From time zone to time zone, there are signs of a broken financial system. This past weekend’s issue of Barron’s had a splendid article by Jonathan Laing titled, “Why Beijing’s Troubles Could Get a Lot Worse.” Laing interviews Anne Stevenson-Yang from J Capital Research. Stevenson-Yang is a long-time China watcher, speaks fluent Mandarin and has lived in China for many years. In the interview, Laing asks her about many of the problems that the media covers, but one of the keys in the Q&A was the following:
Q: How bad can the situation be when the Chinese economy grew by 7.3% in the latest quarter?
A: “People are crazy if they believe any government statistics, which, of course are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross-domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too.”
As a long time skeptic of official Chinese economic data it was refreshing to find a similar view from a long-time China analyst. My doubts were raised by a simple viewpoint which is if the Chinese government prevented the free use of Google then I believed that the free flow of any meaningful data was difficult to ascertain.M y view was for the health of China to look at its largest suppliers of goods, especially Australia.
Iron ore prices as well as other raw materials have been sliding for the last year, and, as Ms.Stevenson-Yang said, “I’d be shocked if China is currently growing at a rate above 4%, and any growth at all is coming from financial services, which ultimately depend on sustained growth in the rest of the economy.” My point is to view all things China with a skeptic’s eye before swallowing the “analysts” and talking heads of financial media.
In trying to understand the impact of the YEN weakness on the global economy I ran a YEN/YUAN chart (USDJPY/USDCNY) and saw that the YEN has depreciated almost 50 percent versus the YUAN during the past two years since Japan began its efforts to weaken its currency. In looking at a monthly chart, the current YEN/YUAN price is lower than the June 1998 level when the Chinese government was very unhappy over Japanese efforts to intervene and weaken the YEN. The YEN/YUAN was at 17.49 yen to a yuan in 1998 and is now at 19.32 yen to yuan. In trying to court favor with the Chinese, the U.S. Treasury intervened in the foreign exchange markets and actually sold DOLLARS and BOUGHT yen. This will not happen now as the politics of the globe have changed as the status of China’s economy, but it is a potential flash point within the Asian region, especially if China is slowing. The Japanese are pressing for a weaker YEN but will its neighbors acquiesce in its efforts?
France: 0.97%Spain: 1.81%Italy: 2.02%Portugal: 2.82%;Ireland: 1.34%