Apr 03 2008
new word for the bubble bursting: “slow growth”
Seems like everyone is talking nowadays about the poor growth and slow down of the Chinese economy. I started talking about the subject a few days ago, and now all I see is how China’s economy is slowing, the bubble is bursting, etc.
Here are some of the articles. First, from the Wall Street Journal ( h/t to CDT):
Some of the froth is finally starting to come off China’s booming economy.
Investment spending on factories and infrastructure, long the main driver of the nation’s growth, has begun to ease. Loans are harder to come by, with real-estate developers in particular feeling the effect of government curbs on credit imposed late last year. Some companies squeezed by higher raw-materials costs are reporting smaller profits, leaving them less money to finance expansion.
Such a cooling of frenzied investment and speculative bubbles is something China’s government has long sought, largely without success. Now, markets are showing the effects.
Of course, if you note the title, it is, “Finally Slower Growth for China?” So at least the Journal is considering growth for the Chinese economy at slower 10%. Well, is that really slow? Or is that an inflated number? I am going to guess the latter. But growth is growth. Growth does not equal recession.
And the International Herald Tribune (Reuters) posted an article entitled “Small investors in China get a lesson in stock bubbles” (also h/t CDT):
When experts periodically warned about the possibility of a bubble, prices dipped temporarily, then soared even higher, breaking records and inciting another mad dash to snap up equities.
“The market was going wild,” said Guan, 49, who a few years ago closed his real estate company to invest in stocks full time. “Everybody was talking about how much they had earned, how much more they would invest and which stocks had jumped 20 times, or even 30 times.”
That was last year. The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.
Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.
The two other Chinese markets also have dropped from highs last year, with the Shenzhen composite index down 38 percent and the Hang Seng index in Hong Kong falling 33 percent before recovering recently.
Other parts of Asia have been as bad, or worse. In India, stock prices have plunged 31 percent in Mumbai. They are off 31 percent in Japan and a whopping 53 percent in Vietnam, another booming economy. Angry investors have burned a securities regulator in effigy in Mumbai, and some are in tears in Ho Chi Minh City, Vietnam.
Few experts believe the stock plunge is a major threat to growth in the economy here. But there are worries that a prolonged downturn could reverberate through the Chinese financial markets - especially since a large number of corporations had aggressively shifted money, sometimes secretly, to play the market.
Note, even then that experts do not see the bubble bursting as a threat to the economy.
So now what? Is this a bandwagon idea or is the economy really about to tank? Somehow I doubt its the latter. I will not play Chicken Little and say the Chinese economy is about to keel over and die. Just because the stock market bubble burst and people can no longer play cards around the stock exchange, does this mean China is in dire circumstances? No way. Even with an inflated figure of 10% growth, China’s economy has far more resistance than what all of the doom-and-gloom media outlets have been saying.
For those in China, I think the key at this point is not to be stupid, and don’t bank your fortunes on the Chinese stock market. Which also means lawyers should probably be wary of taking equity in companies that list on China’s stock exchanges at this point.
And if you are sourcing in China, then it’s time to be really careful because some of the factory owners and suppliers that you work with may well be stock market losers. With inflation looming and a little less security in the economy (not to mention losses), guess where they can recoup some of that cost? With you and your order of course. (QC, QC, and more QC is prescribed) I wouldn’t be surprised if product quality fade is an indirect consequence of the bubble bursting.
Really, this is just some market correction. When the economy really tanks, you will know… and a few newspaper articles will only be the tip of the iceberg.
[…] Thomas Chow takes the press to task for hyperbolic language on the Chinese economy. Some good stuff here. It’s easy to write a story about a tanking stock market and extrapolate about the nature of the economy as a whole. But it just isn’t accurate, and 10% growth, as Thomas rightly points out, ain’t nothing to sneeze at. So now what? Is this a bandwagon idea or is the economy really about to tank? Somehow I doubt its the latter. I will not play Chicken Little and say the Chinese economy is about to keel over and die. Just because the stock market bubble burst and people can no longer play cards around the stock exchange, does this mean China is in dire circumstances? No way. Even with an inflated figure of 10% growth, China’s economy has far more resistance than what all of the doom-and-gloom media outlets have been saying. […]