Mass media were focused on Michelle Obama and family on their Chinese tour, but at the business desks this was a more dour week in China.
One after another story told of financial stress or economic slowdown–or was a caution not to get too upset or pessimistic. Much of this was inevitable–the country’s breakneck official growth had to be, er, tapered.
The central government wanted to upset some safe assumptions that were breeding pure speculation. So it steered the yuan currency back down in value, let corporate defaults begin to happen and opened a few windows for good old savings deposits.
The idea is to start the rebalancing of the economy and trigger consolidation in some over-invested industries–to let air out of the balloons.
Where things contract or slow too much, this thinking goes, the state will step in to support approved activity (more widespread urbanization) and thus the overall drop in GDP won’t be noticeable.
Well, it all got people’s attention–before a Friday buck-up, the yuan and Chinese stocks were hitting longtime lows and mighty Goldman Sachs thought this quarter would see only 5% year-on-year GDP gains, in a nation used to 8%.
Cue the cacophonous chorus: A Nomura economist was sending a warning flare about the property market–don’t be lulled by strength in a few urban areas–and another looming bust, this time of an obscure property outfit but one with a $500 million overhang, served notice that some bets were off.
Still, an ex-World Bank director for China was unimpressed with such targeting of small fry; he wrote in the ever-watchful Financial Times that serious discipline would have to be shown to state-owned enterprises and those with serious capital-market or employment implications.
Funny, though, key industrial commodity prices do indicate a pullback by China’s big buyers. The real-estate sector, so integral to municipal and household balance sheets, was quavering, and this affected not just developers but service businesses such as SouFun, an online listings pioneer whose stock rise had just made founder (Vincent) Mo Tianquan a new billionaire in the pages of Forbes Asia.
Even if there is plenty of housing demand still to be met in some markets, excess is out of fashion. A lot of other enterprises seem to be affected in surprising ways, often because they had used assets to borrow to seek high returns in areas far removed from their core activity.This raised a basic question: how much of China’s long boom has been “money on money”?
Emerging markets watcher George Magnus sees these developments as a financial turn and others were focused on lagging retail sales in China and what that will do for domestic and importer profits. But as a more sanguine observer noted, China’s central bank has dramatically loosened credit strings since the turn of the year.
Beijing has shown before that it knows the levers. Uncertainty is now the economic drama in China. It is, to repeat, not an unexpected outcome. How will–or can–the authorities step in, and when, to check any serious dislocation?
Even if dislocation is necessary to get Chinese on a more sustainable development course? Stability of the Communist Party order will be the determinant of policy, we know that.
Of course, many aspects of security and foreign policy will also come into play, from grand moves to such quirkiness as a disturbing report about a chemical weapons plant in Myanmar/Burma.
But the economy is what will occupy the attention of global markets. When the photo opps for attractive visiting dignitaries end, maybe there’ll be space and time to reach a general audience.
forbes.com
One after another story told of financial stress or economic slowdown–or was a caution not to get too upset or pessimistic. Much of this was inevitable–the country’s breakneck official growth had to be, er, tapered.
The central government wanted to upset some safe assumptions that were breeding pure speculation. So it steered the yuan currency back down in value, let corporate defaults begin to happen and opened a few windows for good old savings deposits.
The idea is to start the rebalancing of the economy and trigger consolidation in some over-invested industries–to let air out of the balloons.
Where things contract or slow too much, this thinking goes, the state will step in to support approved activity (more widespread urbanization) and thus the overall drop in GDP won’t be noticeable.
Well, it all got people’s attention–before a Friday buck-up, the yuan and Chinese stocks were hitting longtime lows and mighty Goldman Sachs thought this quarter would see only 5% year-on-year GDP gains, in a nation used to 8%.
Cue the cacophonous chorus: A Nomura economist was sending a warning flare about the property market–don’t be lulled by strength in a few urban areas–and another looming bust, this time of an obscure property outfit but one with a $500 million overhang, served notice that some bets were off.
Still, an ex-World Bank director for China was unimpressed with such targeting of small fry; he wrote in the ever-watchful Financial Times that serious discipline would have to be shown to state-owned enterprises and those with serious capital-market or employment implications.
Funny, though, key industrial commodity prices do indicate a pullback by China’s big buyers. The real-estate sector, so integral to municipal and household balance sheets, was quavering, and this affected not just developers but service businesses such as SouFun, an online listings pioneer whose stock rise had just made founder (Vincent) Mo Tianquan a new billionaire in the pages of Forbes Asia.
Even if there is plenty of housing demand still to be met in some markets, excess is out of fashion. A lot of other enterprises seem to be affected in surprising ways, often because they had used assets to borrow to seek high returns in areas far removed from their core activity.This raised a basic question: how much of China’s long boom has been “money on money”?
Emerging markets watcher George Magnus sees these developments as a financial turn and others were focused on lagging retail sales in China and what that will do for domestic and importer profits. But as a more sanguine observer noted, China’s central bank has dramatically loosened credit strings since the turn of the year.
Beijing has shown before that it knows the levers. Uncertainty is now the economic drama in China. It is, to repeat, not an unexpected outcome. How will–or can–the authorities step in, and when, to check any serious dislocation?
Even if dislocation is necessary to get Chinese on a more sustainable development course? Stability of the Communist Party order will be the determinant of policy, we know that.
Of course, many aspects of security and foreign policy will also come into play, from grand moves to such quirkiness as a disturbing report about a chemical weapons plant in Myanmar/Burma.
But the economy is what will occupy the attention of global markets. When the photo opps for attractive visiting dignitaries end, maybe there’ll be space and time to reach a general audience.
forbes.com
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