1/9/2012 7:45 PM ET
|By Jim Jubak
China's Dr. Dolittle problem
Like the doctor's fictional creature, China is being pulled 2 ways, toward a soft economic landing and something much worse. It's hard to know which way it will go.
Jim Jubak
I'd compare China right now to Dr. Dolittle's pushmi-pullyu -- except that then you might think I believe the battle between the forces pushing that country's economy toward contraction and those pushing it toward expansion is comic.
And there's nothing funny about the perilous balance in China that will determine whether its economy will bottom near an 8% growth rate in the second quarter or shrink much more drastically to a hard landing.
There's nothing -- not the fate of the euro, a possible Greek default or an economic slowdown in the United States -- that has more power to determine the returns investors will see in 2012. I know I've written about this battle recently, in "China's bear threat isn't over." I also gave you my view that by the middle of 2012 we'll see hard evidence of the 8% (or so) soft landing that will lead to a rally in China and other emerging markets (in "The 10 best stocks for 2012").
But besides the tiny little issue of whether China can actually achieve a soft landing, there's the question of how scary the flight path becomes. The scarier that flight path, the more uncertainty investors will see -- and the bigger the drop that Chinese (and other emerging market) stocks will suffer before any bottom this summer.
The more uncertainty and the bigger the drop, the stronger the argument to move more of your portfolio to the sidelines in the first half of the year.
And I'd have to say right now that although I'm still looking for a bottom in China (and other emerging markets) in mid-2012, the going looks increasingly rough, and the damage that the bear will inflict even worse with every news story from China.
The subway freeze
The war isn't over, and I think ultimately the forces of expansion will pull out the victory, but the news from the front is certainly negative right now.
How negative? Well, let's take a story that Caixin online reported Friday about the collapse of subway construction in China
The story reported that the cities of Chengdu (one of the fastest-growing cities in China), Xian and Shenyang will open a second subway line in 2012. And then stop any further expansion of their systems.
Is there a real estate bubble in China?
The pattern is being repeated throughout China. Shanghai, for example, has indefinitely postponed the scheduled addition of seven trains' worth of rolling stock to expand its subway system.
Zhang Jiangyu, vice director of the transit technology planning office at the National Development and Reform Commission, told Caixin that 70% to 80% of projects are being postponed nationwide.
Part of this is a result of an explicit decision by the government in Beijing to cut spending on rail projects as part of the efforts to slow the economy in order to fight inflation. (The National Development and Reform Commission didn't approve a single subway project in 2011.) This part of the story doesn't worry me too much -- explicit central government decisions to cut spending can be quickly reversed by explicit central government decisions to increase spending.
But actions by the central government explain only part of the collapse in subway spending. Most of it is a systemic effect of the central government's decision to slow the real-estate market and to hold down or reduce real-estate prices. I'd call it an unintended systemic effect, and as such it will be much more difficult to reverse.
And that's what worries me -- and other China investors -- about this piece of news.
Read more at
|By Jim Jubak
China's Dr. Dolittle problem
Like the doctor's fictional creature, China is being pulled 2 ways, toward a soft economic landing and something much worse. It's hard to know which way it will go.
Jim Jubak
I'd compare China right now to Dr. Dolittle's pushmi-pullyu -- except that then you might think I believe the battle between the forces pushing that country's economy toward contraction and those pushing it toward expansion is comic.
And there's nothing funny about the perilous balance in China that will determine whether its economy will bottom near an 8% growth rate in the second quarter or shrink much more drastically to a hard landing.
There's nothing -- not the fate of the euro, a possible Greek default or an economic slowdown in the United States -- that has more power to determine the returns investors will see in 2012. I know I've written about this battle recently, in "China's bear threat isn't over." I also gave you my view that by the middle of 2012 we'll see hard evidence of the 8% (or so) soft landing that will lead to a rally in China and other emerging markets (in "The 10 best stocks for 2012").
But besides the tiny little issue of whether China can actually achieve a soft landing, there's the question of how scary the flight path becomes. The scarier that flight path, the more uncertainty investors will see -- and the bigger the drop that Chinese (and other emerging market) stocks will suffer before any bottom this summer.
The more uncertainty and the bigger the drop, the stronger the argument to move more of your portfolio to the sidelines in the first half of the year.
And I'd have to say right now that although I'm still looking for a bottom in China (and other emerging markets) in mid-2012, the going looks increasingly rough, and the damage that the bear will inflict even worse with every news story from China.
The subway freeze
The war isn't over, and I think ultimately the forces of expansion will pull out the victory, but the news from the front is certainly negative right now.
How negative? Well, let's take a story that Caixin online reported Friday about the collapse of subway construction in China
The story reported that the cities of Chengdu (one of the fastest-growing cities in China), Xian and Shenyang will open a second subway line in 2012. And then stop any further expansion of their systems.
Is there a real estate bubble in China?
The pattern is being repeated throughout China. Shanghai, for example, has indefinitely postponed the scheduled addition of seven trains' worth of rolling stock to expand its subway system.
Zhang Jiangyu, vice director of the transit technology planning office at the National Development and Reform Commission, told Caixin that 70% to 80% of projects are being postponed nationwide.
Part of this is a result of an explicit decision by the government in Beijing to cut spending on rail projects as part of the efforts to slow the economy in order to fight inflation. (The National Development and Reform Commission didn't approve a single subway project in 2011.) This part of the story doesn't worry me too much -- explicit central government decisions to cut spending can be quickly reversed by explicit central government decisions to increase spending.
But actions by the central government explain only part of the collapse in subway spending. Most of it is a systemic effect of the central government's decision to slow the real-estate market and to hold down or reduce real-estate prices. I'd call it an unintended systemic effect, and as such it will be much more difficult to reverse.
And that's what worries me -- and other China investors -- about this piece of news.
Read more at
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