This is a very finely detailed article by someone with long experience inside.

We have recognized in our own commentaries that there are areas where a bubble may develop in China. Real estate is the most obvious area. There is also a possibility of overcapacity in steel and other capital intensive industries such as autos. Any bubble in these regions has clearly been recognized by Beijing, and the government has shown signs of taking positive action (unlike the U.S. government prior to the mortgage implosion).

China has raised interest rates slightly (as a signal), it is expected to raise reserve ratios for banks, it is raising down payments and other restrictions on second property investments, and it is clamping down on a practice whereby banks move loans off their books by selling debt to secondary lenders like trust companies. (This dangerous type of practice helped worsen the US real estate collapse). China has shown determination not to let that happen.

As we have said, China (unlike the US) is aware that it must walk a fine line. It must encourage lending and credit to fuel economic expansion and job creation in a world that is just emerging from recession. On the other hand, bubbles are deeply risky to any economic system and Beijing has given us every signal that it is aware of this fact.
While the US used only the gas pedal to propel economic expansion before the credit implosion, China is alternating between the accelerator and the brake…searching for the best way to propel growth without creating dangerous distortions and using controls to limit over-expansion. There are no guarantees, but China’s centrally-planned economy has a better chance of pulling off this balancing act (and a smaller chance of becoming a runaway train like the unregulated debt bubble that Wall Street eagerly fed) until the whole global financial system was virtually brought to its knees. China had almost no direct hand in buying and selling worthless toxic US debt instruments.

In this world without guarantees, investors must select centers of growth and watch them carefully in case bubbles do develop. China is the engine of Asia and the Asian economies are the burgeoning center of world growth at this time. The current rate of growth in most areas appears to be sustainable at this time.
It is our intent to watch closely for bubbles (as the steel industry may be, perhaps also the auto industry) and avoid them. It is also our duty to find growth centers for our subscribers, and the expanding Chinese consumer market is a source of vast numbers of customers and an emerging core of an alternative consumer market and a growth center after decades of global reliance on the much more stressed and burdened US consumer and real estate markets. They are unlikely to provide worthwhile returns to investors in the near future.

Lately, a number of articles mainly published in the US and UK press, have been warning about a major bubble in China. Jim Chanos and others (e.g. Gordon Chang) are predicting this will happen. Any comment?