The scary and not-as-scary in China’s economy

First, a disclaimer : no one has a clue what’s going to happen (not even Lex or Jim Rogers). Everybody has been wrong one way or another. The argument is becoming polarized and emotional. Personal view is a pretty nasty first half, with a shaky recovery in the second half. Whether that holds is another story (I think the story). What are the risks?

I just don’t think money supply is one, or at least not a major one. Yes, the hot money and significant FDI is leaving. But there are lots of countervailing forces. Dropping reserve ratios alone could free up RMB 1.3 trillion. So it’s a concern, but again, on the ground I don’t hear people complaining about capital availability at all, let alone to an extent like people in the US or Europe.

On the other hand I am worried about service sector employment and the knock-on effect on consumption. I hear lots of rumours of white-collar lay-offs coming. That may or may not be Shanghai-specific. But the mid-range economists (those with 7% GDP growth) are assuming little to none of that. Those who know the market say it won’t in the scheme of things massively dent real estate, but what happens to other forms of local demand, particularly, e.g., appliances, is another story. I don’t know how this will play out, but I’m hearing a chorus of concern about it ‘on the ground’ and not much from the experts.

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