China: Why we believe the story
Summary
There is plenty of China-bashing going on in Washington, and then there is plenty of overheating talk. The former is dangerous, and the latter is ignorant.Topics Covered
- Dangerous China-bashing
- Ignorant "overheating"/"tightening" talk
- How to make money off this
Background
1. Dangerous China-bashing
China is "for free" on the Hill: anyone gets to beat up on her. Thus, the current round of whippings is unsurprising: it is designed to garner votes, as we know. All that we can ask these Congressmen is: did you ever pass a law prohibiting U.S. firms from doing quality controls on the goods that they import from China? Of course Congress never has passed such a law. So who is to blame - the "bad" Chinese, or the American firms asleep at the wheels of quality control? Of course we hate China's blatant violation of intellectual property rights, and of course she "cheats". But, are all American companies "Boy Scouts" themselves? I wonder... Don't think that China will take this lying down. That is where China - bashing gets dangerous.
2. Ignorant "overheating"/"tightening talk
We have railed on about this. As one of von Hayek's last students, one thing drummed into me was Popper's dictum: "Don't look at the argument, look at its assumptions!"
When talking of "overheating" and thus of "tightening", the critical assumptions are that
- China has a functioning market economy in which tightening measures actually transmit into the real economy, and that
- China's monetary policy is ruled from the Centre, from Beijing.
Anyone here think that China's economy "works" as it does in the mature capitalisms of the West? And please don't think that higher rates really matter. The government owns 80% of the stock market, but 2/3 of that is comprised of local ownership: in other words, 2/3 of China's markets are owned by local governments. And all that they want is growth, growth, growth: they have to create 10 million jobs a year. Besides, with the 17th Party Congress looming (interestingly no date has been set...), and with the Olympics ahead, "overheating" is not the issue.
Besides, inflation is being driven by pork prices. Central Banks are never known to be good at agricultural policy, are they? How can there be "overheating" if investment and production are booming?
How to Make Money Off This Idea
- Always consult your financial adviser re. instruments!
- Look at buying ETFs for
- China's A-share market
- China's H-share market, and
- the Hang Seng Index Tracker
