From the post left unfinished last week. Some of the main arguments read (or heard) in China Crisis discussions:

The Time

Economies don’t grow indefinitely.  Low cycles follow high cycles and after 30 years it is about time. China cannot break the laws of economics, so the recession must necessarily come in the next X years. The country hasn’t prepared itself politically and psicologically to face this period. In the end, we are sure to have trouble.

Of course, this argument is of little value without the X, and many proponents of a time limit have failed in the past. This is the field of technical analysts and other mystical thinkers. Mythology also plays a role:  In Chinese history, cataclysms mark the end of a cycle. An earthquake preceded this crisis, and a solar eclipse is coming in July, the dynasty has lost its virtue. These arguments tend to work better with a bit of hindsight.

The Markets

The World’s economies are interdependent today. China’s economy is largely dependent on exports and FDI. The weight of these external factors in China’s growth has been much discussed, but regardless of the exact numbers, few doubt that it is a significant motor of the economy. External motors failing, China turns to internal ones: investment and consumption. Today, strong public investment, mostly in infrastructure and energy, is making up for the loss. Click to continue »

Xinhua has come up with the most brilliant in-depth analysis of the economic crisis that we’ve read to date.

BEIJING, March 8 (Xinhua) — China’s relatively fast economic growth has caught the eye of the world at a time when most of the countries are experiencing the full wrath of a raging economic slowdown.

As some Western media questions why China works, the world’s economic experts and scholars are also wondering the same thing: What tools China has to keep its economy resilient and why it is well-positioned to weather the financial crisis?

The answer lies in the nation’s unique growth mode featuring a “scientific outlook on development.”

Economists and bloggers of doom, read and learn.  For the sceptics, this editorial is based on the work of recognized specialists, such as:

• “Analysts”
• The vice president of Stellenbosch University
• The Colombian ambassador to China
• “The international community”
  
• Velia Hernandez, professor from the A.N. University of Mexico

And many other “economic experts and scholars”.

Finally,  science at the service of the community.  And the question is, what do I do now with my two months worth of canned tuna?

I have a bunch of friends back in Spain who are always quick to send me the juiciest China news coming up over there, and to supervise that I’m fulfilling my duties as a bridge blogger.

This time I have received a couple of links from Spanish newspapers El Pais and El Mundo where there is evidence of at least two different Chinese industries that continue their cheerful expansion to the West in spite of the World Crisis: These are the industries of Shady Barber Shops and Mahjong Gambling Dens. Fourteen of them have been closed down in a recent police raid in Barcelona.

These are the two articles, one very recent, one from last year:

In recent months local residents of the districts of Eixample, Sants-Montjuïc, Gràcia, Horta-Guinardó and Sant Martí, had brought to the police their suspicions that many hairdressers opened recently by Chinese citizens were something more than to cut and dye hair.

Yes, how perspicacious. I never knew of these things  during the three years I lived in Barcelona. For linguistic reasons I had quite a few friends in the Chinese migrant community over there and I frequented the Chinese areas of the city. As far as I know these FDIs must be very recent.

Anyway, so much for the Chinese hairdressers’ expansion. Although gambling and prostitution are not among the Rights that this blogs stands for,  I can’t help feeling a bit sorry for those Chinese that see their  business seized by the police. Something must have gone wrong with their otherwise perfectly profitable business model. Perhaps they didn’t remember to “glocalize instead of globalize”. Perhaps the local police superintendent is not keen on Asian chicks, or maybe they chose the wrong hand to oil. Who knows.

The New Iceland?

Since we are at it, and on a completely different subject, check out below this scary chart of Spanish unemployment that newspaper El Correo published this week. Two little thoughts:

First, I am seriously afraid that Spain is going to turn into the next Iceland. The growth of these last years was so based on the real estate bubble that troubles could be smelled all the way from China. Am I going to turn into a poor immigrant in Shanghai working my ass off to send money back to homecountry? It would be an interesting role reversal, after all the Chinese I met doing exactly that in Barcelona. Oh well, it was  inevitable at some point, I guess, I just never imagined it could come so soon.

Second, as an engineer I note again how numbers and charts are powerful tools of manipulation. The chart below  goes so high on the Y axis that it almost needs logarithmic scales to fit in the paper. A mere problem of the units chosen, of course… or of the number of copies the newspaper wishes to sell.

Inversely, it would be very easy to make this graph look flatter with a more harmonious  objective in mind… CCTV, take note, you might consider hiring a specialist like me to re-engineer your charts and numbers for harmonious results. But then, what do they care, they simply would not publish the negative charts.

(yes, it is CCTVbashing week this week)

More bad news about the Crisis. Yesterday All Roads had another of those worrying posts: 3 Announcements and 2 Rumours, and not one of them good.

Still, on our return from the double New Year’s season, many of us are suprised to see the sky is not falling on our heads, and the dire predictions we did before the holidays have not quite turned true. Indeed, the Crisis in China seems to have a very annoying quality for bloggers: it is not happening. Yes, we’ve had bad news coming every week for the last months, we’ve seen experts we respect telling us how bad the unemployment is, how many factories are closing. And all of them are right, if we look at the numbers. Yet, on the street, no Crisis to be seen.

What is going on here? Who is taking our Crisis away, depriving the dismal scientists of their fair share of joy and fulfilment? And more importantly: is it not time to deem the whole affair a bluff, and go join the ranks of the optimistic, together with the guys at the World Bank and the CPC?

Where are all the Crises Gone, long time passing?

You might remember that post I wrote where I started out wondering about the different perceptions of the Crisis in China and in the West. 3 months have passed and this contrast is, if anything, sharper than before, as I have seen during my New Year’s travels. Right now Europe is bleeding, there is no question about this. China, on the other hand, looks to the casual observer like a normal, almost healthy economy. One cannot sense the Crisis.

In Shanghai, Zhejiang, Fujian, three of the engines of China’s economy, I have seen nothing going on but normal everyday life. The shops are full of people, “we hire” signs are on the windows, and taxi drivers remain for the most part optimistic – at least those who didn’t buy shares. One of them even told me: “Riots only happen in Guangdong, in Shanghai we are civilized”

Back to the office, in my work with industrial investors in China I see the same picture: while some Western clients have cancelled or postponed their 2009 FDI projects, not a single project has been stopped by our Chinese clients, which are all large SOEs.

The time’s for the Ox and don’t give me no Bull

Here are 3 reasons that might explain this strange gap between theory and observation: delay, transparency and inertia.

• Delayed effect: The crisis comes to China in a very different way than to the West. In our case it was a bursting financial bubble,  hitting us all with the speed of sound. In China, it is different. They didn’t have the “complex financial instruments”,  their financial system was relatively isolated. In China the Crisis is caused by exports and FDI, which is a far less explosive mix. Look at FDIs, for example: a typical project cycle to build a factory is 3 years, and there’s a point of no return somewhere in year 2, when the construction is mobilised and the equipment paid for. This introduces a long delay while the ongoing projects finish and until the absence of new projects cause panic in subcontractors. Same effect with the production of factories which had a large backlog in 08.

• Inertia: China is a massive system that has been moving at high speeds for 30 years. This doesn’t stop in one day. It is not only the phisical momentum of the thousands of ongoing projects, it is also psycological inertia. in the minds of many Chinese the system is strong, and there is no reason to believe in a Crisis that has never happened in their working lifetime. Behaviours do not reflect fear, and many go about their New Year’s shopping like any other year. Worse still, some seem happy to believe that it is America’s fault and this is an American Crisis; and mind you, not all agree that smart China need lend the old brother a hand.

• Transparency: This is the most important reason of the three, and the one that scares me most. For all the good things that one can say of CPC’s economic policy (yes, they did draw 300million out of poverty) there is one serious fault that nobody fails to notice: Lack of Transparency. With the largest part of the economy dominated by SOEs or following direct orders from the party, it is not unreasonable to think that there might be a bigger soup on the fire than we are led to believe.

I don’t want to cause alarm or instigate hoarding behaviours like that of our old professor, but this is not looking good. If there’s one single best way of making a Crisis more deadly, that is withholding information and letting it burst only when it is too late.

The two pillars of China’s growth in the 2000s were SOEs and FDIs. The FDI leg is seriously failing now, and the effects will be felt progressively. Even with all the financial might of the Chinese State, it is hard to imagine the SOEs taking the place left by the FDIs, let alone going out to take over the World. I cannot see the Chinese companies leading the effort, I can’t see their necessary creativity and initiative to open new markets to replace the lost export ones. All I can see is a bunch of Giant SOE’s which are better at leveraging their massive size and influence than at impressing us with their products.

There is something quite anomalous in this perceived calm of today, and this blogger thinks that he can smell a Rat. But the time is not for Rats anymore, it is for Ox.

Which is one 2 bits short of a Bull.