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I have almost never used the word "crisis" with regards to anything China because I believe the word to be radically over used in all circumstances but as we look at a Q4 significant slowdown/drop in activity in China, I think there is important asymmetry that is overlooked 1/n
After 2008, developed markets have suffered from financial PTSD and everybody is trying to outdo each other to predict the next crisis. Every metric is compared to 2008 but in reality, financial crises in developed markets are rare events. What is more likely is a recession 2/n
I'm not saying a recession will happen in either 2019 or 2020 but that is a higher probability event than a crisis. If Trump presides over a recession, we vote him out, move on to the next President and life goes on. That's not the risk profile facing China and Beijing 3/n
Just economically, with so many indicators by official metrics stretched very thin, what would happen if China suffered a full blown recession? What would happen to asset prices, specifically homes? What would happen socially if unemployment doubled in a year? 4/n
What would happen politically to the social contract between a populace and ruling Party that built is bona fides upon providing economic growth? In short, the macro risk from a recession in the US or other developed market is effectively zero. The macro risk in China 5/n
from a recession is ENORMOUS. You ever wonder why Beijing refuses to let growth drop? It is because of this asymmetry is risk profiles. Their is massive economic and political risk to a recession that is much higher in China than the US or other countries. Done.
