Since Australia is one of my favorite places on earth, with an energetic, friendly and productive population and unlimited economic growth potential, it gives me discomfort to be the bearer of some short-term bad news. The economic flu that started in the United States and last year spread to Europe will roll up on the shores of China this year. Australia may be acutely affected if it does not take immediate action.
China is vulnerable to the this contagion because it has allowed the same structural environment that preceded the 2008 real estate and equities markets collapse in the United States; their banks are over-leveraged and real estate speculation is out of control. Unlike the banks in the United States, Chinese banks have not put themselves in this position primarily as a result of poor regulation, greed and stupidity. Chinese banks have been funding dubious projects as an extension of state policy to grow fast enough to absorb their huge population into the economy.
Australian bank regulators, the clock is ticking. Time to get serious. “The Majors” will howl about higher capital requirements and limiting speculation, but will be better protected when the financial crud hits China. Think of it as an economic flu shot. It hurts a little now but you’ll be glad later.