Why is it worth listening to Jim O’Neill, presently Chairman of Goldman Sachs Asset Management?
Mr. O’Neill’s pronouncements are news; they are reported by Bloomberg, for example. Is this just the usual guru-worship? I think not. Despite my general scepticism about both gurus and investment-bank analysts, I think that Mr. O’Neill has realised the value — the marketing value, that is — of being early. He is prepared to use market and other high-frequency data to make early calls on the state of the world, before more formal data releases confirm his beliefs. When he is wrong, he is forgiven (for such a “senior” person, he is viewed as a bit of a scamp). When he is right, people think he has been brilliant. And, of course, he has been brilliant — sticking your neck out and taking a view is part of what it takes to be brilliant.
So when Mr. O’Neill says that Chinese growth should be expected to slow, I start to wonder why he has said it, and have tried to think of some reasons:
- Commodity prices have been rolling over since the start of the year. China is a — the — big buyer of commodities.
- The trade surplus has bounced back from what was probably a seasonal drop, but it does look limp compared to recent history.
- The appreciation of the currency means that Chinese exporters are probably still getting lower CNY prices for their products. (Update: here is a quick-and-dirty graph of Chinese export inflation in CNY).
- At the same time, commodity and labour-cost inflation will be squeezing margins from the other side. This is not a good situation for an investment-driven economy.
- There are signs that China may be getting serious about using monetary policy to slow its bubble economy — also bad for investment, especially the credit-driven local-authority investment that has been driving GDP growth recently.