China's Economic Woes Go Mainstream

Maybe China’s economy will be alright after all. At least for the next few months, anyway. We’re beginning to feel a little uneasy about the ‘China crash’ scenario, given it’s become a mainstream story lately. Recent currency volatility (which we wrote about yesterday) and stories about rationing credit to the property sector have elicited quite a few worried articles from the mainstream media in recent days.

The latest is from Max Walsh at the Financial Review, under the headline, ‘Is China headed for a hard landing? He speculates that while China helped us sail through the GFC, it might drag us down during the next downturn.

Max then goes on to cite a fund manager survey conducted by Merrill Lynch which says that in February, the biggest concern for 46% of respondents was a hard landing in China, up from 26% in December.

That’s obviously a reflection of China’s perilous credit bubble getting greater public attention, as its myriad problems become too hard to ignore. But it also shows that concerns over China’s economy are not on the loony fringe anymore.

The real question is, while fund managers might be concerned, are they actually doing anything about it? Well, if you follow the money, the answer is, no they’re not. They’re going long stocks. That is, they’re certainly not selling on concerns over China. They’re heading to ‘safety’…large US multinationals that will apparently offer a safe haven in the event of a greater than expected China slowdown. Right…

Or perhaps they’re just betting that China will renege on its reform agenda if things get too hairy, and turn on the credit taps again. We don’t know about that line of thinking. The credit taps are still open, they were never turned off at all. And reform? What reform? There’s been plenty of talk but little in the way of action.

The way we see it, China’s credit bubble is losing steam under its own weight, with very little input from the authorities. But with the whole China thing now becoming a mainstream issue, we’ll leave it alone for a while. For that you’re no doubt thankful…


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Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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2 Comments on "China's Economic Woes Go Mainstream"

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slewie the pi-rat

all together, now: “Crimea River, Crimea River, …”


I wonder if this came up at the G20 when all those corrupt, bribe-bloated politicians and bureaucrats were sitting around sipping Bollinger and munching on lobster?
Did Joe Hockey and Tony ‘Budgie Smuggler’ Abott read about the China problem before going off to the G20 to lick boot like good little subservient dachshunds?
If they did not, then they will be leading Australia right down the toilet.

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