From the editor
My case against China
Last week I said that a really contrarian bet on the decade might be to sell any exposure you have to the Chinese equity markets. That looked a little nuts to most people. Even Bill Bonner, the most contrarian man I've ever met, told me it was "a little too contrarian". But a few days on, selling China doesn't look quite as ludicrous as it did.
On Tuesday, the authorities raised the required reserve ratio for commercial banks (effectively reducing the amount they can lend out). It wasn't a big move (0.5%), but it's still a big deal. Why? Because as John Stepek noted in Money Morning (our free daily e-letter, which you should sign up for immediately) earlier this week, China's impressive growth over the last few years isn't down to any innate specialness.
Rather, the key factor behind its apparent resilience to the recession is the same one that's so far stopped America and Britain sinking into proper depressions – cheap money, and lots of it. The Times cites "local reports" which suggest Chinese commercial banks lent out the equivalent of $54bn in the first "frenzied five days" of 2010. In China, just as everywhere else, growth has long been about little more than stimulus.
The question is what happens as that stimulus starts to be removed. The answer? Probably nothing good.
• Read the full editor's letter here: My case against China
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