KEY POINTS:
Is this the silly season again? By silly season I mean the time when people start long, complex and completely inconclusive arguments about whether China's economy is going to collapse.
Frankly, I thought we'd been through all that. In a way we have: there has been remarkably little interest in China over the past 12 months compared to India and Vietnam.
All China's economic indicators were positive and people just concentrated on enjoying the good times. In particular, that's a residential housing market which has literally doubled across the board on average, and a stock market which has done even better than that, despite a shock dip in February.
But that lack of debate is changing, possibly reflecting wider jitters in the world economy. The Bank of England got it wrong on inflation and the US economy (again we have heard this before) seems to be weakening.
The latest shot from the doomsayers is Andy Xie's recent article in the South China Morning Post. Xie is a brilliant and original economist, mainland-born, who worked for Morgan Stanley in Hong Kong before leaving for an increasingly common reason these days: the indiscreet email.
Still, he's undoubtedly a man worth listening to. He ends his recent article in the Morning Post with a classic comment about China needing stable, solid reforms to make its growth sustainable - not asset bubbles in real estate and housing.
It's worth recapping some of his figures to give an accurate impression of just how strong asset growth in China has been - although not everybody agrees with these figures.
Xie reckons that property accounts for 20 per cent directly and 50 per cent indirectly of China's GDP and that retail sales account for two-thirds of consumption - which is based on stock market gains.
He concludes that, overall, 20-25 per cent of China's current GDP is unsustainable demand. In other words, demand will drop by at least that much when the real estate and stock market bubbles pop.
Scary stuff - but I'm still not convinced that the bubble is going to see quite the crash that Xie envisages.
By his own admission, the Government is extremely reluctant to see economic dislocation. These days the tactics used by former Premier Zhu Rongji in the early 1990s are no longer acceptable. Recall that in those days he slammed the brakes on the economy overnight. Banks simply recalled all their loans.
These days, with the middle class bigger and stronger than ever, the Government can't carry out such drastic measures.
In any case, it doesn't want to. And I think the Government is right in thinking that this bubble has much further to run, if indeed it is as much as a bubble as Xie makes out.
For a start, the rise in asset prices is finally triggering a sustained rise in consumption.
This has to be good news. The Chinese are pathological about saving and this could be changed quite easily. Rising consumption will stimulate local retailers to provide better goods and services and should also stimulate imports for European and US goods and services.
That will take pressure off the currency peg and possibly even appease US Congressmen, currently up in arms about the huge trade deficit.
To say that the double bubbles are unsustainable is reminiscent of comments we have had about the Chinese economy for the past two decades. True, the bubble is especially frothy at the moment. But then it's the first time that the population at large has had the chance to indulge in some economic excess. For almost 30 years, the Chinese population has been working extremely hard and putting away most its savings in the bank.
Now, they are seeing the rewards for their pains in the shape of a reformed and re-energised stock market (and property market) which has - until now - been pathetically insignificant compared to the country's giant economy.
Mere liquidity is not always a good thing, but as in the US, China's current wealthy splurge is backed up by excellent fundamentals.
I am also very keen on the democratic nature of gains in the stock market and the housing markets. Wealth spreads to everyone. Sure, the greediest and stupidest will be left holding the can once the inevitable correction does set in. But I also believe that China's economy has proved its ability to be extremely profitable for over two decades now.
People with incomes going up 15-20 per cent per year have cash to burn. Let them speculate - speculation is the privilege of those who have got something to lose.
I think it's hugely encouraging that the Government respects its population enough to spread some wealth into their pockets. That's the difference between the Chinese Government and the Governments of Cuba, North Korea and countless African countries. Perhaps the Soviet Union would have survived longer if the local party had thrown some roubles to its population in the form of a good old stock market bubble.
Remember that there is really only one thing which could derail the Chinese economy right now, and even that would take a while. That's a US recession. But the effect of that would be slow and gradual, assuming the US Government ever allowed something as politically undesirable to take place.
The Chinese Government has put in place measures such as capital control and the pegged currency which by definition will be extremely effective in countering any hiccup.
I'd say more. No country in history has experienced a serious recession with a huge current account and trade surplus, banks bulging with trillions of dollars of savings, capital controls which prevent foreign hot money from flooding in and out of the country and a protected currency.
Come to think of it, that sounds exactly like Japan in 1989. The key difference is that China's psychological state is far rawer and hungry. The Japanese were overcome with a kind of revulsion at their own greed and corruption and essentially popped the bubble themselves. The Chinese are, fortunately, far thicker-skinned. Economic growth on this scale is not for the faint-hearted.
I suspect the reason people don't seem to see this is that the power of the Chinese economy puts all the Western economies to shame. And that's naturally hard to accept.
