I finally got back to Beijing on Monday, but after an interesting lunch with a group of pessimistic Brazilian hedge fund managers who were concerned about financial fragility in China and its impact on Brazilian markets, I had to fly that afternoon to Hong Kong for two days of meetings.  It is not a lot of fun traveling in a period like this, especially when people are asking your advice on market events, because whenever you are away from the screens for more than an hour or so it seems that another earth shattering event has taken place that makes all of your comments immediately out of date.

Not surprisingly, the Chinese stock markets did very badly this week.  Monday was a holiday, but when the market opened Tuesday the SSE composite quickly lost 4.4%, and dropped a further 2.3% on Wednesday and 1.7% today to close at 1898.  Clearly 2000 was not the bottom.  In an effort to stop the decline the authorities announced today that effective Friday they will cancel altogether the stamp tax on stock buying.  

Big deal.  They have tried so often to signal the market up or down that I am pretty sure that they have little credibility left, and so I suspect that this cancellation will have absolutely no effect.  Real news – either domestic or from abroad – is going to drive the market tomorrow.

Unlike in the rest of the world the local media seems to have been fairly muted in reporting the developing financial crisis.  For example there seem to be more visible headlines in the People’s Daily and in Xinhua about the successful end of the Paralympics and of the tainted milk scandal than about the global financial crisis, much of which reporting was relegated to the business sections.  I suspect that the authorities are worried about the impact of the rising gloom on retail spending, as perhaps they should be.  Rising consumer demand was one of the few bright spots in recent economic data releases, and although I suspect that the Olympics had a lot to do with that, it won’t pay to scare Chinese consumers into saving more in reaction to the growing global uncertainty. 

Actually a lot of journalists have been asking me today about the impact of the stock market on consumption and confidence.  I don’t think there is likely to be a very strong direct impact since in China the stock market is still very small relative to overall GDP, but of course watching the market fall so quickly is likely to have an adverse psychological impact on consumer spending, and maybe a large one.  More important, I think, is the property market.  Chinese consumers, banks and corporates are far more heavily invested in real estate than in stocks, and it is here that declining prices can really impact the economy.  Unfortunately I don’t think is a very good story either

For example yesterday’s South China Morning Post had a massive front page headline in its Property section:  “Price war fails to lift mainland sales”.  The article starts off with:

Mainland property developers have resorted to steep price discounting to lure buyers back to the market this month and next, the traditional peak home-buying season.  

“It is the first time we have seen a price war happening in all the major mainland cities.