Tasty metaphors for Chinese economic perils

ONE OF THE true original thinkers on the “Whither China?” question is Andy Xie, whose views gleefully fly in the face of conventional wisdom on what is going on in the world’s second largest economy.

Xie was Morgan Stanley’s Asia-Pacific economist, but left in 2006 after the leak of an internal email in which he criticised the Singapore government. Since then he has been an independent consultant and economist, based in Shanghai.

Xie (right) is a terrific writer. In one story on his Bloomberg blog, headlined “Chinese Real-Estate Bust Is Morphing Into a Slow Leak”, he leads off with a recipe for the Shanghai delicacy hairy crab. He compares property speculators with the crustaceans, pointing out that neither knows it is in trouble until it is placed in the pot and the fire lit under it.

Unsurprisingly, his comments irritate scholars and cadres alike here in China. Over the years he has been astute in calling bubbles, from the dotcom boom to the US property market, and recently he has been bearish on the outlook for China’s property market. He says China is experiencing the largest property bubble since Japan’s two decades ago, and that the fallout could be even worse.

In an article in the Hong Kong South China Morning Post, Xie wrote that even if the Chinese government removed curbs aimed at cooling the market, it was unlikely ever to reach boom levels again.

“While Japan’s price bubble was severe, things may be more serious in the Chinese market because there are distortions in both volume and prices,” he wrote.

He says China has more housing than it needs: its living area per capita for more than 650 million urban residents is already higher than in Europe and Japan.

When the restrictions are lifted, which Xie thinks will happen over the next year or so, the market won’t revive. That will crush the hopes of the speculators who are holding empty properties, which may cause the market to crash.

However, ultimately, the restrictions will help to engineer a soft landing for the broader economy. To illustrate this, Xie uses another cooking analogy. “Like a frog being boiled alive, the speculators will never jump. Eventually, they will swallow all the losses and sell at prices that working men and women can afford.”