Confidence in the Middle Kingdom is dropping faster than a Chinese coal miner; it seems someone shouts “Hard landing!” and suddenly it’s all hands on deck looking for signs of a downturn. Sure, some legitimate warning signs did emerge this week that might keep you up at night, stroking your portfolio and whispering “It’s all going to be okay.” The monthly numbers from the Ministry of Truth carried sure signs of slowing international trade: both imports and exports fell, and commodities output slowed. (That dastardly Oceania wrecking things for East Asia again!) Then, the vampire squid returned to score another blow: Goldman Sachs divested further from its shares in ICBC, at a time when the banking system does not need much help in looking suspicious. More bad news abound in the auto market: Chinese demand for cars may fall a whopping 20% in 2012, and Warren Buffett looks unlikely to ride to our rescue in a BYD electric car. To cap it all off, weekly housing data apparently showed that THE SKY IS FALLING. Media reports made much ado about a week-on-week drop in house prices, the resulting loss of faith in the property market and the potential catastrophic consequences for the economy! … Until they finally reported the actual figures: prices fell 0.23% month-on-month in October, which was apparently a really significant large change from the 0.03% m-o-m drop posted in September.
The power of positive thinking
Catastrophic, indeed. Hasn’t anyone heard of statistical significance? And what does it mean to “let the air out of a real estate bubble” anyway? Despite our occasional dire predictions (we like to feel relevant, too), CER remains a bit skeptical about the country going to hell in an iron rice bowl. At the end of the day, nervous pundits are fretting over what would qualify as gangbuster growth in any other market. Those that are alarmed about a national drop in October housing prices of – gasp – 0.23% should take a turn in the tough streets of the global housing market. Bet they would get their really expensive headphones stolen.
At the end of the day, it’s the sentiment that counts. That’s why this week’s sole positive news report – that inflation in China in slowing – reassured us, even though the news should not have come as a surprise. CPI is reported on a year-on-year basis, and inflation started to pick up strongly in Q4 of last year (from 3.6% y-o-y in September to 4.4% in October to 5.1% in November). So we’re going to out on a limb and predict that inflation will slow further next month (Yay!). But even if the lower figures were coming all along, they should still benefit the market: After all, it’s inflation expectations, rather than inflation itself, that has the greatest effect. So this week in China, for the good of us all, we’re urging everyone to xiuxi yixia and realize just how good we all have it in the Middle Kingdom. (Is it just us, or has this lovely country drawn a larger influx of fresh-faced laowai in recent months?) And if that fails, you can always try the quickest fix to feeling better about life in China: take a look at Greece.