Is China an Enron? (Part 2)

By THOMAS L. FRIEDMAN
NYT

Last week, I wrote a column suggesting that while some overheated Chinese markets, like real estate, may offer shorting opportunities, I’d be wary of the argument that China’s economy today is just one big short-inviting bubble, à la Dubai. Your honor, I’d like to now revise and amend my remarks.

There is one short position, one big short, that does intrigue me in China. I am not sure who makes a market in this area, but here goes: If China forces out Google, I’d like to short the Chinese Communist Party.

Here is why: Chinese companies today are both more backward and more advanced than most Americans realize. There are actually two Chinese economies today. There is the Communist Party and its affiliates; let’s call them Command China. These are the very traditional state-owned enterprises.

Alongside them, there is a second China, largely concentrated in coastal cities like Shanghai and Hong Kong. This is a highly entrepreneurial sector that has developed sophisticated techniques to generate and participate in diverse, high-value flows of business knowledge. I call that Network China.

(More here.)