Gross, Roubini weigh Chinese bubbles

Just don't let it drown out another one that's slowly, but steadily increasing in volume: China.

The reference is to an imbalance of global significance: not the bubble in Chinese asset prices, which the world obsessed about in 2009, but the belief that the world's third-largest economy can grow close to 10 percent indefinitely, no matter what. That's feeding a dangerous sense of complacency in Asia.

The focus has been on China's stimulus efforts and low interest rates adding froth to stock and real-estate markets. The real bubble is the expectations China is creating — ones that will be devilishly hard to meet in 2010.

China's plan was to tide the economy over until U.S. consumers begin spending again. Yet a stark reality awaits central planners in Beijing: the global demand its all-important export markets need to thrive won't turn up as planned.

Here, think more Bill Gross than Nouriel Roubini. Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., has been doing the media rounds warning about the absence of demand from China's trading partners.

“It's gearing up for export that doesn't find an end consumer — that's the real problem in China,” Gross told Bloomberg Television recently.

The China bubble of which New York University Professor Roubini speaks has more to do with easy money in Beijing, Tokyo and Washington. His worry is about “money chasing commodities” like gold, which is trading above U$1,200 per ounce, and, of course, Chinese assets.

Gross isn't ignoring this market exuberance. He says China “may abandon its dollar peg within six months' time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland.”

The bust in Dubai is another sign the global credit crisis is far from over. Anyone who said even one year ago that Dubai's designs on regional economic supremacy were too grand or that it was overleveraged was shouted down as a village idiot. The place was said to be unstoppable. Well, Dubai World's debt troubles put an end to that silliness.

Let that be a wake-up call for China. It too must clamp down on speculation-driven property markets. All too often, officials in Beijing see rising real-estate values as a prerequisite for rapid growth. It's a worrisome mindset.

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