Watching the crystal ball – the WTO column

(Soon at Chinabiz)

One of China’s leading economists, Zhang Jun, asked himself in an analysis this week in the China Daily whether China can maintain another thirty years of sustainable economic development.

I know enough business people who would be happy to know whether that is the case for their industry in the coming three months. It makes reading the media more fun as business people are trying to read the future in their tea leaves. But just what happens is as clear as watching in a crystal ball, where you will see in the best case a distorted picture of yourself.
Much of those predictions and statements of business people in the media bring back a beautiful statement of the chairman of the Dutch association of laundries who, in an effort to stop the downfall of his industry, accused the Dutch of being unhygienic people who did not wash their clothes too often. It did not stop the downfall.
So when Bloomberg quotes an investment banker who says that after a fall of more than three years the Chinese stock markets have reached the bottom of the market, I associate him with that picture of my brave laundry man. Of course we all know that the stock markets can and will drop further.
When automotive executives announce that the current slump in car sales in China is over, I only have to look at the website of the average Chinese car owner, Wang Jianshuo, to see that things are actually getting worse. Prices are dropping, but customers stay away and the storages of the retailers are getting filled.

The question whether or not China will be able to mitigate its amazing economic growth is only one part of the issue. Whatever will happen, it will have major effects, and the number of corporate blood noses will increase. Commodity markets will be worldwide in turmoil when China actually slows down, and when not energy shortages and disruptions of the logistical chain will do so.
With some exceptions, companies in China work against very small margins that are unheard of in other parts of the world. So when changes take place, industries will suffer, flourish and very often it is very hard to tell in advance. Chinese companies might be more equipped for that change compared to foreign companies who have not yet learned how to deal with long-term economic growth.

Media love sweeping statements on the recent interest increase, the possible revaluation of the Renminbi, the labor market, the growth of the GDP and other developments. But each move of the economy will have both positive and negative implications, that make such general statements nonsensical.
As the movements of China’s roller coaster economy become more and more of international importance, a more detailed look at what is happening exactly might be more useful than the sweeping statements of the past.

Fons Tuinstra