This page contains a Flash digital edition of a book.
20 | LETTERS


YOUR SHOUT


www.opp.org.uk |MARCH 2012 What do you think?


Here at OPP, we really want to know what your thoughts are on the issues that affect our industry. So, please tell us what you think about the latest news and what you’d like to see discussed by joining our LinkedIn group, tweeting us @oppnews, e-mailing geoff.hadwick@richmondgreengroup.com, or writing us a good old-fashioned letter...


“Why are there so many Bears in the China shop?” asks former UK Minister


Dear Editor, I have been urging investment in China for months. So far, it has been going well. Last autumn the Chinese property market looked very cheap. It was off ering nearly a 4% yield. The background was persistent bearishness by most


professional western commentators. Today there are still plenty of bears in the China shop. I


read a piece claiming that China’s low public sector debt ratio of around 20% is really over 100%, if you add in pension liabilities, possible local government losses, and possible banking losses. The commentator did not say what such draconian


accounting treatment would do to the much larger western sovereign debt levels already recorded. Many bears claim that there will be a big housing bust in China. They concede that it will not come about as it has in the US, UK and Spain from excess mortgage credit, as many Chinese buy their properties with cash. Chinese buyers needing mortgages have, on average,


relatively low debt to price ratios. They just think sentiment is now negative and this


could turn into a crash. If property goes, the banks get into trouble. China,


they argue, could do what much of the West did in 2008. It is true recently house prices have been falling a little. They could fall more. Banks could have larger losses. I suspect the Chinese


state will act to stop this doing serious damage to the wider economy. I think the persistence of this thinking can be turned around to be part of


the bull case. Western smart commentary has kept most funds out of China altogether,


“All those people who worry about China should ask themselves why the market has started to rise so well”


or has limited them to very small investment positions in the world’s fastest growing large economy. Last month, I was on a panel at a conference organised by Quantum Advisory,


talking to Pension Trustees. I was one of a panel of three. I was asked to make the case for China. I did so in


general terms, and reminded my audience of its poor performance last year and the risks people saw in it. At the end of the presentations, our host asked the audience which of


the three markets we had discussed would receive their money, if they each were given £10,000 for their own personal investment and had to invest in one of the three.


Five hands went up for Europe, two hands went up for the USA and the large


majority voted for China. That decision clearly refl ected their views and the facts of the case. Last year, the Chinese economy grew by 9%. Industrial profi ts were up by 25%. 12.2 million new jobs were created in the cities, where unemployment averages 4.1%. The economy is running a substantial trade surplus, offi cial government borrowings are light and the overall tax-rate is just 22%. The budget defi cit is under 2% of GDP. 38% of the workforce is still employed


in agriculture, producing just 10% of total economic output. This leaves plenty of scope for more people to come off the land into more productive employment. In 2011 China started her new 5 Year Plan. At its heart is the wish to boost incomes, living standards and domestic demand. China is well aware of the limits to more growth from exporting to heavily


indebted western societies. All those people who worry about China should ask themselves: “Why has the market started to rise so well?” Could it just be that China’s obvious achievement in making, exporting and


investing will from time to time come out in higher share values? What more do the bears want China to achieve? John Redwood, Chairman, Evercore Pan-Asset Investment.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68