International Law

The Allure of the ?China Recovery? Story

By Stan

Since March stats here had some bright spots, some folks (inside and outside government) have been talking up the Chinese economy, some going so far as to say that the bottom has been reached and that recovery is just around the corner.

I think this is a bit premature for a variety of reasons, not the least of which is that these guys seem to be basing their opinions on a small number of data points.

As usual, the best place to go for sober analysis on this subject is Michael Pettis, whose latest is here. Pettis believes that we should all be looking primarily at net demand from overseas markets when trying to determine China’s recovery prospects, and this data doesn’t look all that good.

Since I bashed someone over at Seeking Alpha earlier today, it’s only fair that I throw out a quote from their site that sums up Pettis’s view pretty well:

While I’ve been a proponent that emerging markets will actually lead this eventual global recovery, the evidence for recovery thus far is more or less all based around some slightly improved Chinese data. Since data from within that country is not so trustworthy, a common sense approach would be to look at export data from most of the world’s largest countries - say the U.S., Japan, and Germany. They have been dismal. But never let facts get in the way of green shoots.

Gotta agree with that — I assume he’s talking about Chinese exports to those countries. What’s kinda funny, though, is that international markets have reacted positively to this “China recovery” story (as reported by the international press). I guess a lot of folks whose job it is to purchase stocks, bonds, and other financial instruments look first to the headlines of news articles and industry reports, and they do not necessarily drill down into the macro stats.

I’m not taking a cheap shot here — I’ve seen a lot of news reports in the past week saying how a particular stock market, commodity value or other market has reacted positively to the news coming from China, and yet I know that these glowing stories are based on some very large guesses that may ultimately prove to be mistaken.

Let’s face it, we all read what we want to out of statistics. Case in point, two stories that just came over the transom (figuratively speaking) of my RSS reader today. Both of these conclusions could be true, they are not mutually exclusive, but it does seem a bit strange at first glance:

1. In China, Property Sales Show Signs of Picking Up (Wall Street Journal)
2. China Housing Prices Could Halve by 2011: report (MarketWatch)

Nothing wrong with these articles, but there are people out there who will make decisions based on these kinds of headlines, perhaps unconsciously. That worries me.

© Stan for China Hearsay, 2009. | Permalink | 4 comments | Add to del.icio.us

Full post as published by China Hearsay on April 14, 2009 (boomark / email).