Good grief, China is interesting. Just when you think it can’t possibly top itself in terms of the extraordinary, dare we even say the unreal, there it goes again. This week, it was mostly about credit, or as we say on the flip side, debt. Since at least 2008, the China way has been to pour “credit” into certain sectors, primarily infrastructure spending and loans to SOEs, to help the Chinese economy power its way through the messiness of reality-inducing, and not to say politically inconvenient, downturns. With problems with the so-called “real economy” becoming more visible last year, they started pumping up the stimulus again, and one could imagine people of a certain ilk around China rubbing their hands in glee at the prospect of yet another cash tsunami rolling through town. The problem is, of course, that with stimuli of that sort in this kind of system used in that kind of way – what are the chances of a fair amount ending up as non-performing or bad loans? Full marks, a gold star and a Chocolate Freddy to each and every one of you – the answer is: high. So this week, the People’s Daily published a long article from an “authoritative source” saying that this approach to economics is of course ridiculous and we’re going to stop it, really we are. The first question was: what does it mean that they used an “authoritative source” to get a message like that out? The answer surely is: disagreements and divisions right at the top as to what to do. Then just the next day, we had word of massive sloshes of cash being prepared to be dumped onto the Northeast to keep it quiet through its current economy tanking-type difficulties. How does that tally with a declared intention to seriously control credit? Good question. We feel, dear readers, that the most useful parallel to this situation is smokers trying to give up the habit. It’s … Just … So … Tough. And even if they really did it, how would that play out? Could the system absorb the strains? Our guess is we’re unlikely to find out because they are likely to sneak another fag before too long.
And what of the stock market, the famous battle for 3,000? Another loss for the National Team this week, and probably quite an expensive one, but who knows. The key Shanghai index dropped below 2,800 for a while during the week and getting back to 2,900 is looking tricky let alone 3,000. And then, to top it off, the European parliament voted overwhelmingly for the EU to NOT grant China Market Economy Status. Is it possible this will shame the EU and the various governments involved into actually not granting MES? Watch this space!