After trash-talking the past week's rally, juiced by Citigroup (C) CEO Vikram Pandit's "miracle leak," Barron's Alan Abelson takes on what he sees as unfounded bullish consensus that China will somehow manage to "artfully dodge the wicked economic slump that is rapidly embracing the globe."
"The bullish consensus is 'rhubarb, poppycock, bilge, balderdash and piffle.'"
Société Générale analyst Albert Edwards thinks China is overestimating the impact of its much-touted $585B stimulus plan, and says the country's official estimate of a 50% haircut to GDP is too generous. Recent news that China's trade balance plummeted to just $4.8B in February, from $39.1B in January and $8B a year ago, only reinforces the country's weakness. Exports, the dynamo of China's spectacular growth, shrank 25.7% last month. And most of China's stimulus money is going to improve its infrastructure, where it's least needed, instead of aiming to kick-start sluggish consumer spending.
Premier Wen says he's "a little worried" about China's $696B exposure to U.S. Treasurys, which have dropped some 2.7% YTD. He paid lip service to the possibility of diversification, but the question remains: Where else can China park its surplus, and how can it extricate itself from the U.S. without causing further damage to the funds it would inevitably be left holding? And does China really want to cut its ties with a nation that buys up so much of its product?
As Morgan Stanley's Stephen Roach trenchantly observed recently, while "the original excesses were made in America," where consumers went on a wild binge, fueled by the credit and housing bubbles, the rest of the world, and particularly China, "was delighted to go along for the ride."
Abelson says he's not predicting a worse apocalypse for China than that we're experiencing locally, but the wishful notion that China will somehow shine even as others falter, "is poppycock, if not piffle."
- For many of the same reasons cited by Barron's, Individual Global Investor is bearish on China. "There may be some GDP growth for China in 2009 but it could just as likely be near zero," he says. "The global credit boom elevated the demand for manufactured products to unsustainable levels."
- Bill Zielinski is worried about China halting its purchases of U.S. debt - now that the money is no longer going to bolster its trade surplus.