The Year of the Tiger
Happy new year, China! It’s the year of the tiger.
But the more interesting question is: is this the year of the bull or the bear?
I’m a China bear, for a few reasons:
- 2009 growth of 9% while exports drop substantially in line with a crash of world trade and weak US/EU consumption + world record in household savings rate and lowest consumption over GDP (~35%) = Building inventory
- Cheap money. In 2009 the Chinese economy grew 9% on the back of a 35-40% increase in money supply. What’s the process here — have the central planners reverse engineered stable growth figures?
- Real-estate +73% during 2009, stock market +80%. House price/income ~10. You can’t value assets accurately when their priced value is changing so rapidly. A hot money magnet. Bubble indicator.
Long term-potential is sound, but the short-term future is less rosy.
What does this mean for the telecom (equipment) industry? Unclear. I don’t think there’s a lot of overcapacity in Huawei and ZTE. They are really selling. But their financing is murky and they need more of it to fuel their impressive growth. I wonder how they will be affected by the fall-out of a burst: financially and socially. I suppose right now they have some issues comforting worried strategists at EU’s big telcos that they supply to.
One thing that could happen rather soon is that these companies’ margins in the EU might be squeezed out by an appreciating currency, one of the measures China could take to rein in growth and inflationary pressures (as predicted by Goldman Sachs‘ chief economist today) following new regulation on bank’s reserves in an attempt to limit excess liquidity.
An interesting year lies ahead of us.
