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Is China Condemned to Repeat America's Mistakes?


With naivete comes unreliability -- both in products and information.

"Be skeptical of everything in China."

That's the most popular piece of advice I've received from friends and family wishing me a farewell on my upcoming move to Shanghai. Sadly, they have good reason to offer it.

While China has come a long way since Mao Zedong's rule, emerging into a more vibrant capitalistic economy, it's still far from reaching a mature market status. The country is still immature in many aspects and with immaturity comes unreliability.

This is why it's not so easy to believe all that comes from China is the real deal -- be it physical goods or governmental information. The country has been spotlighted by the media for its tendency to send the US substandard items, such as counterfeit pharmaceuticals, defective drywall, and tainted toys.

It's no surprise, then, that a few analysts -- including me -- are beginning to question the recent growth of China's economy. In what seemed like a stunning recovery, China announced second-quarter GDP growth of 7.9% earlier this month.

It's not that I think China is simply making up a number close to its 8% target to please the global economy -- though they very well could be. I'm more concerned with the strategy China's using to achieve this growth, in a similar fashion to how I'm dubious about public companies that churn out exciting growth and meet earnings expectations using special accounting techniques.

There's immense pressure on China to prove itself and save the rest of the world from a persistent recessionary state. This has created a huge incentive to China to deliver the numbers the world wants to hear.

Like management teams that sugarcoat financial statements, I suspect China may be finding ways to mask what's really going on behind the scenes. It may be priding itself on its ability to report such dazzling GDP growth when the rest of the world is half dead. But like some of the products it exports, its growth may not be real.
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