CNBC Interview: The Real China Price and Olympic Shutdowns

Sunday, July 13, 2008 1:51

Last week, I was asked onto CNBC to discuss Inflation in China, energy price hikes, and the Olympic shutdown were the topics discussed.

I apologize for my lack of enthusiasm, and a few mumbled words…..but it was really early in the morning and the monitor was on a 5 second delay.

The intellectual weak point of the interview came when he asked about the what I felt the central government would do to help shore up the stock market. At the time, I really had no idea (and I still don’t). All I had for that was my gut feeling where if the central government was really worried about something, they would react…. and I just haven’t seen a real reaction to the market.

Not sure if it was right, but it was all I had… and I would appreciate any comments on the topic. It is one that is going to be important going forward as it is one of the biggest asset classes in China, but with the housing market starting to show signs of a downturn, I am just not sure what response is most likely… and if that would be the right one.

So, if there is an economist in the house… please step forward.

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8 Responses to “CNBC Interview: The Real China Price and Olympic Shutdowns”

  1. Clement Wan says:

    July 13th, 2008 at 6:37 am

    Congratulations on your CNBC appearance! A crystal ball in this case would probably be more useful and accurate than an economist though.

  2. Rich says:

    July 13th, 2008 at 8:17 am

    Thanks Clement.

    Unfortunately I think you may be right… but given the general state of the global economy, I am not sure a crystal ball would be needed either


  3. juerge says:

    July 13th, 2008 at 11:44 am

    they would do nothing – because
    a) they are not aware of the problem + b) if they are aware of the problem they do not care about it.
    Just met a chinese friend yesterday – big factory on the mainland. Suddenly a VERTU mobile was on the table – ohh I said nice but very expensive….Yes yes she said – it was a present of some official from government to my father – because he helped them with “something”……..As long it is like this ……do not expect anything…….Cheers !

  4. Chris Devonshire-Ellis says:

    July 14th, 2008 at 1:21 am

    Of course they are aware of the problem. The Chinese Securities & Regulatory Commissioin have been aware of it for a long time, and it is a major issue for them to solve, and a difficult one. The issue is that the Chinese government originally divided the markets in Shanghai & Shenzhen into “A” shares and “B” shares. “A” shares are demoninated in RMB and publically traded in RMB. “B” shares (in the same stock) are denominated in RMB but are traded in foreign currencies. So, with currency movements, you have the same stock trading at different prices. In fact the difference is now quite substantial. This is further compounded by the fact the government also holds significant stock in most of the Chinese companies that are listed (many are SOE’s or subsidiaries of them). In order to correct the problem, China needs to do two things: (1) Merge A shares and B shares. This will however cause a problem as the company share value if you do this will either automatically go up or down. Both can cause issues, depending on the stock. (2) Have the Government sell off some of their stocks. In fact they have been doing this – one reason the market has been declining (but not the only one) as these need to be absorbed. Consequently, the Chinese government has two problems to address, both of which lead back to credibility and social security issues if they act; on one hand they merge A & B shares they either piss off a lot of foreign investors in them as the price of their B shares decreases as a result of the merger, or they please local investors as the price of their A shares effectively increases. Also, if they offload a whole bunch of government held shares the market continues down as it drives the price lower. Accordingly, under such current circumstances neither the Shanghai or Shenzhen bourses reflect much market independence. Foreign financial commentators placing too much emphasis on stock movements for basic China fundamentals are therefore barking up the wrong tree when using them to assess what is actually happening in China as it is not being reflected on the Shanghai or Shenzhen exchanges. They are not exactly free markets driven by underlying sentiment, and the Chinese government is aware of this. Currently, the problem remains a political issue, not a financial one. Incidentally; for those who are interested, my China Briefing News site does feature the daily index movements, in real time: on the right hand column. Finally, my guess is 2014 will see a major restructuring – well after the Olympics and the Shanghai Expo, and into the new term of the next President of China – the currently favored Party candidate who is – an economist. China will change it, and it is aware the current arrangements are not suitable. But these things take time.

  5. Jay Boyle says:

    July 14th, 2008 at 8:13 am

    Kudos on the CNBC appearance Rich!

    I think your answers are well thought out.

    The Chinese economic policy has always been pretty straight forward when it comes to what take precedence. Stability has been the driving force since the 1987. Plain and simple.

    How do you maintain stability?

    1. Low unemployment
    2. Low inflation
    3. environmental protection
    4. reduction of graft.
    5. Whatever it takes to keep 1.3 billion people relatively happy.

    It is pretty easy to sit in the west and become holier then thou but I do not think Alan Greenspan could have pulled off what the Chinese have done with their economy in the last 15 years.

    Economic pressures are changing. Hot money is now reported as coming into the Chinese economy and already we are seeing SAFE take serious action to slow things down. Only time will tell if the measures work. Speculators should be advised that if China has to suddenly revalue the money will NOT go out as easily as it came in. I would not put it past China to take a page from Malaysia’s play book during the 97 crises. Remember the only rule is stability at all costs.


  6. David says:

    July 14th, 2008 at 12:45 pm

    Congrats on the CNBC appearance. Nice job.

    Don’t beat yourself up on the stock market topic. As others here point out, the complexity of the China market (and govt role in same) makes the question seem a bit weak in the first place. Perhaps like asking for predictions of how the US govt will fix our own financial crisis or resolve the situation in Iraq — impossible for most to say with any confidence and brevity — let alone on a global news broadcast.

    See you next time in the post-Olympic glow (hangover?).

  7. Rich says:

    July 14th, 2008 at 9:42 pm

    @ Chris

    I give the central party a lot more credit than most, and what they have done thus far is nothing short of the greatest economic transformation in history. Unfortunately, the next 10 years will be tougher as move from a hypergrowth model to one of more sustained growth.

    things that you have mentioned, are all examples of good theoretical steps (important steps), and there are a lot more needed as well.

    and unlike many who see China as fading after the big “O”, I see nothing but good stuff to come as we watch and participate in this process.

    @ Jay

    I think if I were going to ad one it would be media. I am not an advocate of the “C” word – I am a blogger after all – but it is clear that managing the media is something that wil be key in this. There have been a lot of issues recently, and going back years, that could have been handled a lot better… and had they been, a lot of pressure would have been relieved.

    @ David

    Thanks. Catch up over some ribs next time you are in town. Made a lot of progress on the topics we discussed a while back and have a few new things to discuss!

    good week guys, and thanks for the comments.


  8. Tim says:

    July 15th, 2008 at 7:55 pm

    Congrats on the interview! looked great!