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China Olympics 2008: Boom or Bust?

Posted August 16, 2008

J. Christoph Amberger on Smart TradingWith all the hype during the run-up to the 2008 Beijing Olympics, has China set itself up for a bad fall? What will happen once the games are over? J. Christoph Amberger sees a grim future for this Asian tiger.

Watch the video now.

Laura Cadden: Beijing planned the Olympic Games of 2008 to be the ultimate event. A suitable coming out party for the new and economic and military super power of China. Have the games lived up to expectations? And what’s next for the Chinese economy?

My guest today is J Christoph Amberger, publisher of TodaysFinancialNews.com and editor of Hot Stock Confidential.

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J. Christoph Amberger: Well, 2008 was supposed to be the super year for China but so far it’s looking like it’s been the hit-and-run victim of a vast cosmic conspiracy.

First we had the earthquake. We had the pollution. We had the Tibet brouhaha during the torch carrying through Europe and South America.

It’s not shaping up the way China had envisioned. So right now China is in desperate straits to pull off these games as being the one saving grace of this entire year.

Laura Cadden: If they do pull off the Olympics well, what effect will it have on the Chinese economy?

J. Christoph Amberger: The Olympics are an expensive business and most countries who have put on Olympic Games have paid through the nose — and their taxpayers have paid for decades. I believe China is probably the most egregious example of that.

It’s not just the direct costs incurred for staging the games, the building costs, the infrastructure and so on. It’s also the indirect costs. Those that never make it into any official tally. It’s the factories that have been idled. It’s the people, the work forces who have been taken out of their work days and made to practice standing in line not spitting and politely applauding.

It’s all those indirect costs. They’re not driving. They’re not breathing. There are restrictions on every day life that really have created billions and billions of additional costs that will never show up in any official reckoning, but still have to be paid somewhere.

So I believe the Olympic Games are probably the apex of the China boom that we have seen in the last decade. I think we have considerable downside from here.

Laura Cadden Watch this video.

Laura Cadden: Certainly the Shanghai stock exchange has dropped 50% in a year. You don’t think this trend is going to reverse any time soon?

J. Christoph Amberger: I don’t see how a 50% collapse in a stock market can be made up overnight. You have to consider that a lot of the bullish momentum that propelled Shanghai was created by normal Chinese investors who took money out of savings, put it into stocks in the expectations of becoming rich. Those people who pulled billions every week out of savings and put them into trading accounts have been left high and dry. In some cases, wiped out entirely and in some cases half or even three-quarters of their savings have been destroyed.

That is certainly one aspect that will guarantee that there’s not going to be a revival boom anytime soon.

The second aspect is that Chinese industry really is suffering right now. They have been hit hard by the high Yuan-dollar exchange rate. They have been hit hard by the energy costs. Chinese export industry has always operated on the tiniest of margins which are now made even tinier by environmental legislation, work legislation, labor disputes.

So the maturity of the Chinese economy, which we are approaching, will bring with it all the hidden costs that make China an expensive destination to be in for a company.

So I believe the attraction of China for foreign companies will be limited, which again will reflect negatively in GDP growth and so on.

Laura Cadden: If the downturn in China deepens, what affect do you think that will have on the global economy?

J. Christoph Amberger: China, of course, is part of the global economy and any downturn there is going to be reflected especially in Asia right now. Let’s not forget that China may have a trade surplus with the U.S. and Western Europe, but it also has horrendous trade deficits with many Asian and African countries.

In Australia, for example, China buys the commodities that they turn around and then sell as export products.

I definitely think that any downturn in China will be reflected immediately in lower demand for key commodities: oil, gold, copper, building materials and will lead to a further collapse in the commodities boom that we have seen over the last month.

Laura Cadden: So what assets would you consider to be safe?

J. Christoph Amberger: Well, that’s a good question. Again, taking a more global perspective, America, in all probability, will be welcoming a Democrat as a president whose platform so far has indicated that he will be hostile to business, hostile to investment in the form of increasing costs, increasing taxes, making risk less worthwhile.

So where do we go from here? Actually this may be the one saving grace for China for and Arab countries. If even half of the Obama program points are applied, we will see (as I have implied here before) an increased wave of corporate emigration from the States into Arab countries, into China, into Hong Kong — a shifting of tax bases, which is not good for the U.S. economy, either.

At this point, I’d almost say it’s probably the safest to be in cash and — if the energy situation is straightening out, if commodities come down further and the inflationary pressure is eased here — I’d actually be in the U.S. dollar and shorting the Euro and the Yuan at this point.

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