
No question, China has bounced back from the global recession more quickly than the U.S. has. And its government clearly believes more firmly in investing in infrastructure and other means of underpinning its ability to produce rather than consume, as the liberal economist Robert Reich amply illustrates.
But the Chinese economy may be no less vulnerable to financial meltdown, thanks to its state-supported companies' reliance on leverage. Take this example.
As Victor Sheh, an assistant professor of political science at Northwestern University points out, accounts receivables represent most of Hainan Highway's assets of 2.7 billion renminbi. And the largest single source of those receivables is the local government entity that created the company. Those receivables have tripled in the past year, from 150 RMB to 450 RMB.
Sheh also notes that Hainan is probably less leveraged than other government-supported Chinese companies. Since it is listed on the Shanghai stock exchange, the academic points out, Hainan is considered one of the best of the lot.
Don't take it from Sheh. As we pointed out back in September, even the chairman of China's sovereign wealth fund says both his government and that of the U.S. are trying merely to re-inflate their busted asset bubbles.
So maybe that's where the Chinese have the biggest leg up on the U.S. On the other hand, one might argue that a bubble based on infrastructure spending is healthier than one based on McMansions and resort condos. At least our last one left us with the Internet instead of a ton of real estate headed for foreclosure.