China’s export-led growth model is on the verge of collapse, according to Richard Duncan, chief economist at Blackhorse Asset Management. He says that it is only a matter of time before the “great Chinese bubble” pops.
“Now the U.S. is in crisis, they can’t continue absorbing China’s surplus production, so China’s year of rapid export led growth is going to quickly come to an end,” Duncan told CNBC on Friday.
He believes the recent explosion of domestic credit creation has saved the collapse of China’s economy.
But Duncan is concerned that rapid credit growth could in fact lead to a banking crisis in the mainland. “There could be no more certain way to destroy a banking system that to permit 60 percent loan growth over a two-year period… Every boom busts, China's boom will be no exception."
China has been seeking to ramp up domestic consumption in order to rebalance its economy. It is one of the key tenets of the country's 12th 5-year plan.
However, Duncan says the rate of wage inflation will not be quick enough to allow the Chinese to consume what they produce due to the country’s “adverse” demographic trends.
“There are so many young people coming into the workforce and there are so many people coming from the countryside into the cities that wages can’t just go up very rapidly.”