Managing expectations

For those seeking respite from the bevy of bad news popping up around the globe, these past few days have been a time of managed expectations, where nothing is as it seems and it feels as if everything is up in the air – at least until it comes crashing down.

To start with, growth in the manufacturing sector hopped on the low-momentum bandwagon, where it found ample company among China’s credit, investment and production data. Anyone searching for a bit of security might do best not to look to China’s recent securitization surge, now subject to greater scrutiny as analysts wonder whether borrowers will pay up on time.

Likewise, those of us still hankering for a Big Mac after they were taken off the menu perhaps took little solace in McDonald’s announcement that it planned more audits of suppliers following July allegations that workers used expired meat at a plant run by OSI Group. Promises to boost reviews of security videos have us wondering what other activities might be uncovered – what dark secrets might those soda fountains hide? One might also be wary of any glasses half-filled with stock in specialty chemicals maker Tianhe, which saw its shares suspended following an anonymous report questioning whether its earnings were quite so positively charged. 

Beijing’s own recent enthusiasm for antitrust probes has many wondering what, if anything, will remain in the wake of the government’s trust-busting rampage. The pressure has been so great that US businesses, long reticent to disparage, began suggesting that possibly, perhaps, just maybe things weren’t so great of late. The US-China Business Council even had the temerity to suggest pressuring companies to admit guilt and appear without legal counsel was “out of line with international best practices.”

Meanwhile many fretted over the future of Special Autonomus Region of Hong Kong, which some observers have noted is looking less special and less autonomous these days. The region saw protests after Beijing announced it would vet all candidates for chief executive in 2017, leading some to wonder whether the storied port city’s financial underpinnings might be undermined.

Of course we at CER would never wish to hurt the feelings of the Chinese people, and thus do we gently draw your attention to trends in the opposite direction. Outbound investments from China grew by nearly half in the last six months as China deals dominated the Asia-Pacific region. On top of that, the much-maligned Shanghai Free Trade Zone may yet make good on its moniker, provided predictions of massive overseas investments by mainland companies in the area prove true.

At the very least Chinese officials certainly seem to have faith in the private sector: more and more, we learned this week, are jumping from the ship of state to the entreprenurial life boats below as their positions’ perks are shorn thinner and thinner by the ongoing austerity campaign. And state media certainly seemed equally optimistic when it came to domestic stock sales: one could hardly flip a page of the People’s Daily without running into still more exuberance about domestic equity offerings.

To top it all off, Chinese scientists announced that they’d discovered a way to increase crop yields using less fertilizer, proving that progress in China need not be accompanied by a concomitant amount of… nitrogen. Yes, should the nation’s farmers become a little more circumspect in their use of said chemical, China might one day reap bigger harvests without a jot of additional environmental degridation. But after a week of having our hopes dashed, well, we wouldn’t hold our breath.