How To Read Chinese In English: A Primer For Investors

Includes: CAF, CEO, FXI, GXC
by: Ricard

This is a primer on how to read news about China in English. I believe the press to be heavily biased against China, for the simple reason that China-bashing sells. We know it, journalists know it, politicians know it. Therefore, getting objective information about recent events in China without living there or camping out at a university's Asian Studies department is a bit of a challenge. Fortunately, with a bit of practice, it isn't that difficult (although still frustrating nonetheless). Some simple rules when reading journalism:

  1. Know who you are reading. Does that person live in the country? This offers innumerable advantages, many of which we take for granted. Small things like what people eat, what they wear, and how they commute may tell more about what is going on than a one hundred page book. These people have a perspective that you will not have unless you go there yourself. If given a choice, all else being the same, always side with someone who is in country.
  2. If they do not live in country or do not have extensive contacts in country (most journalists writing about China), read the information very carefully. This cannot be emphasized enough. Imagine yourself reading a legal document, because you can be assured that it was written with legality in mind. The last thing an established publisher needs is a lawsuit, and they can avoid one by simply stating the facts as they are. If the facts do not match the perspective the author is trying to achieve, they still leave the facts there - they just frame the facts in a manner conducive to their plot. Misleading titles are a prime avenue for writers to misrepresent factually correct information.
  3. Trust established journals. Again, this deals with the legality issue. The stronger the reputation, the more they have to lose if their integrity is compromised. There may be biases, but the facts are generally indisputable.
  4. Avoid editorials. This isn't always true, but editorials are particularly susceptible to misleading reporting, due to the strong voice of the author permeating the work.

Most of this may seem like old hat to those who digest voluminous amounts of material about anything. Still, given the general lack of perspective of Americans about China, the (at times justified) suspicions Americans harbor about China, and the inability to crosscheck information without buying a plane ticket yourself, these points become vitally important in maintaining an accurate perspective. I would almost go as far as to say that if you haven't taken classes on China, read a couple books on it, or haven't been in country yourself (without the guided tour), you can pretty much come to the conclusion that you will not be getting an accurate perspective on China through the media no matter how much journalism you read - the bias is simply that thick. This is truly unfortunate as most economists predict China to surpass the US in GDP by 2025, meaning that it would behoove us to get properly acquainted.

Here is one example of this bias from a recent conversation I had on SA. The person who brought this article to my attention wanted to argue that China is either experiencing or has experienced a "hard landing". Unfortunately (or fortunately perhaps, as it made this entry exceptionally easy to write), I had to point out various misrepresentations in the article "China's October Economic Numbers Confirm Hard Landing".

This article is an editorial, which is an immediate red flag. Furthermore, we don't know if he has been in country, although one would hope so given that he has published books on the subject. The journal is Forbes, although it is also clear that Forbes assumes no responsibility for the writer's opinions.

Points of contention:

The main reason the author chose the title is that "inflation came in at 5.5%, well below September’s 6.1% and the 6.2% of August," a modest decline although overall levels in general are still quite high. The author makes a big deal about the severity of this decline, even though it is not far from the advances posted in previous months (0.6% decline in one month vs 0.3% advance in 2 months prior). There's nothing extreme about the severity of the decline. Chinese officials also recognize inflation as an issue they need to deal with, so one could say that they've had some modest success fighting inflation. Compare this reasoning to the title of the article... and remember, the justification for the title lies in the argument that China has brought down inflation.

Later on, the author discusses possible stimulus:

Many—including me—say that this time Beijing cannot stimulate the economy because it does not have the flexibility to do so, in part because additional government spending will aggravate inflation.

So, we have this scenario where the author is faulting deflation (or rather disinflation) for causing a hard landing, and now he is saying that stimulus is not possible because it may cause inflation. So which is it? Is disinflation the monster, or inflation? To this author, it's both, meaning that China is wrong for just existing. It cannot do anything right to this author monetarily. Clearly this is not objective journalism. There is evident bias here.

The author in the end concedes that China has room to maneuver (something I would not equate with a "hard landing"):

Analysts said October’s drop in the rate of inflation, the largest month-to-month decline since February 2009, gives Chinese leaders room to “fine tune” the economy, with some predicting they will adopt stimulative measures again soon.

Bottom line, if the main impetus for the title is a drop in the rate of inflation, and this drop can be seen as an opportunity for leaders to "fine tune the economy", how is this a problem? How is this a "hard landing"?

Another point of contention:

Also intriguing are the trade numbers released Thursday. Exports in October rose 15.9%, an eight-month low.

Indeed, a 16% rise in exports, because it's an 8 month low, is indicative of a hard landing. Just think about that. Exports are still growing, at a decent clip, too. What if corporate profits in a firm rose 16%? Would this be a hard landing for Google? Intel? Exxon? Wouldn't they kill for 16% annual growth in their top OR bottom line? Just think about that.

Another point of contention:

The surprising number, however, was that for October imports, which surged a stunning 28.7%. The initial take was that this statistic showed domestic demand to be “robust.”

There could be many explanations for higher-than-expected imports, but roaring consumer sentiment is not one of them.

Obviously the West has been advocating consumerism in China in order to redirect some of their export capability in a less mercantilistic fashion, so the author is reflecting this (justified) political bias by prioritizing consumerism. Later he comes to the conclusion:

Also telling is that analysts suggested Beijing may be inflating the import number by buying and stockpiling commodities, especially crude oil and copper.

He is using this to highlight China's apparently insidious desire to go against the political will of America by not channeling import purchases towards consumerism, but there's more going on here than just consumerism. China is largely barred from owning commodity producers for key materials it needs to develop if the mines, wells, etc are outside of its borders and owned by Western corporations. One example is the former Unocal corporation, which primarily owned oil assets in the South China Sea - China was barred from purchasing Unocal by Congress due to national security reasons. Sovereignty issues are not a concern (the intended Chinese purchaser was CNOOC (NYSE:CEO), a state-owned enterprise), since most Middle Eastern oil producers are also state-owned.

China has a clear need for commodities. Given the several hundred percent rise in price of many commodities over the past 10 years, it becomes a key strategic objective for China to secure commodities in any way it can, as cheaply as it can, so that it can move on to better things, like building a pleasant consumer culture. This clear strategic need is twisted by the author in a way that is clearly unflattering to Chinese policy makers, even though it is also clear that US policy leaves China little choice but to go this route.

There are many more points to make in this one article alone, but I think these examples will suffice - that and this stub is getting a bit long. This highlighted author is not exceptional in the severity of his bias - many authors have this bias and are at times much more opinionated and less factually oriented, because this bias sells. It may be factually accurate (the author to my knowledge correctly cites inflation, export, and import numbers), but it is clearly misleading, and preys on either the reader's own bias, or the reader's ignorance and lack of careful attention in order to make his points. Note that this is Forbes, although Forbes makes it clear that the author takes full responsibility for his opinions, essentially letting Forbes off the hook for libel.

Disclosure: I am long XOM, INTC.