Wikileaks Cable Reveals Chinese Gov Aware of Bubble, Over Capacity, and Coming Downturn, and more.

Many amazing revelations from the latest Wikileaks cable. Here are some quotes:

1. This cable contains sensitive but unclassified information - not for distribution on the Internet. 

2. Summary: The head of the World Bank's International Finance Corporation (IFC) office in Chengdu, a PRC national with a patriotic bent, acknowledged that China faces possible asset bubbles [...] 

China does have overcapacity in several industries, but the emphasis on mega-projects by local politicians, many of whom are engineers, will make reducing overcapacity more difficult. 

[...] However China's "terrible" educational system, which promotes copying and pasting over creative and independent thought, is the largest impediment 

3. (SBU) In a December 17 meeting with Consul General, the head of IFC's Chengdu office, Lai Jinchang, discussed the question of whether stimulus policies have created asset bubbles in the Chinese economy. [...] he particularly noted increased prices in iron and steel, petroleum products, electricity, water, edible oil, and produce. However, Lai, perhaps in part out of patriotism and bureaucratic survival instincts, made the ambivalent prognosis that, although "The signs of an asset bubble are there," the economy was not yet experiencing "genuine" asset bubbles. 

5. [...] [Lai] agreed that overcapacity was a problem in a number of industries.

7. [...]  Discussing the Beijing and Shanghai markets, he [Lai] described the housing prices as "a little scary" and in many cases "totally out of reach" for the vast majority of Chinese citizens. Nevertheless, investment in the hotter housing markets - for those who can afford it -- will likely remain secure for a while to come, he predicted. Although purchase prices often far outstrip realistic rental incomes, the capital gains on most housing purchases will continue to make the purchases worthwhile. The apparent excess of new empty apartment buildings in urban areas, along with price increases, was not necessarily irrational, Lai asserted. Rather, he believed these trends to be driven by the long-term process of urbanizing the Chinese population - a process that still has years to go.

You gotta love this whole statement about how prices are scary, out of reach, there's overcapacity, and over-supply, that rental incomes are too low, BUT YET, purchases are worthwhile and the trend will continue.

[...] 9. China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years, Lai said.  [...] 

Please, define mid-level. Whatever it means though, the share prices with a PE of 100 do not price in such a long painful path. Quite the opposite.

11. However, Lai identified China's "terrible" educational system as presenting a serious impediment toward achieving a shift to a more knowledge-based economy. The current system promotes copying and pasting over creative and independent thought. Lai said that the system rewards students for thinking "within a framework" in order to get the grade. He described the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking. He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa.

I can confirm this copying mentality, and the lack for creative thinking and thinking outside of the box from what I have seen during my travels in China. This is very much the result of many decades of communism, the great firewall of China preventing any outside information from reaching the inside and also of course their educational system put in place by the government to great lambs who will not leave the heard, and who will not fight against the system.