As the world is flooded with printed QE money, China's own liquidity management, by comparison, entails more than just job creation and economic growth. Inflation control has reached top of the agenda to forestall a ballooning asset bubble. The hungry horde of the world's top hedge funds are camped at the gate as international pressure is bearing on the Chinese yuan to appreciate so much and so quickly that it threatens its very economic and social stability. Yet with an embarrassing surplus savings invested in US treasuries, China is caught in a US Dollar trap whose exit doors, if any, may not be readily available. How China manages this juggling and balancing act of liquidity management is as intriguing as game-changing, not just for China but for the rest of the world.

At a time when the consumption- driven West is busy pumping ever more liquidity into their economic systems through Quantitative Easing (QE), it is instructive to see how a bubble-and-inflation-prone China is coping with its own liquidity problems compounded by a tsunami of global funds hitting its shores.

As it were, the `barbarians' are already at the gate. A lot of hedge funds, including Soros Fund Management, Altis Partners, Viking Global Investors, and Paulson & Co are entrenching themselves in Hong Kong, one of the world's top three financial centers. The total hedge fund accumulated in Hong Kong is reported to reach HKD 500 bn (US$64 bn). Some have put the estimate much higher.

Indeed, in the wake of Jim Chanos, a leading 'shorter' of China, another reputable hedge fund manager Mark Hart of Corriente Advisors has just launched a fund betting on China's coming credit implosion. He reckons that China has produced 200 million tons of excess steel and 3.3 billion square meters of excess floor space with extra 200 million square meters being added every year. There is a heady price-to-rent ratio of 39.4 times, compared with 22.8 times in the US just before the subprime crisis. Counting investments by local investment companies borrowing from China's state-owned banks, non-cash producing assets would amount to 98% of total bank equity, and government debt to GDP would reach 107% or five times the official estimate, and may even be as high as 200%.

So "Is China the next Dubai?" While allowing for China's asset bubbles and inflationary pressures, the gist of my riposte was that invariably all of the analyses of the `shorters' failed to take into account the most gigantic urbanization drive in the history of mankind.

All the way to 2025, China is building 221 new cities (many in the inner provinces) with population over one million each, compared with only 35 cities of such size in the whole of Europe. Being added are 5 billion square meters of road, 170 mass transit systems, and 40 billion square meters of floor space in 5 million new buildings (including 50,000 skyscrapers or 10 New York Cities).

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