This is the fourth and last in a series of blogs that looks at the risk of a hard landing in the Chinese economy. One problem when assessing this risk is the lack of historical precedents. Very few countries underwent debt build-ups of Chinese proportions, and those that did were usually very small, open economies. The one exception is 1990 Japan which displays some striking similarities with today’s China.
Chinese GDP statistics are notoriously unreliable at signalling turning points, so I decided to test the temperature on the ground with a macro tour in Beijing. A couple of days of meetings with policymakers, academics and investors left me comforted and alarmed in equal measure.
A great advantage in managing money is having the ability to wait: avoiding a situation where you have to invest. This means you can pass on an investment idea simply because it doesn’t look interesting enough and wait for truly great opportunities. American baseball fans call this “waiting for the fat pitch”.
Leicester city’s rise and fall over the past year mirrors that of financial risk premiums. Fundamentals are probably average but performance can oscillate wildly. The Fed wants to see monetary conditions tighten: this can come through a stronger dollar, higher risk-free rates or increased risk premiums.
Having visited China at least once a year over the last 10 years, two weeks ago I was back in Beijing, swapping my Bloomberg screen for a ‘real world’ view of the world’s second largest economy. Meeting with friends, academics, investors and policymakers, here’s my take on what I saw and heard.
Emerging market bank credit availability improved last quarter, despite continued problems with non-performing loans. Instead, this was offset by stronger funding conditions as western central banks printed more money. As Stevie V told us 27 years ago, “Money talks, mmm mmm, money talks”.