Sat, Feb 10, 2018 - Page 9 News List

Outlook on China’s economy seems darkest from a distance

By Enda Curran and Ye Xie  /  Bloomberg

When it comes to analyzing China, distance seems to make investors’ views of the world’s second-largest economy grow, shall we say, less fond.

Whether it is George Soros, who likened China to the US before the 2008 subprime mortgage crisis; or Kyle Bass, who said the Chinese economy is built on sand; or Jim Chanos, who memorably said that China is on a “treadmill to hell,” there is no shortage of gloomy outlooks.

Over-investment, too much debt, bubbly markets, faked data, Ponzi-like financial structures — the litany of looming pitfalls seems inescapable to many investors, especially hedge funds, based in financial hubs from Connecticut to Canary Wharf.

That negativity is a sharp contrast to the majority opinion held closer to Beijing or Shanghai. There, booming consumption, a pickup in global trade and an increasingly innovative private sector are fueling bets that China’s generation-long economic miracle still has plenty of room to run, albeit at a slower rate than the average GDP growth of almost 10 percent a year since the early 1980s.

“I find it scary how many self-proclaimed US-based China experts with real influence have barely lived in China, barely speak Chinese and barely have a clue…” tweeted Shaun Rein, Shanghai-based founder and managing director of China Market Research Group and author of The War for China’s Wallet, published on Dec. 26 last year.

Later, he was on Twitter again, wagering that the “same tired group of China’s watchers will predict China’s collapse for the 40th year in a row ... and they’ll be wrong for the 40th time, but Western media will keep quoting them breathlessly as experts.”

Rein might have a point, but there are plenty of investors across the Pacific who take a longer view on China. Corporate America, for one, has long seen through the fog of gloom.

Chicago-based Boeing Co is building its first overseas “completion center” for 737 aircraft on Zhoushan Island south of Shanghai. In 2016, Walt Disney Co opened a US$5.5 billion theme park in Shanghai — its biggest-ever foreign investment. Tesla said that within the next several years it plans to begin making automobiles in China, where surging demand for electric cars contributed 15 percent of the company’s revenue in 2016.


Meanwhile, in December, the world’s biggest Starbucks — all 2,787m2 of it, about half the size of a soccer field — opened in Shanghai.

Western banks, which have long coveted the vast Chinese market, but had mixed success entering it, are looking at new opportunities now that Chinese President Xi Jinping (習近平) has promised to open up the sector to greater foreign competition.

UBS Group AG is in discussions to acquire a majority stake in its Chinese securities joint venture, and Morgan Stanley and Goldman Sachs Group Inc have signaled a desire to take majority stakes in their own ventures. BlackRock, Fidelity International, UBS Asset Management and Man Group are among global fund managers expanding in China.

If much of the commentary on China from the West remains bearish, blame Japan. Some analysts and investors base their assessments on the assumption that China is destined to share the fate of Japan, whose three-decade boom hit a wall in the early 1990s. This supposition is questionable.

China is still at a much lower stage of development than Japan. On a per-capita basis, China’s GDP in 2016 was less than 40 percent of where Japan was in 1970, according to World Bank Group data.

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