After nearly a month awash in the seas of speculative economic hysteria, an island of stability hove into sight today in the form of the purchasing managers’ index. Those China bears who predicted that the combination of ongoing tightening monetary policy, flattening housing prices and staggering export markets in the US and Europe would produce a radical correction were disappointed to find that Chinese PMI actually recovered this month after four months of slowing growth. In celebration, Uncle Wen wrote a paper for Party rag Quishi (a reference to a Chinese truism popularized by Mao, creatively translated as “seek truth from facts”), clarifying that that plan A is still very much in effect: Money is gonna stay tight, inflation is still in the crosshairs and property speculators beware! (Although this does not necessarily mean that more rate hikes are coming, as an excellent Nomura paper points out.)
Regardless, depending on whom you believe, this is either bad news or really super horrible news for China’s small- and medium enterprises, those plucky Chinese SMEs so beloved in print, so despised in practice. While rumors have been circulating that a wave of bankruptcies caused by lack of credit from the banking sector is getting underway in entrepreneurial hothouses like Wenzhou, it’s difficult to say how serious a problem tightening has actually posed. For one thing, if you’re a Chinese SME, credit is always tight. For another, measuring the condition of Chinese SMEs using official statistics is like examing a petri dish with a stethescope. Instead, we must rely on anecdotes from people like Zhou Dewen, head of Wenzhou’s SME trade association, who told BusinessWeek that 40% of Wenzhou’s SMEs will be facing bankruptcy by the next Spring Festival. Alternatively, we may trust state media, which says everything is fine.
What about the export sector? Again, the Ministry of Commerce says there is no evidence of bankruptcy or stress among the top 300 enterprises in Dongguan, Guangdong, a major center for exports. Among other things. Ahem. So everyone should relax. In fact, everything is going awesomely great down in Dongguan: “The Dongguan model is regarded as heading towards a rebirth for a glorious future, rather than towards its end,” said MofCom.
That’s a relief, because while PPI is up, exports are already contracting. And given that the actual impact of whatever happened in the US and Europe in August won’t show up in exporter order books for another few months … well, the China bears still have something to look forward to.
Of course there may be more to worry about than an economic downturn. What about global thermonuclear war? This week saw the inscrutable Chinese security services make another devious strategic acquisition aimed at putting Europe under Zhongnanhai’s boot. Naturally their agent in this insidious scheme was a Chinese property developer – who else? – in this case Huang Nubo, a former propaganda hack turned real estate mogul who is trying to buy 300 square kilometers of Iceland to build a luxury resort complete with golf course, sports facilities and evil petting zoo. Opponents of the project have argued that property rights being what they are, once Huang has title to the land in hand, NATO will have no choice but to sit aside and watch as he upgrades the resort into a lavishly appointed four-star missile base. Sort of like the Cuban missile crisis with a hospitality twist. Sound silly? Sure, but we await a more plausible reason for building a vacation resort in Iceland.