Monday, July 4, 2011

Confused about China?

In an article titled "Nothing is as it Seems", Joann Pittman highlights the following myths about China:

1.  China is communist.
2.  China is capitalist.
3.  China is modern.
4.  China is poor and backward.
5.  People live under oppression.
6.  People are free.
7.  Religious persecution is the norm.
8.  There is religious freedom.

Actually all of these are true, and none of them are.  That's how China is.  If this piques your interest, click here to read the article.


  1. Maybe this is a separate post, but what is your take on the general economic sentiment in China? Are average people becoming disillusioned with the wealth gap and questioning whether the system is pouring $$ into rich pockets at the expense of everyone else? Supposedly a Chinese-made (Haier) refridgerator that sells for $400 in the US goes for $1000 in China, and despite massive overbuilding, real estate prices in the cities are unaffordable for most people.

    In the financial news / forums I am seeing, China is a daily topic. As your article suggests, we can't figure China out! Some western investors who have visited China think trouble is brewing, i.e. their recipe for growth is unsustainable, and potential for unrest is rising. Predictions are becoming common for a real estate bubble bursting and a spike in unemployment as the global economy slows and public works projects wind down, etc. Others are predicting a "soft landing" and think the economy will be fine, esp. when compared to problems in Europe/US..... Maybe you have some color on these issues?

  2. You probably know more about the financial situation in China than I do, but here's my take on those questions:

    1) The rich/poor gap. It's definitely growing, and the government is trying to make this less obvious. For example, words like "luxury" are now banned in many ads.

    2) Housing prices. They're out of control, especially in Beijing. The government is also trying to manage this; for example, now people are limited to buying only one home in BJ instead of buying up a bunch and letting them sit empty while they wait for them to appreciate. This is another source of discontent, but I have no idea if it will or won't be a bubble that bursts.

    3) The economy overall. This I'm also not sure about. One of the reasons Chinese people are happy with their government is because it has managed almost 10% yearly economic growth. If this reverses, I think a lot of other dissatisfaction will emerge. So the government has a huge vested interest in avoiding a big dip -- not sure how it will all turn out. As of right now, I think people feel the recession much more in America than in China.

    Another interesting news story lately is the huge response to IPOs of Chinese Internet companies, even Youtube-like sites that have yet to turn a profit. Does this mean Western investors have over-inflated confidence in China?

    Bottom line: no one can predict China, but a lot of people try.

  3. Thanks - I think you'll get to witness some interesting times in your next year there.

    As for investing in China, everyone wants a piece of the action, but we have to be cautious. To sum up some of the pitfalls, I'll paste from a blog I saw today:

    The Bank of New York Mellon China ADR Index is down almost 9 percent. Individual Chinese stocks tell the story, and many of the tales have to do with fraud. One prominent short, Mathew Wiechert, of Glaucus Research, claims many Chinese companies floated shares in the United States soley to defraud American investors, who have little practical legal recourse.

    It is not just small cap Chinese stocks trading in the United States via a reverse merger, either. In May, a massive investigation and findings of misdeeds was reported in companies affliated with the Chinese government. If private companies are cooking the books, the figures reported by the government could be suspect, too. Losses for John Paulson and his investors from Sino Forest will be in the hundreds of millions of dollars. Even with the research resources of major investors such as John Paulson and the due diligence performed, fraud is still endemic in Chinese stocks.