About 6 weeks ago I wrote a blog entry called things are getting messy. Continuing with the theme of issues in the Chinese economy, I’d like to draw you attention to 2 recent news items.
- According to Beijing Business Today, Zhonghong Holdings have HALVED prices of units in their Xiangsu project in Chaoyang (to 11,600 Yuan per square meter from 22,900). This project used to record the highest monthly sales for the firm. In addition, the local Beijing regulator says that month-to-date home sales are down 60% in the city. I don’t really need to comment any more.
- There are reports of strikes and unrest in Shenzhen and Dongguan, two export hubs in Guangdong. According to the province’s acting governor, orders are down 9% sequentially.
For those expecting a soft landing in China, these data points suggest (as I’ve said for a while) that they are wrong. This comes of the back of an HSBC Chinese manufacturing index published last week that fell to the lowest level since March of 2009 during the depths of the economic crisis. In my opinion an HSBC index is more credible than the Madoff-esque official figures. (note – I hear that even the electrical consumption figures are massaged these days!)
This portrait of China should be put in the context of other emerging market economies. While all eyes are on the European debt pantomime, Brazilian and Indian credit conditions have been deteriorating, and EM currencies (led by the likes of Turkey) have continued their slide / required massive intervention to hold them up – such intervention can only help for so long.
Those economies that fared well through 2008 and 2009 (i.e. EM) are rapidly heading for their down cycle now. For investors it’s time to focus on the US. Recent data has been very positive. The consumer is spending. The only reason GDP growth came below expectations (2% vs. 2.5%) is because in inventory draw down (clearly as positive). House building is beginning to turn around slowly (led by multi-family homes). US corporates are reporting good results, and beating expectations. Don’t get me wrong – it’s not a blow out, and there are likely to be bumps on the way, but the data point to a more robust US recovery than the market is pricing in now.
(PS – maybe the Middle East is a good place to be. The Saudi and Qatari economies seem to be in for business!)