Don’t Dream. Be Realistic – advice for those involved in China.

In a realistic but ultimately optimistic New Year Message to members of the UK’s leading Anglo-Chinese business society, The 48 Group Club, its chairman, Stephen Perry, wrote China faced its biggest challenge in 30 years. When the international markets collapsed due to Fannie Mae and Freddie Mac, Bear Sterns & Lehman Bros all collapsing too, China was suddenly thrown into a major review of policy, of options, and of fall-back positions. 

China has almost $US two trillion in reserves, although $US 500-600 billion of that may be caught up in the Fannie Mae/ Freddie Mac debacle. China has a budget surplus and only about 25% of GDP is the state compared to Europe, which is generally over 40% and rising. So China has a lot of scope for stimulating the economy, but effective targeting and avoiding waste and corruption is a real challenge and will hold China back from huge amounts being thrown at the problem too fast. 
Stephen Perry’s advice for those involved in China?  Don’t dream. Be realistic. Listen to those who are close to China and not to the prejudiced media. We cannot expect a sudden change in China’s stock markets, although it would be welcome. We cannot expect China to suddenly suck in the world’s excess capacity. But they will make moves in the raw materials markets to replenish stocks and maintain growth above 7%. Probably the 4th quarter and 1st quarter of next year will be less than China’s leaders would require but the years of 2008 and 2009 will probably meet their minimum demands.
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