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Important Chinese Indicator Turns Negative

Feb. 19, 2014 2:10 PM ET
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Today an important indicator pointed toward a Chinese economy in trouble. This indicator is exceptionally revealing and probably very accurate. It will also be totally ignored by the markets. It will be ignored because it isn't a number.

The South China Morning Post reported this morning that "the central government's propaganda department had instructed senior editors at major official media outlets to be cautious about whom they invite to talk about China's economy". Senior economists at global banks and foreign banks' research reports are distrusted because they view China's debt problems as far more serious than the government's believes. The preferred guests especially for live broadcasts are now economists and analysts with domestic securities firms and banks.

This is truly confirmation bias on a grand scale. It is a dangerous idea that to avoid a problem, it is best simply not to hear about it. It is even worse if you limit information about a problem. This means that preparations cannot be made and solutions cannot be found.

Perhaps the authorities believe that by restricting information they can avoid a potential. The reverse is true. Markets don't like surprises especially negative ones. Ignorance of the level of debt means that when the debt levels are actually revealed that the reactions will be far worse than if some indication had been known.

By restricting information, the government is just confirming that they are afraid as well. By shooting the messenger they confirm that the message is really awful.

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