Spent a bit of time in China this past year, so the telephone and email questions are coming in unexpected quantity. Fortunately there are now many sources of quick and accurate expertise (see below), however there is a compelling reason to dispel rumors and folklore. I will try.
No, the China economy is not in trouble. With 5-7% growth and $3 trillion in reserves there are challenges that are difficult to resolve, and issues often surfacing, but the economy is quite strong.
Yes, the data from China is not always transparent, but neither is ours. Increasingly sources of good data emerge so that at many levels we can actually see clear views .
No, the commodity and currency markets will not remain stable over the near term; but that is a multi factor phenominon only some of which involve China.
Yes there are bubbles in the China economy, remarkably similar to the US in 2007. The bank balance sheets are hugely inflated with poor loans and the banks in China , like ours in 2008, must be recapitalized. The order of magnitude, compared to available reserves, makes the recapitalization feasible. We cannot say, however, when and how fast this will occur.
No, the path to revaluation is not predictable, so although over the long term we can say that the Chinese currencies are overvalued compared to the dollar we cannot predict exact fluctuations in timing or order of magnitude.
Yes, all the 'smart' money has a long term short position on the Renminbi, but these are very long positions indeed. Anyone advising on short term moves should be ignored.
No, the macro view is not the whole picture, for there are economic issues at the regional and local level that require serious expertise. If you or your firm is working with China it is best to do your homework.
Many reports and webinars and television interviews are available, concise, and clear:
- An overview from S&P (slides, too) shows the basics
- From Charlie Rose, the El-Erian interview is perfect on China.
- From CNBC there was a short interview with Kyle Bass that is very poignant.
- Uncut: Full interview with hedgie Kyle Bass
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.