Hang Sheng just gone below 20,000

Will China hold up for the coming years?

It is my daily routine to check the indices around the world before bed. And, surprisingly, Heng Sheng just gone below 20,000 today (May, 14th)

Is it just a one-day event?

I recall that earlier in March some of my friends cheered for their ETF trading in Taiwan stock exchange. They invested in a fund that markets as a tracking portfolio on Hong Kong, Shanghai, and Shenzhen indices. I was "a bit" skeptical back then. "A bit" serves double meanings here: On one hand, I think there is a point that Chinese economic model still the one keeps the international economic revolving, and there is nothing wrong for them to advocate more on domestic consumption. On the other, a strong doubts in my mind and cannot be taken away: Do Chinese people really have pocket money in hands to spend (to boost the domestic consumption?)

Before we go into details, I would like to point out two things that are well-noticed: Chinese people love to save: their saving-to-GDP ratio is constantly higher than OECD countries. Yet, China has just gone through a frenzy boom in real estate. They are crazy at buying houses, and the new generation holds nothing back for luxury consumption.

So, although they might have cash, how much they left in hands to spend?

First, I would like to address the saving issue, I remember the working paper I read last year, (Hung and Qian, 2010) The author argue a few factors that led to the result of high saving rate.The four major factors are: Low old dependency ratio, strong economic growth, weak social safety net, and Asian growth model (i.e. private sectors save for the national orchestrated industrialization plan: Then the cheap funds are channeled to "national projects") In my opinion, none of these factors can predict savings to be free up for consumption. Chinese population will grow older eventually, economic growth are clouded by continuous global crisis, social safety net is yet well-built, and the Asian growth model might lead to a new bubble. People, facing so many uncertainty ahead, would more likely to save up even more than less. In that occasion, the current policy can hardly achieved.

Then, the economic growth starts to show signs of turning points. Refereed to the beginning links I attached here, reported by Bloomberg. The export is slowing, the central bankers are taking some easing measures, and they have attempts to bolster their equity markets. These are not good signs of robust economic growth.

Is Hang Sheng getting below 20,000 a one-day issue? I certainly hope so. After all, we certainly need a few robust economies to keep the global growth go on. One engine is never enough, and a few more are always better. Sadly, now we might get one failing after the other.

The reality of Austerity Plans

On Bloomberg Businessweek, The summary revealed how austerity is carried out

The first thing I see this, I would like to make an attempt to categorize them.


A. Increase revenue: Tax
1.) VAT increase: On Fuel (Greece, Italy, and heard from friends that NL is going to do the same.)
2.) Property Tax: Ireland, Greece

B. Reduction of Cost:
1.) Cut back social benefits or charge fees: such as babe benefits(Spain, Hungary), student benefits(Hungary)
2.) Cut back government employee benefits or increase their working hours: Spain, France

C. Modification of labor law:
This comes more outside of this report. Germany Labor laws are being more flexible for temporary workers, France, Bloomberg just had an article discuss why in France there are so many 49 person companies, and these countries are also modifying labor code on benefits for labor. That could consider an attempt to make hiring much easier to create jobs.


It is hard to argue which "economic measures" are suitable for the on-going situations. Yet from time to time we still see these: A township head somehow still get a bigger paycheck, the rich can always find ways to evade tax, and the "friendly measures" to help companies create jobs does not work out the way they intend to be. Yet, the cut measures are very efficient. The education and public care facilities are the first to tumble....the VAT increase make no one, the poor and the rich , to escape.

So, what Austerity means? Are the knives on the neck of the right head?

A brief visit to London

Last week, I had a trip to London-Oxford-Cambridge, several observations come to my attention.


(New Updates: Apr. 22, 2013)
Here comes an interesting News coverage of Pret a Manger on Bloomberg. For visitors to London, you might love it. ;)