Nearly everyone has one eye on China. It’s a market favourite fall back and while many use it as a proxy for global growth the headlines range from a slowdown being a disaster to some actually willing that the whole thing collapses in on itself and drags the rest of the world with it.
We constantly hear both the extremes of the story. China says they won’t allow the economy to sink underwater, others say the time bomb to melt down is ticking down to the final minute.
As usual the best place to have a view is somewhere just either side of the middle ground. Reader Andrew linked this story which is one of many predicting self combustion of China.
It would be naive not to show some caution over China but when you’ve got a country and government who has the power to throw the kitchen sink at a problem then we should know that the worst isn’t about to happen. That’s not to mean we should be completely dismissive as most of us don’t have a clue what’s really going on in China at any time anyway and have to rely on data at face value.
If Chinese companies are so up to their eyeballs in debt then they will make sure it doesn’t blow up in their face. They are going through reforms and there are worrying stories coming out about defaults and growth but the current actions in starting to let companies default are akin to opening the valve to let off some pressure. If the Chinese are one thing, they’re not stupid. They’ve seen over the last 7 years what can happen when debt is not managed and they’ve made plenty of money taking advantage of others over it. They won’t suddenly bite the bullet and admit to the world they have a problem and let that problem explode as that would do them just as much damage as it would everyone else.
The difference between China and everyone else is that they will see, be prepared and have the resources to see anything coming and be able to deal with it. The US and Europe failed to to either take note or realise there were problems and that’s what caused the GFC.
Nobody should ignore the news coming out of China but we should judge it on the extremity gauge just the same as we did when people we’re calling Europe’s collapse and the euro down to parity. There may be some stark news to come but I think we’ll be old and grey (or greyer) before we (ever) see a complete collapse of China and it’s economy. So trade the downside if you must but don’t set yourself to far from what may be reality. If we do see China implode, well, we’ll all be in the doodoo anyway so it won’t matter.
