China Shows Signs of Recovery. The World is SAVED!

Tuesday, March 3, 2009 22:18
Posted in category The Big Picture

If there is one thing that has continually fascinated me, it is the fact that so many people outside of China see so much potential in China.

It is literally a place that is everything… for everyone… and “you gotta be here” was the mantra of many

Manufacturing, retailing, investing, and so on.. China WAS THE PLACE TO BE…. or at the very least WAS GOING TO BE THE PLACE TO BE.

.. and with 1.5 billion people, who could argue with the fact that China could not only produce the world’s goods, but that it would also become the biggest shopping mall as well.

It is in this same vein thatd I am once again finding myself frustrated with the recent headlines that China is going to be where people look for a turnaround… or that it is China itself that will catalyze the turnaround.

Using the lead paragraph of Bloomberg’s article (and there are more) Chinese Manufacturing Index Rises, Signaling Economy Closer to a Recovery as an example:

A Chinese manufacturing index climbed for a third month, adding to evidence that a 4 trillion yuan ($585 billion) stimulus package is pushing the world’s third-biggest economy closer to a recovery.

It is one of several dozens articles that covered the announcement that China’s PMI rose from 49 in February, from 45.3 in January.  Without a doubt positive sign, especially given the face that it was in the 30s at the end of 2008, where I get lost in the analysis is that this is essentially the basis for people to believe that a recovery is on its way… in the FIRST HALF of this year:

A recovery in the first half is “very likely,” central bank Vice Governor Su Ning said yesterday.

Industrial-output growth in January and February may be higher than in November and December, Zhang forecast

For me, it is all getting to be a bit much.  That while I am having conversations, on a daily basis that only reflect the fact that the economies (US and China) are continuing to slow down.  Taxi cabs during peak hours are available, stores closing, large MNCs preparing layoffs of full time workers, and other firms implementing mandatory non-paid leave for ALL China staff.

US and EU firms have been forced to run cash business for the last 9 months are now running out of cash, those firms are going to be faced with hard decisions about staffing, purchasing, investing, and operations… which will only ensure the cycle continues.

It is not my intention through this post to further depress anyone, but it is clear to me that the same naive attitude and analysis that existed 3 years ago about China’s potential is only continuing, and in a time like this, it is really the last thing that is needed.

for myself, besides walking the streets and talking to people, I am also reading up.  Brad Setser and Michael Pettis in my mind have some of the best analysis going right now, with Michael having a really strong on the ground economic persective that I feel is valuable (Brad is great with macro numbers).

It is important to keep in mind that China’s economy was very fragmented before this recent cycle, and is only becoming more so, and that it is important to have a feeling for what is really going on at the ground level to help frame the view at 30,000 ft.

Comments, as always are welcomed.

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8 Responses to “China Shows Signs of Recovery. The World is SAVED!”

  1. Dan says:

    March 3rd, 2009 at 11:55 pm

    As bad as China is doing (and it is doing badly in some places and even worse in others), what is also true is that so far at least, it is still growing. Or at least the official numbers still say this. And if you are just about anywhere else in the world (Australia, for instance, just came out with new numbers showing contraction), about our only hope is to look to those countries with growth, however little. I think that is why even small glimmers make such news.

  2. Dan says:

    March 4th, 2009 at 12:03 am

    I would add that all of us have a natural tendency to view the world based at least in part on what is happening in front of our noses. You are in logistics, which no doubt is on the front lines of China’s decline. Some other areas have been less impacted. Just by way of example, probably around 10% of my firm’s clients are in the international food business, with well over half of those in the fish business. Believe it or not, times are great for them right now. The prices of most fish are fine, while the fuel and labor costs to catch it, process, and ship it, are all down. Bottom line, profits are up. We also represent a couple of companies that supply fuel to fishing vessels, business for these companies is also doing quite well. Another large portion of our clients are in technology, with many of those in the gaming business. Though funding for such businesses is way down, profits are not and as far as I know, not a single one has laid off any of their China employees. In fact, today one told me that their facility in China is “getting too small.” On the other hand, our clients with international yacht businesses….well, let’s just say those that are still in business have not called us for months.

  3. Rich says:

    March 4th, 2009 at 12:42 am

    Dan,

    Sure, grasping at what is in front of one’s nose is a natural tendency, Harvard prof. Dan Gilbert does great work on that.

    What I am most concerned with is that the analysts, and those who are supposed to be putting things in front of noses, are not looking past their noses. this is a long term problem that requires big think… not head down 6″ in front.

    Gaming, education, and lipstick.. all industries that are going to do just fine in China, and I find your comments on the food business interesting as well. I am not sure how fish is doing in China, or the driving factors, but with pork, poultry, and beef all having issues in China (again), perhaps there is something there.

    Anyway, looking at a single stat (PMI) without putting it in its full context, is my primary concern. Especially since 49 still means that manufacturing is contracting.

    Put that together with the falloff in investment (an indicator of the future), and I think we are wise to prepare ourselves for it to take a lot longer than 3 months to rebuild.

    R

  4. Dan says:

    March 4th, 2009 at 6:11 am

    I agree with everything you just said. “This” is not going to end in three months. Will thinks start looking up in 6 months? Maybe. Nine months? Maybe. One year? Maybe. Eventually? Guaranteed. But to pull one statistic, which statistic itself might be inaccurate, might be revised at some later date, might mean little more to the big picture than more stories on the fish business, is nuts. We just don’t know and that is what is so damn scary.

  5. Rich says:

    March 4th, 2009 at 6:56 am

    Dan.

    I’d agree it is scary, and thus why I am adament that we need to inject more realism into the issue.

    Looking at the steps the US took, it was painful, and many doubt the effectiveness. Imagine had there been a real conversation about the core issues.. not the fact that banks were failing.. It was all disguised, packaged, and had a coat of lipstick. I hinestly beleive that much of this could have been averted (at the least mitigated) had the people in power had a spin and been willing to put citizens first… not consumers, not country, citizens.

    Maybe that is being a bit socialistic, perhaps optomistic, but it is something that has been needed for a while.

    Also – since you brought up the food industry (and you will see announcements in the next week), a major food retailer is about to pull up stakes from China. not sure of the scale, or what will happen with the stores, but it is clear that while some (wholesalers) are doing ok now, others are not.. and that as retailers, hoteliers, and restaurants start to feel the pain, the suppliers will as well.

    R

  6. Dan says:

    March 4th, 2009 at 7:03 am

    There are going to be shakeouts in every industry. No doubt. The other day, I was talking about how the next few years will likely go a very long way in determining the winners and losers within a whole host of industries. Some companies are taking advantage of the downturn by doing things they did not have time to do when times were good. Some are hiring top people from those laid off. Some are expanding into areas formerly “held” by now weak competitors. Others are retrenching either because their limited funds gives them no choice or because they are scared.

    BTW, leave it to the WSJ to take the statistic of which you originally wrote and put it in its proper perspective: http://online.wsj.com/article/SB123615717009727741.html?mod=rss_asia_whats_news

  7. Rich says:

    March 4th, 2009 at 7:18 am

    Dan

    I would agree that WSJ did a far better job, and on average do a far better job, than others. Their team is deep, experienced, and stable…. unlike many others

    As for how companies are reacting, some of the best news for survivors (or at least those with cash) is the HR element to this. the days of thin labor pools that train up and jump are on hold, and I would say that now is a great time to develop loyalty, and get some real work done.

  8. anon says:

    March 4th, 2009 at 8:37 am

    China is building more and more industrial capacity. That’s analogous to sending checks in the mail to US consumers and urging them to spend more…aka useless…and in fact is exacerbating the problem.

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