First the party, now the hangover. With the Beijing Olympics still a fresh memory, the amazing Chinese growth machine has hit a speed bump. The latest figures from Hong Kong–based investment bank CLSA show that China’s manufacturing sector declined for the sixth successive month in January. Some skeptics maintain that China’s economy contracted in the last quarter of 2008; Beijing claims a 6.8 percent annualized growth rate. What may be a more objective assessment comes from the Shanghai stock market, which shed two thirds of its value last fall.
Regardless, Beijing is facing its worst situation since it threw open the doors to Western-style enterprise 30 years ago. A torrent of money fled the mainland in the last part of 2008, according to Jing Ulrich, Hong Kong–based managing director and chairman of China equities at JPMorgan Chase & Co. But the outflow has skidded to a halt, according to Ulrich, though she concedes that money isn’t pouring back in just yet, as investors absorb bad news from the mainland, including the announcement in early February that 20 million of China’s 130 million migrant workers have recently lost their jobs.
Still, some China watchers draw historical socioeconomic parallels between China and Japan, which in 1964 hosted the first Olympic Games in Asia, struggled economically for a time after that and then went on a tear for most of the next 20 years. China holds some $2 trillion in foreign reserves, and its big corporations have more muscle than ever. In mid-February state-owned aluminum group Chinalco announced a $20 billion investment in Rio Tinto Group, the Anglo-Australian mining giant. That same month, Ping An Insurance, the biggest life insurer in China and the largest investor in Brussels-based Fortis, was fighting to block the cash-strapped bank’s fire sale of some of its best assets.
Don’t short China in the long run, says Minoru Mori, president of Tokyo-based Mori Building Co., developer of the Shanghai World Financial Center, which opened in August across the street from the Shanghai Stock Exchange. “China,” says Mori, “will not simply go away.”
