The news this week was not looking rosy from a Beijing perspective, and the sense that 2017 is going to be challenging, with the emergence of black swans almost a certainty, is growing. What kind of swans and when is anyone’s guess, of course, but it’s reasonable to assume they might involve trade, investment, the RMB rate, the financial sector and economic growth. That should cover things.
On this Friday afternoon, most major cities across China had smog levels around 200, including Chengdu, and it’s not impossible that it will be black swans wearing face masks that make an entrance. The stock market, which we have hardly been watching recently, this week started to edge back down towards 3,000, and if it was at all a clean market it would be much lower already. Some of the defense funds may be going to support the indices there, but most are presumably being used to support the RMB.
One of our friends this week made the comment that the bullish view on China now is that it is not collapsing. Whether that is too extreme a view or not, who knows, but the negative chips are stacking up. The US announcement that it will not support market economy status for China under the WTO provides the cover Europe needs to do the same, and that has significant implications. Our view is that exports remain more important to the economy than may be visible in the numbers. Speaking of which, our prediction is that the GDP number for the year, now more than ever a political decision, will be 6.7%. Breath shallowly, dear readers, over the weekend, and keep your binoculars handy.