There are other reasons for differences in the two systems as
well. One is simply that the Chinese are much more likely to fund
their home purchases from savings, often calling upon the assistance of various family members in the process. In part this reflects cultural differences where the Chinese in general are debt
aversive, but also it reflects strict down payment requirements
imposed on borrowers by Chinese banks.
Although these difference somewhat insulate the Chinese
banking system from the melt down experienced in the U.S. it
has not thwarted the fact that China is experiencing a genuine
slowdown of unprecedented proportions. Economic data released earlier this month by the National Bureau of Statistics
showed the extent of the problems. Investment in new buildings
and other fixed assets is in the doldrums.
Manufacturers are retreating from ambitious production
goals as they struggle with bloated inventories of unsold goods.
Even the service sector, still underdeveloped and widely seen by
economists as full of potential, is showing significant signs of distress. In fact, most observers believe that China’s economy is
weakening more rapidly than official statistics would suggest,
which could lead to a much sharper decline than what many
economists expect.
The ongoing debt crisis in Europe has stifled a lot of Chinese
exports, while flat lining the new middle class consumer demand
within China has led to thousands of layoffs, stagnant sales of
heavy machinery, and record amounts of coal and iron ore going
to waste. Soon it will be obvious to most observers that China is
in the midst of a painful slowdown that most likely will be felt
around the globe.
However, let’s not forget, China is in the midst of a tremendous transition from being a producer and exporter of cheap
goods to a fully industrialized country with strong internal and
external demands for high quality technology products. This
means that the Chinese leadership want the economy to slow a
little bit as the country reduces its dependency on cheap exports.
This scenario is a very risky situation especially if the desired
changeover is clumsily executed. If China botches the transition
effort, it could find itself in real trouble. Facing a decline in exports and a stagnating domestic market might cause the current
leadership to make hasty, irrational decisions rather than following the original game plan.
To most observers, China is viewed as a journalist’s dream
and a statistician’s nightmare, with more human drama and
fewer verifiable facts per square mile than anywhere else in the
world, except perhaps in the U.S. during a presidential election
campaign. These days, the statistician’s dilemma in China extends not simply to the problem of what is true but also to that
of what is important and what truly matters. In the era of a
growing China, every agency and investment banker, every short-seller, risk analyst and brand consultant is poised to offer a prediction on China’s economic future. With so many “experts”
dominating the information highway how do you separate the
static from the real signal?
Back in early July, China stepped up its efforts to reverse the
deepest slowdown since the global financial crisis in the world’s
“Most observers feel that China has
‘bottomed out’ in its economic slowdown
and is poised to take advantage of growth
opportunities around the globe. Their
game plan is to overtake the U.S. GDP output before the end of this decade. How
they will do that without a strong and vibrant export market remains to be seen.
However, it is obvious that China is in a
much better financial/economic position
as compared to the U.S. or the EU. Still, it
is also clear that China’s future is very much
tied in with the recovery of both the U.S.
and EU economies.”
second-biggest economy. The central government mandated a cut
in interest rates for the second time in a month. Since no one was
expecting another interest rate cut before the end of the year, this
move strongly suggested that the first cut didn’t accomplish its intended outcome. It was speculated then that the Chinese leaders
feared that left unchanged there would be an issuance of a slate
of new economic numbers that they felt was likely to give investors serious doubts about China’s financial future.
Some China observers such as Barron’s had already declared
that it looks like the “Great China Growth Story” may be falling
apart. Although relevant data does not fully indicate this happening one still has to ask, “Is this true”?
As my legal friends often remark to questions of this nature,
“It depends.” It depends in part on how deep the U.S. will continue to sink economically and for how long; how quickly Europe starts to improve; how resilient is the new Chinese middle
class; and how effective are the pseudo stimulus efforts by the
Chinese Government. In short, the future of China is truly tied
to the financial health of the rest of the world. China’s domestic
market cannot by itself sustain the level of growth experienced
by China over the past three decades.
Regarding the U.S. recovery, somewhat similar to the statements about the difficulty in verifying China data the U.S. election has thrown a fog on unbiased, real data access. Each month
we noticed that the current U.S. administration has to redo the
www.coatingsworld.com
October 2012
