Fluent in five languages and with advanced degrees in chemistry and environmental science, Steven H. worked for one of Maryland’s high flying environmental companies.
The company was conquering the world, and Steven was leading the charge.
But then he made a terrible mistake. He fell in love.
And, to this day, if you ask any of his friends, they’d say I was to blame.
Was what I did so terrible? I’ll let you decide.
Steven and I met when I was in charge of Maryland’s international affairs under the late and great Governor William Donald Schaefer. I invited Steven and his company to exhibit at one of Asia’s biggest environmental trade shows, held in Singapore every two years.
Steven’s company rented the biggest space in our State booth and I was stationed right next to him. I could see he got a lot of traffic and was going to get a decent amount of business from the show.
At the end of the show’s last day, I asked him if everything had gone according to expectations. He said he was very pleased except for one thing. He had a paucity of leads from China.
For good reason, I replied. China is behind its neighbors in taking environmental issues seriously. It preferred to spend money on basic infrastructure projects. But, I added, one day they’re going to wake up and realize just how massive their environmental needs are.
“I don’t want to be out there proving ourselves with all the other Johnny-come-latelys
when they do,” Steven said. “When the damn bursts, I want a market presence and a couple of projects under our belt.”
He then asked if I could help him. I told him of course. And I did.
I called the director of the state’s Shanghai office, Shao Lin, and instructed him to prioritize Steven’s company.
Steven went after China hard. Diligently followed up on our leads. Began going there once every 2-3 months. And, lo and behold, within a year he got the couple of projects he so coveted.
They were small, but he said a small track record in a country like China is better than no track record at all. “Nothing’s going to stop us now,” he told me.
Steven had accumulated an impressive contact list of his own, so from that point on, he kept in touch with Shou Lin and me less frequently.
When he did call or email, his brief progress reports sounded like a broken record. “On the verge of signing breakthrough contract”… “Next trip expect to sign off on major project”… “Made final qualification. Expect good news soon.”
A second year went by. Then a third. His emails became less frequent. Then they stopped altogether.
Not long after that, I got a call from a mutual colleague. “Did you hear? Steven was fired.”
I wasn’t surprised.
Steven had fallen in love with China. Spent a lot of money wooing her. But the feeling wasn’t mutual.
Steven wasn’t the first businessman to fall head over heals over the huge potential of the Chinese market. And, of course, not all of them are doomed to fail.
Hundreds of American companies have enjoyed huge success in China.
And that’s because China has lived up to its billing as a country with big needs and the money to accommodate them.
As recently as ten months ago, the question on everybody’s lips was: Can China rescue global growth?
That’s ancient history. The question has now become: Can China keep its own GDP from slipping further?
And the answer from has come back loud and clear: No way no how. Here are some of the things quoted in the mainstream financial press…
- Average Chinese GDP growth this decade will not exceed 3% (Peking University Economics professor Michael Pettis)
- “A one-in-three probability” that China will experience a hard economic landing before the end of 2014. (Nomura, the Japanese financial services firm)
- “Some argue that China might already be in recession…” (Foreign Policy magazine article called “Five Signs of the Chinese Economic Apocalypse”)
- A “ghost fleet” of Chinese shippers plying the open waters in search of freight to transport, as if “out of the shadows.” (Evan Osnos, The New Yorker)
- China headed for a “hard landing of epic proportions.” (Jim Chanos, hedge fund manager)
- “China has all the earmarks of a classic mania that will end badly…” (Edward Chancellor from GMO)
- “Huge downward pressure” from slowing consumer demand in Europe and real estate speculation at home. (Prime Minister Wen Jiabao)
Calling for China’s demise has fast become Wall Street’s favorite blood sport. I find it quite interesting.
With all this bad news and bottom-scraping expectations, what exactly can be said about China today that would cause its stock market to take a bad fall?
Nothing I can think of that’s not already “out there.”
The verdict is in: China is reeling and there’s nothing the government can do about it.
Now I’m not going to tell you that the China alarmists are wrong. Or that they’ve got China pegged.
I don’t have to.
All I have to do is recognize that China is giving us incomplete, dubious, contradictory and often completely erroneous information along with high levels of fear, doubt, and excitement.
And that right now fear is winning out.
Listen, I’m not a huge fan of China’s economy. No doubt, it is grappling with some big problems. But three weeks ago I wrote in these pages “assuming a worse-case scenario is way premature at this point. China could still land on its feet.”
And I’m sticking to that.
Just the other day Chile’s Deputy Minister of Mining said something that argues against all this bearish talk. Global copper goliath Chile exports about 53% of its copper to China, and he’s not worried. “Signs of demand, shipments and inventories, continue to be solid,” he said.
Is this irrefutable proof of China’s economic health? Of course not. It’s merely a voice in the wilderness that the fear-dominated Western press chose to ignore completely.
But one thing I do know. As bad as China’s economy performs over the next year, it will be extremely difficult for it to do worse than current expectations.
And what if it does better, even just a little better? What if, for example, Chile’s assessment of copper demand in China is not off by a hundred miles but by only a few miles?
Could it be that the market is already rebounding on such a possibility? Take a look.
It’s too early to tell. I’d wait a little longer to confirm a bottom. But if this isn’t it, a bottom is coming very soon.
China’s market is very cheap, priced for a worse case scenario that is supposedly now being played out. If China’s economy shows just a little spark, its equities will rebound in a big way. And you heard it here first.
So what do you think? Are the wheels coming off China’s rapid economic expansion? Or will the economy re-accelerate and asset prices rise once again?
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