Are We Done With Demonising China ?
My 2 cents worth on the US Non Farm Payrolls last Friday that has been nothing short of a tragedy as the press would have it, getting every single closet-Chicken Little out in force, remonstrating that the sky is indeed falling when the main question we should be asking ourselves is how were those expectations for 200-300k jobs per month derived and expectations, being expectations, would surely always trend to an “expected expectation” ?
The next rhetorical question is, will there every be a perfect star-aligned situation for a rate hike ever ?
The rate hike, or lack of, delayed hike or thereafter hike, makes the very heart of financial markets all around the world dependent on the fate of the mighty US labour force for economic optimism ?
Enough said, as meanwhile the press continues to demonise China, going on about how China is getting it wrong, with Goldman Sachs the latest to proclaim that China is risking further capital outflows and a repeat of Jan’s Chinese yuan rout (when the CNY weakened to a 5 year low against the USD), the NY Times talking about China falling off the miracle path, and possibly 90% of Bloomberg users, including yours truly, who would swear on the debt bubble in China.
It is not probably not easy for anyone outside China to say anything positive about China without a disclaimer or two, one year after the stock market fiasco which left many an investor singed in some way or other.
Yet we cannot help but grudgingly admit to China’s right as a global superpower, something the current IISS 15th Asia Security Summit in Singapore is all about – China’s “unreasonable-to-the-rest-of-the-world-except-themselves” assertions of their rights in the South China Sea (and that silly atoll that before the 1990’s had always been undoubtedly Chinese, according to some historians) – resulting in the little countries rushing for an US alliance which ultimately just divides the world into the big, powerful nations and their vassal states ?
As a superpower, and to the little person, China has every right to prosper like the rest of the developed world. It is an inevitable outcome even if they fabricate 488 million social media comments a year, arrests thousands of activists, CEOs’, and just about any enemy of the state, fake everything from condoms to food to their pollution indices, because it is unimaginable that any country would dare try to walk on the wrong side of them.
A year after their stock market meltdown that left 71% of the market frozen in July, 84 companies remain suspended since we last checked in Nov 2015 (116 stocks suspended) out of 1142 stocks (1114 stocks + 28 IPOs) in the Shanghai Composite Index. Last year, the MSCI wisely decided against the Chinese inclusion which a few have speculated was one of the causes of the market run-up and collapse.
The hopes are building up again this year with Goldman Sachs most optimistic at 70% (clearly the equity team and economics team do not talk to each other).
Graph of the Shanghai Composite Index
China’s financial markets have plodded on since and we have seen much in the way of reforms that we really cannot keep up with, in terms of foreign exchange (with a new trade weighted basket for fixings) and recently opening up their onshore bond markets after the launch of the HK-Shanghai stock connect last year.
The 13th Plenary Plan set out in November last year saw a less growth based strategy that is now India’s problem after adjusting their GDP calculation model, India now holds the title for highest GDP growth (7.9%) in the world after Ireland (9.2%).
China has chosen to focus on 1. Innovation, 2. Balancing, 3. Greening, 4. Opening Up and 5. Sharing, and of course, the 2 child policy. Less of the pretty unreasonable annual minimum 6% GDP expectations after delivering for over 20 years since record keeping began.