China’s Falling Off the Cliff. Got Your Plane Ticket?

Monday, September 17, 2012 6:56
Posted in category The Big Picture

Following up a few recent posts about where the Chinese economy is headed (heading), I just finished reading the FT post Bears at the heart of the dragon. An article written by Jamil Anderlini following last week’s Tianjin WEF, Jamil’s article shows that there is a growing concern about China’s economic prospects in the short term.. and what the implications of China falling of its own fiscal cliff could mean. And as much as I quoting anonymous sources, there are two quotes that I think are worth mentioning from the article

The first from a  “highly respected” Chinese economist:

“I believe China is going to experience a very serious economic downturn and I think it has already started. The government is trying now to stabilize the economy but the instruments they have are very limited. If it can’t turn things around then I expect huge and widespread social unrest.”

and the comment that follows (from Anderlini):

While many in the international business community seem to credit China’s leaders with superhuman powers of wisdom and foresight, those on the inside are much more sensitive to the inefficiencies and perversions of a system that lacks an independent legal system or a transparent mechanism for economic and political decision-making.

Regardless of whether or not China has begun to fall off the cliff or not, the two quotes above are part of what I believe is becoming China’s “worst case” scenario.

The underlying premise at that time being that China’s growth has occurred in such a way and at such speed that the systems required to prevent an implosion were not put in place.  A premise that I largely hold til this day, with (on some level) a higher sense of urgency given the speed and reach of social networks today. It is a scenario I once described in my post China Will Never See a Bank Fail. It will See a System Collapse.

A third line that I feel is far more pertinent to the readership of All Roads quotes yet another anonymous source, a “senior executive from a very large western fund manager”:

After what I’ve heard I’m really worried now about being the dumb foreigner sitting across the negotiating table from the locals who are packed and ready to run to the airport.”

For me, this is the money quote as it pretty much sums up all that is feared, and all that should be feared, by foreigners in China.. That (1) China is falling apart (2)  only the Chinese know it (3) they (foreign investors) are going to get screwed and (3) they are going to be left behind in the chaos.

Which, if these are truly your fears, then perhaps it is time to write a Why I am Leaving China post, because true or not, operating in fear of what can happen in China is not a successful business model..

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4 Responses to “China’s Falling Off the Cliff. Got Your Plane Ticket?”

  1. Tim says:

    September 18th, 2012 at 9:20 pm

    The article suffers from the same simple dichotomies that many do when discussing outlooks on China: 180 degree reversal of pessimism from foreign investors to locals with seemingly inside knowledge. I remember pundits discussing collapse after ’89 and many other hurdles they encountered including China’s ascension to the WTO. 

    The real story is more complicated and likely less moribund in its outlook; in particular when you add how the CCP has been able to reinvent itself in the past into the equation. Unfortunately, so much in the higher levels of the government occurs in a black box that it leaves a vacuum of information that is often filled by anonymous (and ominous) gossip.  

  2. Rich says:

    September 18th, 2012 at 11:04 pm

    Tim.

    I’d agree, and I hope my sarcasm came across in the article. There is certainly a higher risk for failure(s) right now, BUT, this article is really presenting the “worst case” as the “more plausible”

    R

  3. Chris Devonshire-Ellis says:

    September 19th, 2012 at 8:29 am

    I agree with Tim. While cities like Shanghai may be slowing and the opportunities for expatriates diminishing, China per se is fine. The growth pattern has just shifted to the 4/5/6 tier cities, which are performing at 9-10% growth. If expats want to succeed, they’ll need to be fluent in Chinese and prepared to travel. See: http://www.china-briefing.com/news/2012/09/17/growth-in-chinas-own-emerging-markets.html
    Expats need to get their heads around the fact that they can’t just sit in Shanghai anymore and expect instant success, China has moved on from those days, and those that can’t hack will get left behind.

    – Chris

  4. Rich says:

    September 19th, 2012 at 8:34 am

    @chris.

    I was speaking to a firm that is now into the 7th tier. An awesome opportunity for those just landing I would say. Some are taking that challenge up. Some refuse to leave the safety of the gateways.

    R