Not all articles about China from SMH are negative

There have been too many highly negative articles been published about China by the Fairfax newspapers. One would have the impression that China will collapse tomorrow, if one were to believe in the reports by the reporters like John Garnaut, one which there are a dime a dozen in Australia.

My own assessment of Garnaut is that he is hell of a brainwashed individual – his (impaired) judgement is due to his free Tibet and anti-China agenda laden belief system.  Many reporters with same agenda like Garnaut are unable to see forests for the trees when giving their opinions on China. Not only that, they also have tendency to twist facts to suit their blinkered views. And they are being feted and encouraged by their equally dogmatic editors back in Sydney or Melbourne. Some are subtler than others, but  Garnaut is just crass and doesn’t even bother to be subtle. Afterall, GOD/ the Force/ the Supreme Truth is on his side, or so he thinks! A politician who may have such creepy dogmatic view of China is the so-called Green politician, Bob Brown. They hold steadfast to their beliefs just like the Mullahs of the Muslim world and other religious fanatics.

It is not all bad though, as occasionally on does get to read fairly decent articles about China. They are usually from the financial reporters who are generally less biased. Perhaps being a business writer means one need to be more accountable for the reports rather than being ideologically driven. Here’s one such report:

Martin Roth
January 19, 2011

Even if China’s growth rate slows, demand for Australian resources will remain strong.

Among the many worries sharemarket investors have for 2011, few loom as large as concerns about trends in China.

This reflects the growing importance in recent years of China to the Australian economy and to our financial markets. Few can doubt that any sharp economic downturn in China would have a significant impact on our sharemarket.

So several developments in China during 2010 were worrying.
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In particular, an inflation rate that has jumped to more than 5 per cent is viewed by many onlookers as a sign that the Chinese authorities will be forced to take steps to slow their economy.

Another concern is an apparent out-of-control real estate boom in some regions. There are also fears of an infrastructure credit bubble.

In December 2009, Texan hedge fund manager Mark Hart, who earlier made windfall gains from the collapse of the US sub-prime market and from European debt problems, launched a new fund aimed at profiting from a downturn in China.

In November 2010 he was quoted as advising investors that China was in ”the late stages of an enormous credit bubble”.

Then, in December 2010, came reports the Royal Bank of Scotland was advising clients to take out protection against the risk of a sovereign default by China.

At the same time, Societe Generale strategist Albert Edwards described emerging market stocks and commodities – including those of China – as ”a bubble of epic proportions”.

Even so, several Australian observers spoken to for this article were remarkably sanguine about the outlook, with none prepared to forecast a major downturn.

A senior lecturer in economics at the University of Queensland, Dr James Laurenceson, expects Chinese economic growth in 2011 to slow from about 10 per cent annually to about 8 per cent.

”But I do not see China blowing up,” Laurenceson says. ”The government will not let it blow up. If a stock market bubble or property market bubble bursts, the Chinese government has the financial resources to step into the void. They are not heavily indebted, so they can come forth with a big stimulus package if they need to.”

An analyst with Colonial First State Global Asset Management, James White, believes that ”getting over the hump of inflation” is the biggest challenge for the Chinese government for 2011, but adds: ”I think they are absolutely more capable of dealing with this than people give them credit for.”

He says that on a recent visit to China he witnessed ”a real, positive story, with people improving their lives and becoming more efficient and more capable; it is real and quite positive”. His conclusion? ”China is in good shape, and therefore Australia is in good shape.”

The head of investment strategy and chief economist at AMP Capital Investors, Dr Shane Oliver, says: ”For years the China sceptics have been saying that China is a giant bubble about to collapse. Those sceptics have been wrong for years and I think they will be wrong again in 2011.”

He agrees that inflation is a concern, but notes that the bulk of it is due to higher food prices, caused in part by bad weather. The non-food inflation rate remains below 2 per cent.

”I just do not see the Chinese authorities being willing to crunch their economy to battle what is really a weather-related surge in food prices,” Oliver says. ”My take is that, yes, they will tighten a bit further but they are not going to tighten so much that it damages their economy.”

Concerning fast-rising house prices, he notes that in fact the increase has been less than average income growth, which has also been showing double-digit rates of expansion.

”I do not buy the argument that there is a bubble in the Chinese property market,” he says. ”It may perhaps be occurring in some cities like Beijing and Shanghai but they are only 40 million people out of a population of 1.3 billion.

”In Australia, we have double-digit house price gains but income growth has been much more modest. If you are looking for bubbles, you are probably better off looking at Australia.”

He also decries arguments that China has been overinvesting.

”This is a country with per capita income of about $US5000 per person,” he says. ”In Australia it is around $US45,000. So China has a long way to go before it can say that it has built too many freeways or too many railroads or too many dams or too many office towers.”

Although Oliver expects China to remain volatile, he advises local investors not to be overly alarmed. ”There are a lot of risks with China but they are not the fundamental structural problems that the US has, with massive amounts of debt and long-term big demographic problems.

”China’s problems tend to be more cyclical and the normal problems that rapidly growing countries go through.”

Oliver’s own forecast for the Chinese economy in 2011 is a growth rate of about 9.5 per cent.

He adds: ”If I am right, then that should underpin a pretty favourable backdrop for commodities demand and hence our resources shares.”


About kchew

an occasional culturalist
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