Friday, August 17, 2007

The Beijing Olympics: a Big Deal?

I recently read a provocative article on Bloomberg claiming that the Beijing Olympics are overhyped, and less of a deal than they should be (see here). The author may be right: China is already in the spotlight, and the focus of world attention so much, that the Olympics may have little marginal effect of drawing attention to the world's most populous country.

But if indeed this viewpoint is right, then I'm worried. It is now well enbedded in the popular psychology that the olympics will be good for China, and serve to increase economic growth, improve politics and humans rights, increase inertia to solve pollution problems, and in general solve all of China's problems.

Suppose that this belief is indeed mistaken. Then we're due for a negative surprise when the olympics come and go, with little change to the underlying conditions in China. Why is this a worry? Well, markets and investment decisions depend almost as much on perceptions and expectations as they do on economic fundamentals. If the olympics are indeed overhyped, then they represent a bubble in terms of expectations. And when that bubble bursts, it may have just as real consequences as any other bubble in housing, equities or commodities. In fact, in the case of China we can view the "bubble" in equities as partly reflecting the "bubble" in expectations, that in turn reflect the upcoming olympics.

So maybe, sometime soon after the closing ceremony on the 24th of August 2008, we'll start to see the markets correct. If so, that could be more exciting than the games!

1 comment:

Roy said...

Could you please elaborate more on the recent surging price on China real-estate market? Is it a symbol of upcoming huge depression as what have happened to USA or Japan before?