It’s a treat when he does Australia but when he travels it’s even more fun, from The Australian:
Given Australia’s (apparent) dependence on China, it would make sense to think that that any growth downgrade to our largest trading partner is bad news…Except that it will.
…The fact is this slowdown has been largely engineered by the Chinese authorities. The top policy making body – the State Council – actually wants slower growth: Why? For the simple reason that a $16 trillion economy growing at 12 per cent annual rate, or what have you, would be unmanageable – economically and environmentally. It would simply increase the likelihood of imbalances developing and a catastrophic bust at some point.
That being the case, and with low inflation, the PBOC thought that it was in a good position to cut rates. It’s important to realise that rate cuts were not about trying to prop the economy up though – or a sign that the authorities are in some way concerned about growth.
Actually, what Adam and Australians need to do to benefit from this is get out of the bull vs bear false dichotomy that defines the article.
China is slowing on purpose, yes. But it’s not only slowing to prevent imbalances, it’s slowing to address them. It has already got an enormous amount of debt, largely corporate, that is weighing horribly on its productive economy. The major real economy vehicle for this debt was real estate and building, which is now also correcting. The PBOC cut rates because these shakeouts are getting ahead of a comfortable glide slope.
As for Australia, the implications are very obviously terrible. If China succeeds it will transition quickly away from building as its primary growth driver, stranding the super-cycle investments of Australian miners. If it fails then the debt burden will overwhelm it for a while, leading to the same outcome.
It’s very possible to be bullish about this change via all sorts of channels – shorting miners, leveraging into a falling Aussie, buying Australian bonds – and many have been doing so for three years. But you can only do that if you’re not trapped in 1997 and the absurd notion that being bullish must mean rising prices in ‘Straya.
