Unveiling the shrouds of secrecy

Li XiaoChao reported that China March CPI figure was 8.3% in March compared to 8.7% in Feburary which was a relief to everyone following successive astronomical rise in inflation that broke decade high.

GDP also slowed to 10.6% in the first quarter compared to 11.7% in the same period last year.Wow!Seems like Premier Wen economic cooling measures are working like a charm. Soon after, analysts started commenting that China is very much a sturdy ship on its own with internal consumption taking up the slack of reduced exports. Decoupling has arise with the financial turmoil plaguing the Anglo Saxons pretty much contained and will not derail China growth to superpower status.

However, various sources have confirmed that actual March CPI figures was in excess of 10% and GDP figures was between 7-8%. Chinese spin doctors have once again hoodwinked the global financial community, throwing statisticians and economists into disarray. Meanwhile, there are great divides in the upper echelons towards implementation of economic measures in steering the precarious economy onto safer grounds. The customized GDP figure is a loud message to the provincial governors to stop their mindless pursuit of investment inflows as the economy is overheating and not in any dire need of capital inflow. In fact, the actual figures painted a picture closer to reality where numerous SME across industries have shut down in recent months; the widespread carnage will eventually trickle down to all pockets of the economy and affect everyone down the food chain.

While listed companies may be registering high growth and profits, however their receivables may even be rising at a faster rate. The confluence of high interest rates, RMB appreciation, high oil and raw material costs, abolition of VAT rebate, new labour Act and desperate government cooling measures will soon bring an economy to its knees. Be mindful that I am not a doomsayer but the truth of the Chinese economy is far from what ivory tower analysts portrayed it to be. Sure there are emerging bargains that are ripe for cherry picking but the risk reward ratio is not as favorable as compared to other emerging markets.

I am filled with bafflement when the NDRC reported that property prices will likely trend higher in the coming months due to an influx of foreign funds in the coming months. Are the bankers behind those funds living in their own ivory towers?

From my understanding, several US funds are actively sourcing for Chinese property projects but the risks far outweigh the rewards(Currency appreciation and low USD borrowing rates) in the short/med. term and my interactions with numerous funds confirmed my belief that they are only on the lookout for short term business opportunities that limit their risk exposure amid the volatile and highly uncertain global outlook. The medium term property outlook isn’t all that rosey either as there is a flood of Grade A commercial and retail spaces coming upstream soon. Just look at the upcoming IFC, Mori building and the number of composite projects ongoing in the bund…In fact Shenzhen/Beijing is a solid testament to the implosion of unbridled optimism.

Residential sector is not a bed of roses either as investment in completed residential apartments is controlled and subjected to various punitive fees imposed by the government. Furthermore, the upstream property developers are also starting to feel the pinch amid the government crackdown where credit lines have virtually come to a halt. The only bright spot is a dearth of quality high end apartments in the market catering to expatriates which might warrant further price appreciation in the short/med term.

Perhaps the land bureau and decision makers can be given a lesson in economics 101. Lesson 1: prices are determined through the interaction of the demand and supply and the curtailment of property supply will only inevitably drive prices up. So what is the government agenda behind the skew of property cooling measures? Cooling or feeding the exuberance?

Lastly, the recent appointment of the national people congress brings an impressive lineup of pragmatic and knowledgeable ministers that is going to herald china into a new economy. However decision making is still concentrated in the hands of a mighty few and blogged down by fractional alignment, hopefully factional disagreements will tone down and that each individual will work for the good of the nation rather for himself.