Forbes: So how do you feel about the idea of there being a possible bubble in China? What do you think of China right now as a place to put investments?  Gary Shilling (A. Gary Shilling & Co. President): I think China is a house of cards. They've embarked on a huge fiscal stimulus program last year, $585 billion. And for an economy that's, you know, roughly a third the size of ours, you compare that with the $787 billion we have, it's obviously a much bigger percentage of GDP. Some of that money has gone into stock speculation, which the authorities aren't too happy with. Money's also going into real estate speculation, which they're also unhappy with. And a lot of it has gone into building industrial infrastructure, more steel, cement power plants.  They already had an excess back in 2007 before the economy succumbed to the world recession. And now they're adding even more. Now, it does employ people. And employing people who constantly stream in from the inner lands to the cities in China is important.  A lot of Chinese dynasties historically have gotten tossed out because of labor unrest. But the point is, what are they going to do with this capacity? Historically, they've used it for exports--most of which by our calculation went directly or indirectly to U.S. consumers. But U.S. consumers are now moving the other way. They're increasing their savings. They're turning their back on spending in general and--and-- and including imports. And for every one percent decline in consumer-- spending our imports, the rest of the world's exports go down 2.8%.  That's the post-World War II average. So if that doesn't work, the alternative, of course, is to use it for consumption spending in China. But that just isn't there. Consumer spending in China is only 36% of GDP. And it's falling.  In this country it's 71% in contrast, two extremes, China and the U.S. And it's unlikely to pick up anytime soon, at least not enough to absorb that capacity because the Chinese save like crazy. Their saving rate is increasing; the household saving rate is almost 30% now.  And they save both because it's a Confucian culture, which means you've got to save to provide for your family, but also because there's no equivalent of Medicare or Social Security. So people need to save for their medical care and old age.  On top of that, there just aren't enough people in China yet that have middle-class discretionary spending power. We did a study that probably fit in our monthly newsletter insight in November of 2007 at a time people felt that there was such a thing as decoupling and China was gonna continue to grow. And we were really raising the question, are there enough people in China yet to generate domestic growth?  Has industrialization gotten so far that you have a big enough middle class? It turns out that it takes $5,000 of income in China to have discretionary spending power to amount to anything. And there are 110 million people with at least that amount. But that's only 8% of the population.
Investing in China has always come with risks, that's why it can be rewarding.  But don't get duped.